Pentagon produces secret plan to cut U.S. reliance on China for 'rare earth' minerals - essential for nuclear power plants and LED lights - after Beijing uses a coded message for WAR to hint it will ban exports
- Pentagon sends report to Congress on 'rare earth' minerals, almost all of which are imported from China
- Chinese state media warned the U.S. not to underestimate Beijing's capabilities
- It used a diplomatic term usually reserved by officials to signal the start of a war
- It also said it wouldn't be hard for Beijing to make a decision over rumored ban
- 'It's unarguable that the U.S. depends highly on the global supply chain,' it wrote
- The minerals are used in high technology applications vital to everyday life, from nuclear reactors to medical scanners
The U.S. Defense Department has submitted a report to Congress on rare earth minerals as it looks to reduce American reliance on China, the Pentagon said on Wednesday, amid mounting concern in Washington about Beijing's role as a supplier.
Although the Pentagon did not provide details of the report, it said it was tied to a federal program designed to bolster domestic production capabilities by offering 'tailored' economic incentives.
The move came hours after China hinted that a trade war with the U.S. could lead to real war with a coded warning as it threatens to stop exporting essential 'rare earth' minerals.
A commentary in People's Daily, the mouthpiece of China's ruling Communist Party, today said 'Don't say we didn't warn you!' - which is a diplomatic term usually reserved by Beijing to signal the start of an armed warfare.
China yesterday said it is 'seriously considering' restricting exports to the United States of rare earths, 17 chemical elements used in hospital scanners, nuclear power stations and LED lights.
China accounted for 80 per cent of rare earth imports between 2014 and 2017 to the United States.
'The department continues to work closely with the president, Congress and the industrial base to mitigate U.S. reliance on China for rare earth minerals,' Lieutenant Colonel Mike Andrews, a Pentagon spokesman, told Reuters.
The United States replies heavily on China for rare earth products. Beijing accounted for 80 per cent of rare earth imports to Washington between 2014 and 2017. Estonia is the second largest rare earth exporter to the U.S., accounting for just six per cent of the overall volume
China is considering banning rare earths being exported to the U.S., a move which would hit the cost of everything from LED lightbulbs to phones. Pictured are samples of rare earth minerals (from left) Cerium Oxide, Bastnasite, Neodymium oxide and Lanthanum Carbonate
China is by far the world's largest exporter of rare earth minerals, producing more than 95 per cent of the chemical elements used worldwide, or 120,000 tonnes every year
'The department recently submitted a Defense Production Act III rare earth mineral report to Congress, demonstrating the department's continued focus on reducing reliance on China,' Andrews said.
The DPA Title III program was designed 'to create, maintain, protect, expand, or restore domestic industrial base capabilities,' according to a defense department website.
The website noted that the program gives the U.S. president 'broad authority to ensure the timely availability of essential domestic industrial resources to support national defense and homeland security requirements through the use of highly tailored economic incentives.'
It was unclear if the Pentagon offered any new suggestions for economic incentives as part of the report to Congress.
The timing, however, is critical. The People's Daily column on Wednesday again hinted that China will use the natural resources to pressure Donald Trump in the trade war.
'Will rare earths become China's counter weapon against the unreasonable crackdown from the U.S.? The answer is not profound,' it said.
The article then went on: 'American companies have particularly high demand for rare earth products.
'At present, some people from the U.S. side are indeed fantasising about obtaining resources independently, but it's unarguable that the U.S. depends highly on the global supply chain.
Share this article
Chinese President Xi Jinping visits a rare earth company in southern China last week
President Xi learns about the production process and operation of the JL MAG Rare-Earth Co. Ltd. as well as the development of the rare earth industry in the city of Ganzhou
Trade war: Trump, who returned from Japan with the first lady Melania Trump on Tuesday afternoon, is facing a new threat from China in their escalating tensions
'Without doubt, the U.S. wants to use the products made with the rare earths imported from China to suppress China's development. Chinese people must not agree,' it continued.
The newspaper also stressed that China would prioritise its domestic demand on rare earth elements, which it billed as the 'vitamin for industries'.
President Xi Jinping visited a rare earth company in southern China last week, state media reported, lifting the shares of producers on speculation that this indicated Beijing was considering using the chemicals in the U.S. trade war.
The phrase 'Don't say we didn't warn you!' is often used by Chinese Communist Party leaders during or in the lead up to military conflicts.
It was famously used by Chairman Mao in 1949 during the Chinese civil war as he warned his enemies to leave Beiping, now known as Beijing, and surrender to the Community Party.
It also appeared in People's Daily columns in 1962 before China went to war with India over a disputed Himalayan border region as well as before the brief Sino-Vietnamese War in 1979.
Last April, China's Xinhua News Agency also used the phrase to caution Washington after it announced plans for imposing tariffs on about 1,300 Chinese products following an investigation into the Chinese foreign trade policies.
'Anyone who is familiar with Chinese diplomacy would know the weight of this sentence,' a commentary at the time said.
Rising trade tensions have led to concerns that Beijing will use its dominant position as a supplier of rare earths for leverage. People's Daily, the mouthpiece of China's Communist Party, today hinted that a rare earths ban may happen if Washington refuses to back down
China has two major rare earth bases, Bayan Obo in the north and Ganzhou in the south
Japanese industry sources said China temporarily cut off exports to Japan in 2010 when a territorial row flared between the Asian rivals, charges that Beijing denied.
China is the world's largest exporter of rare earths, producing more than 95 per cent of the chemical elements used worldwide, or 120,000 tonnes a year.
Beijing, however, has raised tariffs on imports of U.S. rare earth metal ores from 10 per cent to 25 per cent from June 1, making it less economical to process the material in China.
China has used rare earths as a cudgel before. Five years ago, the World Trade Organization slapped down China's attempt to restrict the export of rare earths, rejecting its claim that it just wanted to protect the environment and conserve supplies. Instead, the move appeared to be aimed at hurting Japan with which Beijing was having a diplomatic tiff.
Scott Kennedy, director of the project on the Chinese economy at the Center for Strategic and International Studies, said the Chinese might benefit even less if they try to weaponize rare earths again.
'It's not the threat that it was ... when the Chinese threatened to cut off the Japanese,' he said.
First, users of rare earths have stockpiled the minerals for a 'rainy day.' Second, they also have figured out how to 'use less rare earth to achieve the same results' in such products as lasers and magnets. And third, different minerals and chemicals are increasingly being used as rare earth substitutes.
Kennedy predicts that once investors have 'realized the threat wasn't as dire, markets would bounce back.'
Still, he isn't optimistic about the U.S.-China trade negotiations, which broke off May 10 after an 11th round of talks failed to produce an agreement. U.S. officials accused the Chinese of reneging on agreements they'd made in earlier rounds.
'The Chinese first are going to have to signal they will talk,' he said. Then they will have to go back to where they stood before they backpedaled on earlier concessions. 'I don't see any body language from the Chinese that they're about to do that,' Kennedy said.
