China’s dominance in rare earths makes U.S. supply chains vulnerable, U.S. Trade Representative Katherine Tai said in an exclusive interview Saturday with CNBC’s Martin Soong.
Rare earth metals are utilized in high-tech products similar to electric automobile motors. Over the a long time, China has built up its ability to process the metals — giving it enormous pricing power in a critical global market.
“What I would like to attract your attention to shouldn’t be just the vulnerabilities around China’s investments [overseas], however the undeniable fact that China’s dominant position on the earth market now in [rare earths] implies that it’s capable of activate the tap and switch off the tap,” Tai said.
“And until we’re capable of access and create additional supply chains we remain entirely vulnerable to that leverage,” the U.S. trade representative said. Tai was speaking in Recent Delhi, India, on the sidelines of B20, the official business dialogue forum of the G20.
Tai identified that a couple of decade ago, China raised rare earths prices so high that some U.S. mines were capable of operate within the industry again, only to should close once China cut prices.
The U.S. held a majority stake within the rare earths metals market prior to the Nineteen Eighties. But lower labor costs overseas, in addition to less pressure on environmental standards, helped send the rare earths industry out of the U.S.
Meanwhile, Beijing supported the industry.
“The advantage when it comes to China’s dominance is not necessarily a natural advantage,” Tai said. “It is not that they’ve more rare earths but that they were capable of pursue coordinated industrial and trade policies that allowed them to corner the market.”
The Chinese government sets economic plans not less than every five years, with some goals — similar to boosting self-sufficiency in technology and reaching carbon neutrality — set years earlier upfront.
While such top-down planning is not guaranteed to realize results, the electrical automobile industry has grow to be an example of where Chinese industry has been capable of capture significant market share across the availability chain, including the tip product.
The extent of U.S. reliance on China-based manufacturing got here to the forefront in the course of the Trump administration, and accelerated when the Covid-19 pandemic in 2020 disrupted global supply chains. The Biden administration has announced multibillion-dollar initiatives to encourage corporations to develop and manufacture critical technologies within the U.S.
“Where we’re when it comes to our supply chains today shouldn’t be where we would like to be,” Tai told CNBC on Saturday. “We all know that we’re vulnerable. Where we would like to be is in a spot where our supply chains are more diversified, where we’ve more confidence in them, where we just have more options.”
Within the case of rare earths, Tai identified that China has a monopoly in the worldwide market. She noted that within the case of Australia’s lithium production, China can also be the one buyer — giving Beijing one other point of market leverage.
While lithium is a key component of electrical automobile batteries, it is not one in all the 17 metals scientifically categorized as rare earths.
This 12 months, U.S. and European government officials have talked of de-risking, or reducing the extent of dependency on China alone. In a speech to global business leaders in June, Chinese Premier Li Qiang said de-risking is a false proposition because global economic interests are so entwined.
‘Phase one’ trade agreement
Just before the pandemic began, the U.S. and China signed a “phase one” trade agreement which called for China to extend its purchases of U.S. goods as a strategy to offset the huge U.S. trade deficit with China.
When asked Saturday about where the agreement stands, Tai said the U.S. continues to be China’s shortfalls in meeting those purchase targets.
She said one other aspect to that discussion is the degree to which U.S. trade with China is “imbalanced.”
Official U.S. data said the country’s trade deficit with China rose by 8.3% to $382.9 billion in 2022.
U.S. Secretary of Commerce Gina Raimondo is about to go to China from Sunday to Wednesday, as high-level U.S. official trips to the country have resumed this summer after a lull.
U.S.-India relations
Tensions between the U.S. and China have escalated over the past several years, starting with trade and spilling over into tech and finance.
Many businesses have increasingly began to search for opportunities in India, while the country’s relationship with the U.S. has improved.
On Saturday, Tai also met with India’s Minister of Commerce and Industry Piyush Goyal, and raised concerns about India’s import license requirements for tech equipment, a release said.
“The celebrities really are aligning between the USA and India and that is across all the policy areas,” Tai told CNBC. She described the connection as “experiencing recent heights.”
She said in her area of economics and trade, the potential for working more with India was at all times there, but previously, “we just couldn’t work out the right way to tap it.”
— CNBC’s Samantha Subin contributed to this report.