Why China’s threat does not bring any changes to the trade war game

China’s threat to halt the export of rare earth metals to the United States may not give Beijing much strength in the ongoing trade war between the world’s two largest economies.

While China is the world’s largest producer of rare earths – minerals found in a wide range of everyday consumer electronics – Beijing’s ability to use it as a weapon is somewhat limited, according to a number of analysts. It still remains questionable how China will regulate and ban rare earths, but some Wall Street officials say the move will not be a game changer in the trade negotiations.

“As a general rule, we believe that the impact on the United States will be mild”, one analyst said in a research note on Monday. He added that this would be “one reason why we are skeptical that Beijing would ‘pull the trigger’ on this particular threat”

The official newspaper of the Communist Party of China warned last week that Beijing may soon stop exporting rare earths to the United States. The threat came right after an increase in the US tariffs on the $200 billion worth of Chinese goods, which came into force at the end of last week.

Rare earths are a collection of 17 metals that are not really rare, but rather produced in relatively small quantities compared to the many other minerals such as copper. They have become more important in recent years because they are being increasingly used in high-tech equipment, defense manufacturing and electric vehicles.

China extracted 70% of these minerals in 2018, prompting some analysts last week to ask questions about the impact on the US industries that rely on these rare earths. But the United States accounts for only 9% of global demand for rare earths. This means that the United States spent only $160 million in 2018 on rare earths imports for manufacturing purposes.

Analysts declared that “The reason is fairly straightforward: the U.S. has only limited manufacturing capacity vis-a-vis the high-tech products that are most commonly associated with rare earths. Consumer electronics (PCs, smartphones, flat panel TVs) and various industrial goods (electric vehicle batteries, wind turbines, lasers, fiber optics) are simply not produced in the U.S. on the scale that they are in China itself and/or its Asian neighbors,”.