The rumor that China might play its “rare earth card” was the rumor today that helped push down both stock and oil markets according to a variety of reports. The trigger for this seems to have been a visit on May 26 by China’s president, Xi Jinping, to a rare earth facility, along with some rumbling statements associated with that visit. They may not do it, but the possibility of blocking exports to the US of exports of rare earth metals shows that China has potential weapons if Trump follows through with more vigorous trade barriers. How serious is this threat?
It is probably not as serious as it might have been a decade ago. In 1990 a solid majority of these critical elements were produced outside of China, with the US being a major source, particularly California. But production here and in some other nations such as Australia was reduced substantially as mining of many of these involves substantial environmental damage. At the same time China entered the opening and expanded production, getting to be the source of about 90 percent of all production by 2010. However, due to events then increased efforts to increase production of them elsewhere, especially Malaysia, Australia, and South Africa, has reduced this to 70 percent.