The rapid changes in the Administration’s tariff policies create the possibility that anything I write will instantly be out of date. Nevertheless, there is a new development that could have important ramifications for the production of many types of products in the U.S. Rare earths and magnets are crucial components in computer chips, smartphones, LED lights, electric vehicles, catalytic converters, wind turbines, television screens, radar systems, and some types of medical equipment. And, this is just a partial list of applications. As shown below, 70% of U.S. imports of these materials come from China. Moreover, imports represent roughly 80% of U.S. consumption.
In retaliation for the tariffs levied on their goods, China just imposed export controls on six critical metals as well as on magnets. Shipments of these materials have been suspended pending the development of a new regulatory scheme. The new regulatory framework could permanently prevent supplies from reaching certain U.S. companies, particularly military contractors. Alternatively, this could simply be a negotiating tactic that would allow for resumption of shipments should the U.S. relax its tariff policies.
While the ultimate outcome of our tariff wars is highly uncertain, it is very important for both parties to solve this particular issue in short order. As stated, these materials are critical to U.S. production of vital goods. Moreover, they represent a key export for China which would be loathe to lose its position as the world’s dominant supplier.