Joe Biden and China’s Xi Jinping are prepared to punish each other’s manufacturing sectors as diplomatic relations grow more tense. The Chinese are going to cut off a vital link in the U.S. supply chain and drive up costs for the tech sector.
China is banning all exports of rare earth mineral extraction technologies as well as rare earth magnet technology. Western countries are years behind the Chinese in mining for critical metals like cobalt, lithium, manganese and other metals used in semiconductor and battery manufacturing.
China will no longer export rare earth minerals germanium and gallium to the U.S. and allies. Both are considered “critical” minerals for military semiconductors. China produces well over half of these minerals so the Pentagon will need to seek exports from other countries.
Also: So-called “global heavy” rare earth minerals won’t be exported by the Chinese. Global heavy minerals like dysprosium are used in permanent magnet motors. China produces more than 99% of these metals, according to consultants Benchmark Mineral Intelligence.
Bottom line: Companies should expect to pay higher costs for the next two years, perhaps longer, for new tech products. American mining companies are hamstrung by federal regulations and restrictions imposed by the Biden administration.
Biden goes to bat for U.S. EV makers
To help even the scales, the White House is weighing higher tariffs on Chinese-made electric vehicles (EVs) and other products. The Trump administration previously raised export taxes on more than $300 billion worth of Chinese goods. The biggest beneficiary of the Trump tariff increases was arguably the steelmaking industry.
Chinese EVs coming into the country are already taxed at 25%. Raising the tariff further might give automakers like Tesla, General Motors and Rivian a shot in the arm. Such a move would likely hurt Chinese EV makers more since the Chinese people are reportedly huge fans of Teslas (not to mention Apple’s iPhones).
We’ll see if China’s rare earth minerals ban prompts the White House to move forward and raise tariffs, or perhaps seek to improve relations. Xi warned Biden that China will eventually take back Taiwan and intends to do so without sending in the Navy and Army to take the island.
The Chinese premier declined to give the White House more details or any kind of a timeline on when reunification might occur. China absorbing Taiwan would upend the semiconductor sector in favor of the East for a long time.
