China’s Strategic Response to US Tariffs on Critical Minerals

In response to US tariffs, China has expanded its export controls to include several medium and heavy rare earth elements. Announced on April 4, 2024, these new controls focus on materials such as samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These minerals are vital for high-tech and defense applications. The move could have significant geopolitical and market effects.

The Impact of China’s Dual-Use Export Control Scheme

China’s export controls align with its dual-use item management scheme, strengthened by new legislation in October 2023. These materials are “dual-use,” meaning they can serve both civilian and military purposes. The Ministry of Commerce now requires exporters to provide detailed documentation confirming the end-user and intended use. If there are any changes, exporters must halt shipments. This change builds on previous efforts to regulate strategic materials, such as gallium, germanium, and graphite.

The extended export restrictions are largely seen as a response to the US’s 34% tariff on Chinese goods, announced in early April. China’s role in the rare earth market continues to grow. These export controls will likely worsen the already tense trade relations between the US and China.

Strategic Implications for the Rare Earth Market

China controls over 90% of the global supply of rare earths. This makes its decisions crucial for industries worldwide. In January-February 2024, China’s rare earth shipments dropped by 3% compared to the same period last year, according to customs data. The US, aware of its dependence on these materials, is working to boost domestic production and secure alternative sources, like those in Greenland.

Market reactions have been mixed. Many experts expected China to hold off using rare earths as a “last card” due to their importance. However, these export controls show China is ready to use its dominance in the rare earth sector. This policy will likely strain the supply chain and could raise prices for critical materials like antimony and bismuth, which have already seen price increases following earlier export restrictions.