China’s Dominance in Rare Earths Makes U.S. Supply Chains Vulnerable, Says U.S. Trade Representative

China’s dominant position in the global rare earths market makes US supply chains vulnerable, according to US Trade Representative Katherine Tai. Rare earth metals, which are essential for high-tech products like electric car motors, are primarily processed by China, giving them significant pricing power. Tai emphasized the need for diversified supply chains to reduce dependence on China’s leverage. In the past, China raised rare earths prices to a point where US mines were able to operate again, only to be forced to close when China cut prices. The US used to hold a majority stake in the rare earths industry but lost its position due to lower labor costs and less pressure on environmental standards overseas. China’s dominance in rare earths is not due to a natural advantage but rather coordinated industrial and trade policies. The Chinese government sets economic plans every five years, allowing them to capture market share in industries like electric cars. The US reliance on China-based manufacturing has become a concern, especially during the Trump administration and the disruptions caused by the Covid-19 pandemic. The Biden administration aims to encourage the development and manufacturing of critical technologies in the US to mitigate these vulnerabilities. China’s control over the global rare earths market extends to other metals like lithium. While efforts have been made to reduce dependency on China, de-risking is challenging due to the intertwined global economic interests. Tai also discussed the status of the “phase one” trade agreement between the US and China, highlighting China’s shortfalls in meeting purchase targets and the imbalanced trade between the two countries. She mentioned the improving relationship between the US and India, with businesses increasingly looking for opportunities in India. During her visit to India, Tai raised concerns about India’s import license requirements for tech equipment. The US and India are experiencing new heights in their relationship, particularly in the areas of economics and trade.

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