Xi trumps Trump and cripples global supply chains

China’s leader ‘must be encouraged at just how weak the response has been to rare earth’ restrictions

China’s ban on rare earths has sent shockwaves across the United States, Europe, and Asia. The decision to freeze shipments of critical minerals threatens to bring auto production and other vital industries to a grinding halt.

Amid escalating trade tensions with Washington, Beijing has imposed a strict licensing policy on rare earth exports and magnets. These are key components in today’s high-tech world and are crucial in the production of electric vehicles and household electronics.

In short, China’s chokehold on materials essential to modern technology will cripple global supply chains critical to automakers, aerospace manufacturers, semiconductor companies, and military contractors.

It also risks fracturing the fragile US-China “trade truce,” the Wall Street Journal reported.

“The US and other major economies are at [Beijing’s] mercy when it comes to rare earth magnets, and will be for the foreseeable future,” China expert Bill Bishop pointed out in his Sinocism newsletter this week.

“[It will take] a Manhattan Project-like effort from the US and perhaps some key allies. Even then, the time to fix the problem would be measured in years, not months,” he said.

Automotive suppliers will be unable to produce critical components.

Alliance for Automotive Innovation

Behind the news:

Delve deeper: In April, President Xi Jinping’s ruling Communist Party suspended exports of a wide range of rare earths amid China’s trade war with the United States. This was in response to US President Donald Trump’s eye-watering tariffs on Chinese imports.

Between the lines: “I can assure you that [we are] actively monitoring China’s compliance with the Geneva trade agreement,” White House spokeswoman Karoline Leavitt told the media earlier this week, referring to May’s summit in the Swiss city.

Big picture: Last month, the Alliance for Automotive Innovation issued a stark warning to the Trump administration. The organization represents General Motors, Toyota, Volkswagen, and Hyundai. Other major automakers are just as alarmed.

Bottom line: “Without reliable access to these elements and magnets, automotive suppliers will be unable to produce critical components,” the Alliance for Automotive Innovation stressed in a letter.

China Factor comment: As Sinocism founder Bishop made clear, “Xi must be encouraged at just how feckless and weak the response has been to China’s rare earths leverage.” Put simply, Xi has trumped Trump with the rest of the world just collateral damage.