Taiwan, China, the US, and the Rare Earth Conundrum

In today’s Money Morning…China’s last-minute curveballs…common ground for rare earths…the Australian alternative…and more…

It looks like the political clash between the US and China is back!

Picking up right where things left off at the very end of 2019.

Perhaps it’s a sign that the world is moving into some sort of pre-pandemic normalcy. Back to when the big macroeconomic story was the trade war.

I’m sure we’d all like to turn back the clock to late 2019 for a do over. But alas, that is simply wishful thinking now…

However, that hasn’t stopped tensions between the US and China firing up again.

With the US election now just days away, the world is watching and waiting. But that didn’t stop China from throwing a few last-minute curveballs.

The Middle Kingdom has announced sanctions on some of the US’ biggest arms dealers. Rebuking Lockheed Martin, Boeing, and Raytheon after a recent sale of weapons to Taiwan.

Naturally, China saw this as a direct threat to their sovereign claim over the island nation. As the Global Times reports:

The spokesman reiterated that the US weapons sales to the island of Taiwan have severely violated the one-China principle and the provisions of the three China-US joint communiqués and seriously undermined China’s sovereignty and security interests.

China firmly opposes this and strong condemns it.

With scant details though, the question now is what these sanctions may involve…

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Common ground for rare earths

This time last year, rare earths were dominating headlines. Stealing the limelight for the first time since 2015.

All because the US was worried about China’s near monopoly on production.

It has long been estimated that 80–90% of all rare earths come from China. A concentrated supply chain that the rest of the world is now uneasy with.

After all, these rare earths have long been crucial materials — even if they’re used sparingly. Nothing else compares to the unique properties they can provide. Such as their incredible magnetic force.

They are a key ingredient in a plethora of modern technology. Found in electric cars, missile guidance systems, and even the phones that we use every day.

Rare earths are a crucial resource for the modern world. Which is precisely why they’ve been earmarked as possible leverage in these sanctions.

So, if China threatens to limit everyone else’s access to them, you can see why that would be a problem. One that Trump in particular isn’t going to stand for without a fight.

Because whether he wins a second term or not, Trump knows how important rare earths are. He even released an executive order on the matter on 30 September. A declaration that wasn’t mincing words, just look at the title (emphasis mine):

‘Executive Order on Addressing the Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries

No ifs, buts, or maybes about it — Trump is not willing to see China strongarm the US like they are. And he has already laid the groundwork to change the dynamics.

The Australian alternative

Like I said, this time last year this matter was already gaining traction. Even before the threat of any sanctions.

That lead to a monumental deal between local rare earths producer Lynas Corporation Ltd [ASX:LYC] and the US government. With a plan to not only supply the minerals, but also establish a new supply chain in North America.

However, this issue doesn’t just begin or end with the US. As the Sydney Morning Herald notes:

Rare earths miner Lynas Corp said it is actively engaging with governments [plural] over plans to ease China’s grip over the crucial sector…

Europe for instance is also coming to terms with this materials challenge. With key organisations already exploring options just as the US has done. Take this insight from the EU Bulletin:

The European Commission has launched a fresh attempt at securing access to minerals like lithium and rare earth elements, stressing that those will be critical to underpin Europe’s growth in digital and green industries.

To boost Europe’s “strategic autonomy”, the EU executive’s strategy ultimately aims to develop a full value-chain for critical raw materials on the continent — ranging from extraction to processing and waste recovery.

In other words, the world is realising that it can’t rely on China anymore. If they want access to rare earths, they need to secure their own supplies.

But building an entire, autonomous industry isn’t something that happens overnight. That’s precisely why the US has enlisted the help of Lynas. Not just for their expertise, but also to fulfil any shortfall in supply while they build out their own production.

And I doubt they will be the last.

There are plenty of other rare earths projects dotted across Australia. Including listed miners and explorers such as Alkane Resources Ltd [ASX:ALK], Hastings Technology Metals Ltd [ASX:HAS], and RareX Ltd [ASX:REE], to name just a few.

Coincidentally, all three have enjoyed some serious share price gains in recent months too. A sign of what may be to come as the world turns its back on Chinese rare earths.

Creating an opportunity for our local industry to meet demand.

Because one thing is for damn sure, rare earths are not going away anytime soon. They’re too important and too unique for that.

Now it is simply a matter of where the world is going to get them from…

Regards,

Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

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