China’s export curbs on rare earth minerals worry Europe

China is flexing its economic muscle in more senses than one. Its decision to restrict exports of the rare minerals and magnets has sent shivers down the spines of global automakers in Germany and in the United States.

Rare earth minerals are needed in key sectors like car manufactures, semi-conductor industry, aerospace industry. The Chinese possess half of the global rare earth mineral reserves. The Chinese decision was mainly to counter US President Donald Trump’s refusal to export crucial computer chips needed for AI, and the US’ refusal to allow imports from Chinese chipmaker Huawei.

More importantly, what has angered the Chinese is the refusal of student visas to Chinese students, and the cancellation of the visas of those who are students in American universities. Europe is caught in a crossfire in the trade war between the giants, the US and China.

Europeans, as well as Americans, have suddenly realised that it is not such a good thing to depend on China for either rare earth minerals or even manufactured goods including cars. The West is desperately looking to reduce its dependence on China and it is seeking to diversify its supply chain. European Union (EU) Commissioner for Industrial Strategy Stephane Sejourne said, “We must reduce our dependencies on all countries, particularly on a number of countries like China, on which we are more than 100 per cent dependent.” Meanwhile EU Trade Commissioner Maros Sefcovic said that he was in touch with his Chinese counterpart and they had agreed to clarify the rare earth minerals situation. Major automakers like Mercedes and BMW are claiming that they have enough inventories and their production schedules will not be affected. But it is clear that shortages are looming on the horizon.

The US-China trade talks are quite crucial, even as American President Donald Trump wrote on his social media platform, Truth Social, “I like President Xi of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH.”

Trump is blaming China for breaking the deal made in Geneva to roll back the tariffs that each side had imposed on the other, Trump reduced the tariffs from 145 per cent to 30 per cent, and China reduced it from 135 per cent.

Mercedes-Benz production chief Jeorg Burzer said he was talking to top suppliers of the company about building “buffer” stocks anticipating trouble in the future. He said that Mercedes is well stocked for now and production schedules are not affected.

But automakers in Europe and America have aired their worries about the curbs on Chinese exports of the rare earth minerals. Many of the captains of industry are lobbying with their governments to solve the deadlock. Wolfgang Weber, CEO of Germany’s electrical and digital industry association, ZVEI, said in an emailed statement, “Companies currently feel abandoned by politicians and are partly looking for solutions to their difficult situation on their own in China.”

Trump’s declaration of the tariff war against America’s trade partners had mostly caused quiet murmurs, and many countries from the EU and other countries like Japan are trying to work out a trade deal without crossing swords with the US. But China was not willing to take Trump’s tariffs passively. It is aware that it has power enough to counter American tariffs with tariffs of its own.

The Chinese have always been defiant of the Western world, even when they did not have the economic power they now have. There is of course the harsh fact.

China needs the Western countries to maintain its economic growth. It is its exports to Western countries that have made it rich and powerful. Europe and US need the cheap labour of China, and China needs the Western markets. They have to strike a deal with each other.