China’s rare-earth strategy may be a high-risk move
Special points to highlight in this report:
- Beijing’s export controls on rare earths may be part of a very high-risk strategy to manage China’s position in the global trade conflict. Because deficit countries are usually in a much stronger position in a trade conflict over the medium term, Beijing’s strategy may be to hit hard in order to win in the short term.
- Whether this strategy works will depend on two things. First, and most importantly, Washington’s erratic tariff program must continue to fail to resolve the US trade imbalance, with the US trade deficit either remaining very high or—as is currently the case —continuing to grow. Second, domestic pressures should quickly force the Trump administration to back down.
- As Beijing clamps down further on the involuted sectors of the manufacturing industry, we are likely to see investment, credit support and subsidies spread to the following manufacturing sectors: steel, nonferrous metals, petrochemical, chemicals, building material, machinery, automobile, electrical equipment, light industry, and electronic information manufacturing industries.
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