Mountain Pass Materials exports semi-finished products containing rare earth metals to China. In China, after processing them, they receive neodymium, cerium, lanthanum, europium, and other elements that are used in magnets, electric cars, smartphones, and other electronics products as well as a multitude of industrial components.
Most of these rare metals, which are derived from American raw materials, are later sent back to the United States. Chinese tariffs launched in response to the trade war with the United States will increase the competitiveness of similar ore concentrates produced in China, which means they will make the supplies to the Chinese market for semi-finished products from the United States unprofitable.
Mountain Pass's partner in China is Shenghe Resources Holding, a producer of rare earth minerals from Chengdu. Its shares are listed on the Shanghai Stock Exchange and the Chinese company owns about 10% of Mountain Pass Materials. It provides technical advice and acts as the main distributor of Mountain Pass products in China.
In the context of a trade war, fears are growing in the US that China, which accounts for 80-90% of the world market for rare earth metals, may use its position to reduce exports of these products to the US.
As an alternative to Chinese imports, the US is considering the possibility of independently producing rare earth materials from ore. A recent deal between Texas-based Blue Line Mining and the Malaysian-Australian company Lynas is supposed to partially reduce the impact that a trade war with China would have on the US market for rare earths.
In the event of a break in the supply chain of this crucial raw material, the partnership with Blue Line Mining will also be called into doubt. At the same time, the anticipation of China's response to the US actions has added additional nervousness, both in the US and in global markets.
Chen Xiaoqin, an expert at the Renmin University of China, noted that if Americans could find an alternative to buying rare metals in China, they would have done it a long time ago.
"I believe that at the moment, China will not adopt restrictive measures related to the reduction of exports of rare earths or even the complete suspension of their exports. Since the United States really needs our rare earths, and this need is growing, we shouldn't consider the option of completely restricting exports," he noted.
The expert also said that "if the export of rare earth materials is completely stopped, we will ruin our relationship with the United States for good. In addition, if we do it now, and they take even more stringent measures in the future, then we will no longer have any means for retaliation. We can use rare earths as a trump card in negotiations with the United States. Can the US find a replacement for Chinese rare earth metals? It's not a fact. I think that if the US could find alternative supply sources, they would have done it long ago."
Finding an alternative to the current production chains of rare earth materials is quite difficult for both parties, Mikhail Belyaev from the Russian Institute for Strategic Studies said.
"China, of course, is looking for answers to the US trade war and is trying to defend its interests, but it is also suffering losses. However, China has already stated that it was ready for this war, and that it has alternative ways of influencing the US," according to him.
The expert believes that we can start to talk about a new round of the US-China trade war in the event that the contradictions really affect the market for rare earth metals.
Previous disputes between China and the United States, Japan and the EU in the field of trade in rare earths were resolved in the framework of the WTO. Meanwhile, the administration of Donald Trump has dealt a severe blow to the authorities of this organisation, so one can hardly count on the effectiveness of its position if it still has to intervene in the trade war between the US and China in the segment of rare earths.
The views expressed in this article are solely those of the speaker and do not necessarily reflect the official position of Sputnik.