US-China Trade Relations and Rare Earth Metals
Recent developments in US-China trade relations have seen progress towards easing export controls and mitigating the impact on supply chains for critical materials used in various industries, including fighter jets and electric vehicles.
Background on US-China Trade Tensions
- Since 2018, the US has imposed restrictions on the export of high-tech items to China, aiming to limit China's technological advancements.
- This year, the US increased tariffs on Chinese goods to 145%, prompting China to retaliate with 125% tariffs on US goods and licensing requirements for rare earth metal exports.
Current Trade Agreements
The mini-deal agreed upon in Geneva aims to reduce trade tensions by easing tariffs and export controls. China is issuing six-month export licenses, allowing time to assess the situation before extending them.
Impact on Global Supply Chains
- The supply chains have been disrupted, especially during the COVID-19 pandemic, prompting the "China plus one" strategy to diversify supply sources.
- China controls approximately 90% of global rare earth metal supplies, using its pricing power to maintain dominance.
Strategic Considerations
- Countries are reconsidering their dependence on foreign supplies of critical materials. Developing alternative sources is challenging and time-consuming.
- Maintaining good diplomatic relations with key suppliers like China remains crucial for steady supply.
- The medium and long-term strategy should focus on vigilance against monopolistic powers and fostering collaborations with friendly countries.
Conclusion
While self-reliance in strategic sectors is tempting, pursuing mutually beneficial collaborations is a more pragmatic approach. These insights reflect personal views and not the official stance of Business Standard or its affiliates.
