Russell: China-US deal pushes rare earths to the back burner

Although the tentative agreement between the United States, and China represents a step back from the worst case scenario of a complete collapse of trade between two of the largest economies in the world, it actually creates more issues than it fixes.

The agreement is subject to final approvals from both sides. President Donald Trump called it a "great bargain" that would be beneficial for both countries.

"We're going do well, because we have everything we need." "And hopefully they're too," Trump said to reporters before attending a concert at Washington Kennedy Center on Wednesday night.

Although not all details have been disclosed, it appears that the deal will hurt both economies and won't solve pressing issues such as China dominating the rare earths industry.

The United States will impose a tariff of 55% on imported goods from China. China may levy a 10% tax on purchases made from the United States.

The tariffs are still a significant increase from the 25% that were in place on imports of China when Trump returned to his White House at the end of January.

Tariffs of this level will likely cause trade to contract, while increasing inflation in the United States and lowering economic development in both countries.

If Beijing keeps 10% tariffs on the import of U.S. energy products, they will be high enough that virtually no U.S. coal, crude oil or liquefied gas will enter China. This would eliminate one of the very few products China can buy in large amounts from the United States.

There's also a question about whether tariffs alone will encourage more manufacturing to take place in the United States or if they will only cause some production from China to be moved to countries that have lower import duties.

Trump singled out rare earths in his praise of the trade agreement, stating that China would provide the metals found in many electronic devices and vehicles "upfront".

The deal is not enough to resolve the problem of Chinese dominance in the supply chain for rare earths, magnets, and other refined metals like lithium and cobalt.

The agreement reached this week, at best, is a deal that kicks the can down to the road, as it prevents a crisis in manufacturing for the United States. However, Beijing could threaten supply again if future problems arise between the two parties.

China controls 85% global rare earths refinery, which has benefited Western companies because they were able to obtain the metals for prices that were much lower than they would have paid if they had mined and processed the elements themselves.

CRITICAL MINERALS

Rare earths is an example of a wider problem associated with critical minerals.

You can designate minerals as being critical but if nothing is done to secure the supply chain you have to seriously question how important they are.

Although it is difficult to find economic deposits, rare earths are not really that scarce.

The same is true for copper, cobalt and a variety of other metals, which many governments consider critical.

Western companies and countries have not yet committed funds to developing supply chains outside China for minerals and refined metals.

The companies will not develop new mines or processing plants if the prices are set by China, because very few projects can be economically viable.

The governments have not been quick to develop policies that support new supply chain, such as ensuring offtake at high enough prices to justify investment or providing loans or incentives.

The world is still dependent on China for its metals. This will likely continue until governments begin to do more than talk.

China's latest discussions with the Trump Administration will also have taught it a lot.

Trump may have said that the United States does not hold all of the cards. Beijing also has a few aces in its pocket.

Overplaying your hand is dangerous. Beijing risks losing its trump card if it continues to use rare earths. The West may then spend the money necessary to create their own supply chain.

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These are the views of the columnist, an author for.

(source: Reuters)