The latest US plan that includes rare-earth metals on its $200 billion tariff list will raise costs for American buyers and may even force China to fast track development of its own high-tech applications such as motors for such metals in a few years, analysts said.
After starting a trade row with China by slapping a 25 percent tariff on $34 billion worth of Chinese exports to the US, the Trump administration on July 10 rolled out a new tariff list that includes some rare-earth metals such as yttrium and scandium. These metals will be subject to 10 percent levies, if the proposed tariffs take effect in August.
Zhang Anwen, vice secretary-general of the Chinese Society of Rare Earths, said while the overall impact of US tariffs is not big, its aim could be part of a larger strategic move.
"US tariffs will, to a certain extent, force China to drive development in rare-earth applications, just as what happened in the chip sector," Zhang told the Global Times on Tuesday.
"For example, high-technology products, motors, batteries, electric power steering, airbags, sensors, auto parts and other products will use some rare earths. If efforts in this area are successful, in three to five years, China's rare-earth demand will fully cover the loss of the US market share," Zhang said.
Zhang noted that the domestic new-energy vehicle industry could be a major sector for such applications.
In addition, China's rare-earth exporters can consider expanding sales of China's rare earths to other countries. For example, Germany, France and other developed countries could make up the loss, Zhang said.
However, analysts warned that developing such high-tech applications takes time and China will need to solve issues such as product quality, stability, industrial standards and intellectual property rights.
"Chinese suppliers could hike prices to compensate for any loss caused by the tariffs, and US buyers will have to accept that," Wu Chenhui, a Beijing-based rare-earth analyst, told the Global Times on Tuesday.
Wu said as August announcement of a final decision draws near, Chinese suppliers and US buyers will be locked in a contest that tests their negotiation skills and market judgment.
Rare-earth metals are a group of 17 elements that share similar chemical and physical properties and are used in a variety of sectors, including defense and technology.
Chen Zhanheng, vice secretary-general of the Association of China Rare Earth Industry, said that the overall impact of US tariffs on the Chinese industry will be tiny.
"The US government has tried to impose tariffs on almost all Chinese resources exports, which will increase the cost of raw materials for manufacturing in the US," Chen told the Global Times on Tuesday.
"However, the US is a consumer, not a producer, of such resources. From this perspective, the tariff policy of the Trump administration has greatly exceeded the aim of protecting its own manufacturing industry. It's a bizarre action."
China produces more than 90 percent of global production and supply of rare earths on average in the past decade, according to media reports.
The US market accounts for about 30 percent of Chinese rare-earth exports by volume. The exported metals are mainly used to purify vehicle emissions and act as catalysts for the petroleum-cracking process, Chen said.
In terms of value, exports to the US accounted for 16 percent of the total Chinese exports at $340 million in 2017. "So the total trade value to be affected would be less than $60 million," Chen said.
