BEIJING - By going after its telecom champion Huawei, the U.S. has hit China where it hurts.
But Beijing’s control over the world’s supply of rare earths, used in smartphones and electric cars, gives it a powerful weapon in their escalating tech war.
A seemingly routine visit by President Xi Jinping to a Chinese rare earths company this week is being widely read as an obvious threat that Beijing is standing ready for action.
“We should firmly grasp the strategic basis of technological innovation, master more key core technologies and seize the commanding heights of industry development,” Xi said during the visit, according to a report by the official Xinhua news agency Wednesday.
“Rare earth is not only an important strategic resource, but also a nonrenewable resource,” he added, in comments likely to further fuel speculation.
However, analysts say China appears apprehensive to target the minerals just yet, possibly fearful of shooting itself in the foot by hastening a global search for alternative supplies of the commodities.
Xi’s inspection tour “is no accident — this didn’t happen by chance,” said Li Mingjiang, China program coordinator at the S. Rajaratnam School of International Studies (RSIS) in Singapore.
“At this moment, clearly the policy circles in China are considering the possibility of using a rare earth export ban as a policy weapon against the U.S.”
Last week the United States threatened to cut supplies of its technology needed by Chinese telecom champion Huawei, which Washington suspects is in bed with China’s military.
The U.S. move has fanned speculation that Xi could impose retaliatory measures. In an indication of the importance of rare earths to the U.S., Washington did not include them in a tariffs increase on Chinese goods this month.
China occupies a commanding position, producing more than 95 percent of the world’s rare earths, and the United States relies on China for upwards of 80 percent of its imports.
Rare earths are 17 elements that have become critical to manufacturing technology from smartphones and televisions to cameras and lightbulbs.
That gives Beijing tremendous leverage in what is shaping up largely as a battle between the U.S. and China over who will own the future of high-tech.
“China could shut down nearly every automobile, computer, smartphone and aircraft assembly line outside of China if they chose to embargo these materials,” wrote James Kennedy, president of ThREE Consulting, on Tuesday in National Defense, a U.S. industry publication.
China has been accused of using its rare earth leverage for political reasons before.
Japanese industry sources said it temporarily cut off exports in 2010 as a territorial row flared between the Asian rivals — charges that Beijing denied.
In 2014, the World Trade Organization ruled that the country had violated global trade rules by restricting exports of the minerals.
The case was brought by the United States, European Union and Japan, which accused China of curbing exports to give its tech companies an edge over foreign rivals. China has cited environmental damage from mining and the need to conserve supplies as the reason for its past limits on output.
While disruptive, any leverage gained from a supply block may be short-lived, experts said.
“This would accelerate moves to find alternative supply sources,” said Kokichiro Mio, who studies China’s economy at NLI Research Institute.