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China strikes back

17 February 2021

The USA has been conducting something of a trade war against China.

Key Chinese technology brands such as Huawei, DJI and others have been facing increasing levels of restriction, both in the ability to sell in the USA and also on the availability of parts and technology from US suppliers.

This has resulted in Huawei's smartphones shipping without the usual array of Google Apps and the company has actually developed its own OS called Harmony as a response to the US ban.

Other Chinese-made tech products now face special tariffs when imported to the USA which has made them less competitive than they otherwise might be.

Of course this has not gone down well with the Chinese government who, it seems, are preparing a response.

That response could be a huge blow to the USA's technology and defense industries.

That's because China has become the primary source for many of the rare-earth (RE) elements needed to build sophisticated hi-tech products.

In this ArsTechnica story titled China targets rare earth export curbs to hobby US defense industry it is revealed that advanced US defense technologies such as the F-35 fighter jet could be significantly affected by such a move on the part of China. Each F-35 apparently uses almost half a tonne of rare earth materials in its manufacture and any shortage of supply could have dire implications on the country's ability to continue manufacturing this strategic fighter asset.

China is not the only source of such materials but it is the only one to have sufficient production volumes and prices to meet demand. It seems that China has boxed very clever in the past and whenever another country has attempted to get into the RE market, the Chinese have simply dropped their prices and flooded the market to such an extent that the economics for any secondary supplier fall apart. Once the competition was destroyed, prices were then raised again by way of restricting availability.

Through this careful market manipulation, China has retained a strong-hold on the supply of materials such as neodymium, a crucial component of many modern electrical and electronic technologies and whilst other countries could step in to meet a shortfall, the delays could be significant and prices would also rise by a huge margin.

Chances are that the US and China will come to an accord over technology tariffs and blockades since neither side can really afford to escalate their positions much further -- but there are no guarantees of this. As we've seen so often throughout history, sometimes the reasoned, rational decisions are the ones least chosen.

Without an accord, the USA's ability to continue feeding its defense industry's demands for RE materials will fall woefully short and even the nation's growing reliance on renewable energy production and EVs will be significantly affected.

It seems we really do live in "interesting times".

I wonder of RE minerals could be "the new oil", in an era where we move to rapidly leave fossil fuels behind in favour of more environmentally sustainable technologies.

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