Trade Dispute with China and Rare Earth Elements
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June 28, 2019
Trade Dispute with China and Rare Earth Elements
Background
REE Dependency on China
Since 2018, the United States and China have been engaged
According to the U.S. Geological Survey (USGS), in 2018,
in a trade dispute resulting from U.S. use of Section
China accounted for 71% (and possibly higher due to illegal
301provisions (which deals with foreign trade barriers). The
mining, production, and smuggling in China) of global REE
dispute has led to several rounds of tariff hikes. The United
production in terms of quantity. Chinese data indicate that
States has imposed 25% tariff hikes on $250 billion worth
its REE exports totaled 53,518 metric tons, with a value of
of products from China while China has hiked tariffs on
$517 million. China’s top three REE exports markets by
$110 billion worth of U.S. products.
value were Japan (54% of total), the United States (14%),
and the Netherlands (8%). China also exported $1.7 billion
On May 10, 2019, President Trump directed the U.S Trade
worth of magnets containing REEs (including $201 million
Representative (USTR) to begin the processes of raising
to the United States), an indicator of the significance of
tariffs on essentially all remaining imports from China,
Chinese downstream industries that utilize REEs.
which it valued at approximately $300 billion. A week
later, the USTR published a list of Chinese products that
As indicated in Figure 1, China was the largest source of
could be subject to 25% ad valorem tariffs. The notice
U.S. REE imports in terms of quantity at 12,557 metric tons
specified that certain products, including rare earth
(or 74% of total). China was also the largest U.S. REE
elements (REEs), would not be included on the list.
supplier in terms of dollar value, at $82 million (or 56%) of
the total. (Some U.S. REE imports from non-Chinese
On May 20, Chinese President Xi Jinping made a
sources may have originated in China.) The consulting firm
publicized visit to a REE magnet facility in Jiangxi
Adamas Intelligence estimates that in 2018 China became
province. A May 29 editorial by Xinhua (the Chinese
the world’s largest REE importer (in terms of quantity),
government’s official state-run press agency) warned that
including $79 million worth of REE imports (largely REE
by “waging a trade war against China, the United States
ores and fluorides).
risks losing the supply of materials that are vital to
sustaining its technological strength.”
Figure 1. Top Suppliers of U.S. REE: 2018
Metric Tons
The back and forth on REE have increased concerns among
some U.S. policymakers over potential vulnerabilities to the
U.S. economy from China’s role as a major supplier of REE
and other critical materials. For additional information, see
CRS In Focus IF11226, Defense Primer: Acquiring
Specialty Metals, Rare Earth Magnets, and Tungsten, by
Heidi M. Peters; and CRS Report R41347, Rare Earth
Elements: The Global Supply Chain, by Marc Humphries.
What are REEs?
REEs consist of 17 elements (metals) that have unique
characteristics, such as magnetism, luminescence, and
strength. They have a wide range of uses, including in many
high technology industries and defense systems. Contrary to
the name, rare earths are not “rare.” Rather, they are
Source: USITC Dataweb.
relatively abundant in the earth’s crust, but are highly
scattered and usually found mixed together in other
Commercial Industrial and Military Uses
deposits. This makes it difficult to find REEs in a
of REEs
concentration high enough to be mined and separated
According to the USGS, the largest U.S. industrial uses of
economically. The United States was once a major producer
REEs in 2018 were for catalysts (at 60% of total); ceramics
of REEs from the mid-1960s until around the late 1980s
and glass (15%); metals and alloys (10%); and polishing
when China became a major low-cost producer and
(10%) (See Figure 2). Examples of industries that utilize
exporter of REEs. This, among other factors, caused many
REEs in production include advanced electronics (which
U.S. REE miners and producers to withdraw from the
involve magnets, batteries, phosphors, polishing, and metal
market.
alloys); medical equipment (magnets, batteries, phosphors,
and polishing); hybrid and conventional vehicles (magnets,
catalysts, and batteries); energy efficient lighting
(phosphors); steel (metal alloys); wind turbines (magnets);
and chemicals (catalysts). REEs have numerous military
https://crsreports.congress.gov
Trade Dispute with China and Rare Earth Elements
applications as well. According to a June 11, 2019, article
on REEs and two other minerals. Then U.S. Trade
in Foreign Policy, “Every advanced weapon in the U.S.
Representative Ron Kirk stated, “America’s workers and
arsenal—from Tomahawk missiles to the F-35 fighter jet to
manufacturers are being hurt in both established and
Aegis-equipped destroyers and cruisers and everything in
budding industrial sectors by these policies. China
between—is absolutely reliant on components made using
continues to make its export restraints more restrictive,
rare earth elements, including critical items such as
resulting in massive distortions and harmful disruptions in
permanent magnets and specialized alloys that are almost
supply chains for these materials throughout the global
exclusively made in China.”
marketplace.” In March 2014, a WTO dispute panel ruled
that China’s REE restrictions were inconsistent with its
Figure 2. U.S. Distributional Use of REEs: 2018
WTO obligations (the ruling was largely upheld by WTO
Appellate Body in August 2014). In May 2015, China
announced that it had removed the restrictions. In 2018, the
average price of U.S. REE imports from China was $6,530
per metric ton.
Trump Administration Action on REEs
In July 2017, President Trump issued Executive Order (EO)
13806, directing the U.S. Secretary of Defense (in
cooperation with other Federal agencies) to issue a report
Assessing and Strengthening the Manufacturing and
Defense Industrial Base and Supply Chain Resiliency of the
United States. The report, issued in September 2018, stated,
“China’s domination of the rare earth element market
illustrates the potentially dangerous interaction between
Source: USGS.
Chinese economic aggression guided by its strategic
industrial policies and vulnerabilities and gaps in America’s
Past Chinese Restrictions on REEs
manufacturing and defense industrial base. China has
Concerns over China’s dominant role as a global producer
strategically flooded the global market with rare earths at
and supplier of REE stem in part from some of China’s past
subsidized prices, driven out competitors, and deterred new
practices. In September 2010, China reportedly sharply
market entrants.” The report recommended that, among
reduced REE exports to Japan on a temporary basis over a
other things, the United States should seek to “create an
maritime incident between the two countries. At the time,
industrial policy in support of national security efforts” and
Economist Paul Krugman wrote that this “shows a Chinese
to “diversify away from complete dependency on sources of
government that is dangerously trigger-happy, willing to
supply in politically unstable countries who may cut off
wage economic warfare on the slightest provocation.”
U.S. access.”
During the early 2000s, the Chinese government took a
Possible Outcomes
number of steps to consolidate control of REE industries in
The impact on the U.S. economy from possible Chinese
China. For example, it implemented a number of
punitive measures on REEs is hard to measure. REE export
restrictions on REE exports, such as export quotas (which
restrictions by China might cause the United States to seek
decreased from 65,580 metric tons in 2005 to 30,185 metric
alternative REE country sources, replacement metals, or
tons in 2011) and “temporary” export taxes (which ranged
greater use of recycling. Some analysts argue that the
from 10% to 25% in 2012). Such restrictions appear to have
United States should seek public and private partnerships to
been part of a broader government strategy to give
develop its own domestic REE resources, including the
downstream Chinese REE industries access to low-cost
development of downstream REE industries, in order to
materials in order to support the growth of advanced
weaken China’s near monopoly of REEs. However, it is
technology firms (including green technology) in China,
unclear if such goals could be achieved relying on markets
and thereby boosting innovation in China.
alone or whether they would rely on government support.
Further, China may have also sought to use the REE export
Should China attempt to restrict its REE exports to the
restrictions to induce foreign firms that relied on these
United States, Congress might consider legislation to find
metals to move their production to China and share their
alternative sources of REEs and products from downstream
technology with a Chinese partner in order to secure REE
industries. In the 116th Congress, S. 1052 (Senator
supplies. China’s REE export restrictions and tax measures
Manchin), would authorize the U.S. Department of
sharply raised prices for foreign importers. The overall
Energy’s Office of Fossil Energy to develop advanced
average price of U.S. REE imports from China increased
separation technologies for the extraction and recovery of
from $6,969 per metric ton in 2008 to $170,760 per metric
rare earth elements and minerals from coal and coal
ton in 2011, a 2,359% increase. This caused the quantity of
byproducts.
U.S. REE imports to drop during this period from 546
metric tons to 323 metric tons (a 41% decline).
Wayne M. Morrison, Specialist in Asian Trade and
Finance
In March 2012, the United States, Japan, and the European
Union jointly initiated a World Trade Organization (WTO)
IF11259
dispute settlement case against China’s restrictive policies
https://crsreports.congress.gov
Trade Dispute with China and Rare Earth Elements
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11259 · VERSION 1 · NEW
June 28, 2019
Trade Dispute with China and Rare Earth Elements
Background
REE Dependency on China
Since 2018, the United States and China have been engaged
According to the U.S. Geological Survey (USGS), in 2018,
in a trade dispute resulting from U.S. use of Section
China accounted for 71% (and possibly higher due to illegal
301provisions (which deals with foreign trade barriers). The
mining, production, and smuggling in China) of global REE
dispute has led to several rounds of tariff hikes. The United
production in terms of quantity. Chinese data indicate that
States has imposed 25% tariff hikes on $250 billion worth
its REE exports totaled 53,518 metric tons, with a value of
of products from China while China has hiked tariffs on
$517 million. China’s top three REE exports markets by
$110 billion worth of U.S. products.
value were Japan (54% of total), the United States (14%),
and the Netherlands (8%). China also exported $1.7 billion
On May 10, 2019, President Trump directed the U.S Trade
worth of magnets containing REEs (including $201 million
Representative (USTR) to begin the processes of raising
to the United States), an indicator of the significance of
tariffs on essentially all remaining imports from China,
Chinese downstream industries that utilize REEs.
which it valued at approximately $300 billion. A week
later, the USTR published a list of Chinese products that
As indicated in Figure 1, China was the largest source of
could be subject to 25% ad valorem tariffs. The notice
U.S. REE imports in terms of quantity at 12,557 metric tons
specified that certain products, including rare earth
(or 74% of total). China was also the largest U.S. REE
elements (REEs), would not be included on the list.
supplier in terms of dollar value, at $82 million (or 56%) of
the total. (Some U.S. REE imports from non-Chinese
On May 20, Chinese President Xi Jinping made a
sources may have originated in China.) The consulting firm
publicized visit to a REE magnet facility in Jiangxi
Adamas Intelligence estimates that in 2018 China became
province. A May 29 editorial by Xinhua (the Chinese
the world’s largest REE importer (in terms of quantity),
government’s official state-run press agency) warned that
including $79 million worth of REE imports (largely REE
by “waging a trade war against China, the United States
ores and fluorides).
risks losing the supply of materials that are vital to
sustaining its technological strength.”
Figure 1. Top Suppliers of U.S. REE: 2018
Metric Tons
The back and forth on REE have increased concerns among
some U.S. policymakers over potential vulnerabilities to the
U.S. economy from China’s role as a major supplier of REE
and other critical materials. For additional information, see
CRS In Focus IF11226, Defense Primer: Acquiring
Specialty Metals, Rare Earth Magnets, and Tungsten, by
Heidi M. Peters; and CRS Report R41347, Rare Earth
Elements: The Global Supply Chain, by Marc Humphries.
What are REEs?
REEs consist of 17 elements (metals) that have unique
characteristics, such as magnetism, luminescence, and
strength. They have a wide range of uses, including in many
high technology industries and defense systems. Contrary to
the name, rare earths are not “rare.” Rather, they are
Source: USITC Dataweb.
relatively abundant in the earth’s crust, but are highly
scattered and usually found mixed together in other
Commercial Industrial and Military Uses
deposits. This makes it difficult to find REEs in a
of REEs
concentration high enough to be mined and separated
According to the USGS, the largest U.S. industrial uses of
economically. The United States was once a major producer
REEs in 2018 were for catalysts (at 60% of total); ceramics
of REEs from the mid-1960s until around the late 1980s
and glass (15%); metals and alloys (10%); and polishing
when China became a major low-cost producer and
(10%) (See Figure 2). Examples of industries that utilize
exporter of REEs. This, among other factors, caused many
REEs in production include advanced electronics (which
U.S. REE miners and producers to withdraw from the
involve magnets, batteries, phosphors, polishing, and metal
market.
alloys); medical equipment (magnets, batteries, phosphors,
and polishing); hybrid and conventional vehicles (magnets,
catalysts, and batteries); energy efficient lighting
(phosphors); steel (metal alloys); wind turbines (magnets);
and chemicals (catalysts). REEs have numerous military
https://crsreports.congress.gov
Trade Dispute with China and Rare Earth Elements
applications as well. According to a June 11, 2019, article
on REEs and two other minerals. Then U.S. Trade
in Foreign Policy, “Every advanced weapon in the U.S.
Representative Ron Kirk stated, “America’s workers and
arsenal—from Tomahawk missiles to the F-35 fighter jet to
manufacturers are being hurt in both established and
Aegis-equipped destroyers and cruisers and everything in
budding industrial sectors by these policies. China
between—is absolutely reliant on components made using
continues to make its export restraints more restrictive,
rare earth elements, including critical items such as
resulting in massive distortions and harmful disruptions in
permanent magnets and specialized alloys that are almost
supply chains for these materials throughout the global
exclusively made in China.”
marketplace.” In March 2014, a WTO dispute panel ruled
that China’s REE restrictions were inconsistent with its
Figure 2. U.S. Distributional Use of REEs: 2018
WTO obligations (the ruling was largely upheld by WTO
Appellate Body in August 2014). In May 2015, China
announced that it had removed the restrictions. In 2018, the
average price of U.S. REE imports from China was $6,530
per metric ton.
Trump Administration Action on REEs
In July 2017, President Trump issued Executive Order (EO)
13806, directing the U.S. Secretary of Defense (in
cooperation with other Federal agencies) to issue a report
Assessing and Strengthening the Manufacturing and
Defense Industrial Base and Supply Chain Resiliency of the
United States. The report, issued in September 2018, stated,
“China’s domination of the rare earth element market
illustrates the potentially dangerous interaction between
Source: USGS.
Chinese economic aggression guided by its strategic
industrial policies and vulnerabilities and gaps in America’s
Past Chinese Restrictions on REEs
manufacturing and defense industrial base. China has
Concerns over China’s dominant role as a global producer
strategically flooded the global market with rare earths at
and supplier of REE stem in part from some of China’s past
subsidized prices, driven out competitors, and deterred new
practices. In September 2010, China reportedly sharply
market entrants.” The report recommended that, among
reduced REE exports to Japan on a temporary basis over a
other things, the United States should seek to “create an
maritime incident between the two countries. At the time,
industrial policy in support of national security efforts” and
Economist Paul Krugman wrote that this “shows a Chinese
to “diversify away from complete dependency on sources of
government that is dangerously trigger-happy, willing to
supply in politically unstable countries who may cut off
wage economic warfare on the slightest provocation.”
U.S. access.”
During the early 2000s, the Chinese government took a
Possible Outcomes
number of steps to consolidate control of REE industries in
The impact on the U.S. economy from possible Chinese
China. For example, it implemented a number of
punitive measures on REEs is hard to measure. REE export
restrictions on REE exports, such as export quotas (which
restrictions by China might cause the United States to seek
decreased from 65,580 metric tons in 2005 to 30,185 metric
alternative REE country sources, replacement metals, or
tons in 2011) and “temporary” export taxes (which ranged
greater use of recycling. Some analysts argue that the
from 10% to 25% in 2012). Such restrictions appear to have
United States should seek public and private partnerships to
been part of a broader government strategy to give
develop its own domestic REE resources, including the
downstream Chinese REE industries access to low-cost
development of downstream REE industries, in order to
materials in order to support the growth of advanced
weaken China’s near monopoly of REEs. However, it is
technology firms (including green technology) in China,
unclear if such goals could be achieved relying on markets
and thereby boosting innovation in China.
alone or whether they would rely on government support.
Further, China may have also sought to use the REE export
Should China attempt to restrict its REE exports to the
restrictions to induce foreign firms that relied on these
United States, Congress might consider legislation to find
metals to move their production to China and share their
alternative sources of REEs and products from downstream
technology with a Chinese partner in order to secure REE
industries. In the 116th Congress, S. 1052 (Senator
supplies. China’s REE export restrictions and tax measures
Manchin), would authorize the U.S. Department of
sharply raised prices for foreign importers. The overall
Energy’s Office of Fossil Energy to develop advanced
average price of U.S. REE imports from China increased
separation technologies for the extraction and recovery of
from $6,969 per metric ton in 2008 to $170,760 per metric
rare earth elements and minerals from coal and coal
ton in 2011, a 2,359% increase. This caused the quantity of
byproducts.
U.S. REE imports to drop during this period from 546
metric tons to 323 metric tons (a 41% decline).
Wayne M. Morrison, Specialist in Asian Trade and
Finance
In March 2012, the United States, Japan, and the European
Union jointly initiated a World Trade Organization (WTO)
IF11259
dispute settlement case against China’s restrictive policies
https://crsreports.congress.gov
Trade Dispute with China and Rare Earth Elements
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11259 · VERSION 1 · NEW