China eyes rare earth export curbs for U.S. defense, report says

China is exploring whether it can hurt U.S. defense contractors by limiting supplies of rare-earth minerals that are critical to the industry, the Financial Times reported.

Industry executives said government officials had asked them how badly companies in the U.S. and Europe would be affected if China restricted rare-earth exports during a bilateral dispute, the FT reported, citing people it didn’t identify involved in the consultation.

The move throws the spotlight back on the group of elements that are used in everything from smartphones to fighter jets, and have previously been a focus in the deteriorating trade relationship between China and the U.S. The Asian country controls most of the world’s mined output, with an even tighter hold of the processing industry, leaving American industries with few avenues to immediately secure short-term supply if curbs were to be put in place.

China’s Foreign Ministry didn’t immediately respond to a request for comment on a public holiday, while calls to the Ministry of Industry and Information Technology went unanswered. The government last month issued draft guidelines for the sector, with proposals including firms abiding by export regulations and the possibility that the nation restrict or suspend exploration and processing of rare earths to preserve natural resources and protect the environment.

The specter of export curbs arose in 2019 amid a deepening trade war. China accounts for 80% of rare-earth imports into the U.S., and Beijing had prepared a plan to restrict shipments as a way to target Washington. While those restrictions never eventuated, it pushed the American government to seek out ways to cut their reliance on a single source of supply.

Former U.S. President Donald Trump last year signed an executive order aimed at expanding domestic output of rare-earth minerals, a year after the Department of Defense was ordered to spur the production of magnets. The U.S. also awarded Lynas Rare Earths Ltd., the biggest producer outside China, a contract to boost processing capabilities.

Trump’s administration had taken a wide range of actions to thwart China’s efforts to dominate numerous high-tech industries, with President Joe Biden still yet to change many of those policies. Biden, in his first conversation as president with Chinese leader Xi Jinping, spoke of his concern about Beijing’s “coercive and unfair economic practices” as well as human rights abuses in the Xinjiang region.