Anti-Magnetic

In response to Trump’s trade war, China is slow-walking rare earth exports and global automakers are facing widespread shutdowns. In 2019, a Chinese media outlet said: “Don’t say we didn’t warn you.”

In 1979, Chinese leader Deng Xiaoping visited Jimmy Carter at the White House. In 1992, Deng declared, “there are rare earths in China. We must take full advantage of this resource.” Credit: Wikipedia

Deng Xiaoping was a survivor. He endured two purges during Mao Zedong’s brutal rule. As Daniel Yergin and Joseph Stanislaw explain in their book, Commanding Heights, during one of Mao’s purges, Deng spent two years in prison in solitary confinement. Mao’s goons beat one of his sons, a beating that left him paralyzed. Deng and his wife were also forced to work in a tractor repair plant. As the two authors explain, Deng was portrayed by Mao’s loyalists as “everything evil — from a counterrevolutionary to a "poisonous weed" who was trying to undermine the glorious revolution.”

But Deng outlasted the purges, and after Mao died in 1976, he navigated China’s tumultuous political situation and emerged as the country’s top leader. In 1992, Deng undertook what became known as the Southern Tour, visiting Guangzhou, Shenzen, and other locations to help ensure that the economic policies he launched years earlier would endure.

While on the Southern Tour, Deng visited a rare earth production facility and in doing so, he recognized the long-term strategic importance of the elements known as the lanthanides. Deng, who’s now considered the “Architect of Modern China,” said “There is oil in the Middle East. There are rare earths in China. We must take full advantage of this resource.”

Since the Southern Tour, China has invested untold billions of dollars in rare earth mining and refining. It has also invested heavily in the technologies needed to produce magnets, including the neodymium-iron-boron magnets that are found in a wide range of consumer products, and in particular, in automobiles. Today, 33 years after Deng declared his country would take “full advantage” of rare earths, China controls about 90% of the global market for rare earths and NdFeB magnets. And thanks to that control, as I noted here on May 25, China has the rest of the world in a strategic elements stranglehold.

And now, thanks to President Trump’s trade war with China, automakers from India to the Carolinas are facing shutdowns due to shortages of magnets and the parts that contain them. In fact, the shutdowns have already started. Last week, a Volvo plant in Ridgeville, South Carolina, was shut down due to what the company called “a supply chain issue.”

Nothing is surprising about any of this. If Trump had understood history — or maybe just the art of the deal — he would have known that China has the US and global auto sector by the supply chain short hairs. Further, Trump should have known that China has been using rare earths as a trade weapon for 15 years and that almost exactly six years ago, a Chinese media said, “Don’t say we didn’t warn you.”

Let’s take a closer look.