If there was any doubt before that China was serious about going toe-to-toe with the Trump administration, there isn’t any more after the following message was published in a major Chinese newspaper:
“We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!”
“Safeguarding” its interests in this case refers to a defensive measure in which China would cut off rare earth mineral exports to American tech companies. It’s by far the biggest and “baddest” arrow in China’s quiver, and something they seem eager to draw upon.
The People’s Daily, the newspaper used to issue the warning, has only used the phrase “Don’t say we didn’t warn you” twice in the past – the first time being in 1962 before China’s border war with India, and more recently in 1979 at the outset of the China-Vietnam war.
The publication, which serves as the official newspaper of the Communist Party of China, clarified its intent further:
“Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery.”
Indeed, there was “no mystery” at all as to how China would strike back. Analysts saw it coming weeks ago as Xi Jinping’s only real move to make, and as scary as it sounds, it’s something almost anyone in the tech sector expected if trade talks went south.
And “go south” they have.
Both China and the U.S. have slapped new tariffs on billions of dollars worth of goods, and President Trump even went so far as to blacklist Chinese tech giant Huawei – the straw that possibly broke the camel’s back in this case, forcing China to retaliate with a rare earths ultimatum.
The rare earths themselves are a series of elements that are crucial for the development of most handheld electronic devices. China’s far and away the world’s biggest supplier of rare earths, and as a result American tech companies have become dependent upon China to manufacture high-end electronics.
Apple in particular could potentially feel the most pain, though, as in addition to the presence of rare earths in iPhones, over 90% of iPhone production still resides in China and Taiwan.
And if China actually does put a rare earths ban into place, Trump would certainly be facing his biggest obstacle yet.
Americans who didn’t care about current events before could suddenly get roped into having an opinion on foreign policy – all because the President is making their smartphones more expensive.
But in the end, a rare earths ban would in effect still be a double-edged sword, slicing China along with U.S. tech companies (and potentially consumers).
Without buyers at the marketplace, China’s going to start running out of dance partners sooner or later, and the already weighed-down Chinese economy might start gasping for air in ways critically dangerous to their own growth.
But as bad as that sounds for China, the worst-case scenario would involve a confrontation with Trump, the master manipulator, himself. By upping the ante each week, we could be headed to a true “Reagan-esque” moment for the President, as he asks Xi to “tear down this (rare earths) wall” after months of posturing.
Will the market suffer for it short-term? It certainly seems that way.
But will it be entertaining? You bet.
My advice is to get your popcorn ready, because once a rare earth ban hits the fan, we’ll likely have heaps of trade drama to keep us glued to our screens – all while the tech sector scrambles for a solution.