00:00When it comes to the issue of trade between the U.S. and China really has been this dominance that
00:04China has over rare earths.
00:06That has really emerged as one of Beijing's most effective geopolitical levers.
00:11Now, this chart really shows the extent of China's control of the industry, right?
00:15Ensuring access to these minerals is likely to be a priority for President Trump as he meets Xi Jinping next
00:22week.
00:22And Bloomberg Economics notes that despite Washington's significant investments in alternative sources,
00:27the U.S. is still years away from denting China's grip on the sector.
00:31Let's bring in Chris Kennedy, who is the lead, of course, for economic statecraft at Bloomberg Economics.
00:38He joins us from Washington. Fantastic data, fantastic piece from your team here.
00:42So, I mean, this was a major topic going into the last time these two met back late last year.
00:48And I wonder how big you think it will feature in next week's talks and how much progress you think
00:52we will see if it does feature quite heavily.
00:56Thanks, David. Yeah, of course, last April, when the first flare-up after Liberation Day and then China cut off
01:04exports of magnets and rare earths to the U.S.,
01:06it really shook the world.
01:08We expect that the U.S. is going into this meeting hoping not to upset the boat.
01:13As you noted, China retains significant control over the supply of these very important inputs to a variety of commercial
01:21and strategic industries, both in the U.S., Europe, Japan, elsewhere.
01:26And so we do think a primary objective of this meeting for the U.S. side is to ensure that
01:31we don't see a repeat of that disruption that we saw last year.
01:35You said in your piece that it's going to be difficult for anyone to really break this grip that China
01:43has on rare earths.
01:44What makes that dominance so unique?
01:47So often this is framed around China's desire to have this leverage point for geopolitical purposes.
01:56I think what gets lost in the conversation in the U.S. and elsewhere is how this dominance really came
02:05to exist in the first place and specifically the role that China's massive manufacturing economy plays.
02:12China has worked for many decades to secure supplies of important raw material inputs to feed its export manufacturing economy.
02:23And this is part of that story.
02:25And I think our analysis uncovers some of those details, specifically that more than 70 percent of the rare earth
02:32oxides that are either produced in China or imported into China are retained for value-added manufacturing.
02:39Only about 10 percent of those rare earth oxides are turned into magnets that are then exported as magnets to
02:47the rest of the world.
02:48So this is a really challenging obstacle to overcome.
02:53This industry is characterized by significant economies of scale.
02:56And it's going to take the U.S. working with partners to establish a sufficient level of demand to keep
03:03alternative supplies viable outside of China.
03:09Yeah, it's hard to imagine how we could get to that point of even just being at parity.
03:15It's time, as you point out, and capital here, Chris.
03:19So the card still remains.
03:21That's the I mean, pardon the pun.
03:23That's the that's China's trump card here still, you think?
03:27Certainly it's one.
03:28I mean, this is, you know, one set of minerals, rare earth materials.
03:33China also has significant control over other both raw material supply chains and other things like precursors to pharmaceuticals, et
03:43cetera.
03:44But this is an important one.
03:46And it feeds into really politically salient industries in the U.S., like the automotive industry.
03:51So, you know, again, we think we're expecting an effort to keep this detente in place for the foreseeable future.
03:58You know, this doesn't mean that the U.S. isn't making progress.
04:02I think it is important to note that the Trump administration has invested quite a bit of money and effort
04:09into diversifying supply chains.
04:11But it is going to take, you know, some years before those projects really come to fruition and offer a
04:18commercially relevant alternative.
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