Included in the latest list of Chinese products that may be hit by increased tariffs in the US are scandium and yttrium, two rare earth minerals that are sourced almost entirely from China. While China has sought to reduce its exports of rare earths in recent years to ensure sufficient materials were available for domestic use, the country has nonetheless dominated the global rare earths industry due to pure geographic luck – within its borders reside the world’s largest rare earths deposits.
However, the proposed 10% tariff on scandium and yttrium (as well as some other rare earth compounds) is a puzzler in many ways compared to the suggested tariffs on other goods. US rare earths mining has been negligible for decades, so few – if any – American manufacturers would benefit from a higher import tariff. In addition, there are only a handful of countries other than China with the resources to supply the US with notable quantities of rare earth minerals, and not anywhere near the volumes that US manufacturers would need.
With rare earths more expensive than ever, and with no alternative supply option, the tariff will result in increased manufacturing costs for nearly all high tech products that utilize rare earths as an essential component. These can range from consumer electronic devices to hybrid and electric vehicles. This will inevitably also increase the price that consumers pay for the finished product.
In another more indirect blow to consumers, rare earths are also in high demand by the US military, which requires these minerals for much of its advanced hardware. If rare earths are caught up in an additional round of tariffs, not only will consumers’ disposable income not stretch as far, neither will their tax dollars.
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About the Author:
Kyle Peters is the Manager of the Machinery and Equipment Group at The Freedonia Group, where he works on studies related to the US and global machinery, appliances, and industrial components markets.