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Rare Earths: USA Backpedals
Rare Earths Out of Tariff List

On September 17th, the United States Trade Representative (USTR) released a finalised list of its 10% tariffs on US$200Bn of Chinese imports, effective as of September 24th. The list includes 5,745 of the 6,031 items originally put forward earlier in July. Rare earth metals and compounds, originally part of the tariff, have been left off the revised list. According to USTR, the level of additional tariffs will increase to 25% starting in the 2019 New Year, notes Roskill Information Services, a leader in international metals and research.

Roskill View: The USA is reliant on imports of large volumes of light rare earths lanthanum and cerium from China, which are used in catalysts, specifically fluid catalytic cracking (FCC) used to increase the amount of petrol/gasoline during distillation of crude oil. While a 10% tariff on low value cerium and lanthanum was unlikely to deter US-based consumers, the available raw materials are concentrated in China and the approximate 15ktpy of rare earth compounds imported by the USA will remain largely dependent on Chinese material for now.

With a likely consideration of higher value rare earths and growing rare earth demand from the electric vehicle (EV) sector, metal permanent magnets are also off the revised tariff list. Rare earth permanent magnets are nearly exclusively produced in China, with some capacity remaining in Japan and little elsewhere. Neodymium-iron-boron (NdFeB) magnets are the key ingredient in electric motor drivetrains, allowing EV developers to optimise range and performance. The US permanent magnet industry (and other industries consuming low-volume, high-value rare earth products) are more sensitive to price movements caused by tariffs than the petroleum-catalyst industry. The increase to raw material costs that the tariff would create, with no domestic alternatives, little domestic customer support, and limited opportunities to reduce consumption of rare earths in their products, would directly impact domestic production costs for finished products.

Though the implementation of tariffs on imports from China were targeted to reduce the USA’s trade deficit and place pressure on China to change its trade practises, they pose a threat to many industries in the USA including rare earth products, which depend on imports of raw materials from China and are competing in the global market. Excluding rare earths and permanent magnets from the updated tariffs list has re-emphasised China’s dominance in the raw materials, processing capacity, and downstream rare earth supply chain.

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