This is China’s Top Weapon in the Trade War

by | Sep 3, 2019 | Markets

This is China’s Top Weapon in the Trade War

So much for cooling trade tensions. Days after China said they would not retaliate, they retaliated.  And unfortunately, this may not be the worst of it.

China Could Weaponize its Rare Earth Supply

In early August 2019, China waved its rare earth card again with its rare earth association saying it would fully support choking off supply to the U.S.  

Should China cut off rare earth supply, it could be disastrous.  

“China is home to around 36.7% of the world’s known rare earths reserve and was responsible for 70.6% of the total global production of these metals. If Beijing said they were stopping exports, it would be very complicated to obtain the necessary production of the elements, now so indispensable for Western societies,” as highlighted by Euro News.

That could result in very serious consequences for the U.S.

Rare earths are necessary to build and operate hybrid cars, 700 pounds of neodymium are needed to build a three-megawatt windmill, iPhones, medical devices, computers, and cell phones.  Also remember that China has the largest rare earth mining capacity in the world, especially after the U.S. pulled back from mining.  

Now, as a result of the threat, rare earth stocks could begin to move aggressively higher.  

One way that investors have been preparing for the threat is with the rare earth ETF.

The VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE:REMX)

Should China follow through on its rare earth threat, prices could skyrocket.  

One way investors are trading the potential threat to rare earth is with the VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE:REMX), which targets an obscure part of the mining market — rare earths metals.  The fund is heavily invested in small- and micro-caps, and has significant exposure to emerging-market issuers–the firms you typically find producing cerium, manganese, and titanium.