So much for a speedy trade war resolution.
While the U.S. and China have restarted trade talks, mid-2019, a comprehensive deal was still a ways off, if one happened at all. All after China added another member to its negotiating team – Commerce Minister Zhong Shan who was seen as a hardliner.
“The U.S. side has provoked economic and trade frictions against us and violated the principles of the WTO. It is typical of unilateralism and protectionism,” Zhong told the People’s Daily, as quoted by CNBC. “We have to uphold our warrior spirit in firmly defending national and people’s interests in defending the multilateral trading system.”
To many investors, that meant China was in no rush to put an end to the trade war. It also raised the fear that President Trump could move forward with threats to add tariffs to $300 billion worth of Chinese imports.
If the trade war did flare again, one of the hottest sectors could very well be rare earth.
Rare Earth: Potential Beneficiaries of Trade War Spat
Remember, China already said, “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!” the People’s Daily said in a commentary titled “United States, don’t underestimate China’s ability to strike back,” as quoted by CNBC.
Should China cut off rare earth supply, it could be disastrous.
Remember, 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. Scandium is used in batteries. Cerium is used in glass production. Gadolinium is used in X-ray imaging and magnets. Thulium is used in lasers and microwave equipment.
Also remember that China has the largest rare earth mining capacity in the world, especially after the U.S. pulled back from mining. That only increased our dependence on China’s supply.
“China, as the dominant producer of rare earths, has shown in the past that it can use rare earths as a bargaining chip when it comes to multilateral negotiations,” said George Bauk, Chief Executive Officer of Northern Minerals Ltd., as quoted by Bloomberg.
One of the top rare earth ETFs to keep an eye on
VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE:REMX)
The REMX 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, titanium, and tungsten. REMX's narrow portfolio holds just a handful of names, selected and weighted by market cap. When China made their last rare earth threat in May 2019, this ETF ran from $13.50 to more than $15.50 a share.