Rare Earth Metals Tariff War Eclipsed By Actual War

Neodymium has never come up at one of my family barbeques. Until recently, I did not even know how to pronounce Ytterbium. Yet, the need for these and other rare earth metals has become so serious that U.S. auto manufacturers are warning of vehicle shortages, and two of the most powerful men in the world are rushing to make a deal for these elements. Experience has taught me repeatedly that some type of solution is likely. As investors, we must consider what impact it may have.

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In school, many of us memorized the periodic table. I even remember a little song that went like this, “Who told the elements where to go? Mendelev!” Since then, I mostly think about elements that involve the air we breathe, supplements we consume, and metals used in manufacturing, all of which are found on the periodic table. Suddenly, these elements that seemed obscure and economically unimportant are central to the new economy and competing for media headlines.

Tariff-war headlines have transformed in the last week from TACO to rare earth metals. These metals are center stage, and our need for them forced the White House into making a deal with China. They are used to make essential components for our internet connections, smartphones, computers, cameras, vehicles, LED light bulbs, MRI machines, and military equipment.

The challenge for American companies is that China mines roughly 70% of the world's rare earth metals. Making things worse, 90% of the entire supply is refined in China. This will change. I think it is possible for the United States to increase its capacity, but it will take some time. The United States is currently only providing around 11% of the world's supply.

President Xi (China) and President Trump have different negotiation styles. Trump tries to shock others into making a deal. Xi prefers to work with those treating his country with respect. Fortunately, both seem eager to avoid economic catastrophe. All essential trade is likely to find a way to take place with stock market investors trading under this assumption right now.