The rapidly unraveling world order, slipped into further chaos as President Trump declared an additional 100% tariff on all Chinese imports across all categories. This he claimed was in preemption of the Chinese plan to restrict exports of all its products, across the world and was specifically targeting export of rare earth magnets to the United States.
China produces around 70 percent of all rare earth metals and has about 90 percent of its refining capacity.
As is evident that we are moving away from the internal combustion engine technology to the electric motor system and they are heavily dependent upon these magnets. Even the electronic components are dependent on these magnets. Thus china controls a crucial bottleneck in the chain.
It would be a while before the US develops its own refining capacity and sources for these elements. Until then it needs to disrupt the global markets, and stop the Chinese dominance over the supply chain. This would disproportionately affect growing economies like India who are dependent upon both the US for developed hardware and on china for commodities.
Ever since the COVID pandemic, the world economy has been facing severe inflationary pressures and supply chain disruption. Major economies like the European Union are experiencing prolonged slowdown and there are cascading effects on global demand.
This disruption would further aggravate the situation and the world economy may face prolonged stagnation or even a recession. The US has also decided to impose restrictions on export of critical softwares.
It’s like a Mexican standoff, where both the US and China are ready to wait for the other side to wilt. The world would be a collateral damage.
