Beijing grants licenses for select rare earth magnet exports
On Tuesday, Reuters scooped that China has granted export permits to four domestic producers of permanent rare earth magnets.
- The report buoyed market hopes that China would roll back its dual-use export controls on seven rare earth elements (REEs) and associated magnet materials, announced on April 4, as part of the US-China trade détente.
But we think markets have misread the significance of the permits.
First: These approvals came through before the US-China 90-day trade war ceasefire was agreed upon – so they don't reflect a policy shift triggered by the truce itself.
Second: The approvals only cover customers in Europe and Vietnam.
- That doesn't tell us much about the outlook for US buyers.
Get smart: China agreed to roll back its retaliatory actions as part of the truce – but adding the REEs to the "dual-use" export control list (which covers all countries) wasn't a retaliatory action in itself.
- While it laid the groundwork for retaliation, the actual retaliatory move would have been denying license applications for exports to the US.
Get smarter: What the approvals do tell us is that Beijing already has its licensing process up and running.
- That means that while negotiations continue, Beijing will almost certainly approve some REE export licenses to the US that might otherwise have been rejected.
The bottom line: The export control licensing requirements are here to stay.
- Beijing can honor its trade war ceasefire while keeping the controls in place – and preserving future leverage.