Tensions between China and the U.S. have become explosive.
After months of going at each other’s throat, the U.S. ordered that the Chinese consulate in Houston shut down, triggering further chaos between it and the U.S. The shutdown came shortly after President Trump blamed Beijing for the coronavirus – and after the State Department accused China of a “massive illegal spying and influence operation.”
Of course, China got ticked off, calling the move an “unprecedented escalation,” warning that if the decision is not rescinded, China will respond.
For one, some fear war.
While neither side is likely to stage a catastrophic war, some analysts do believe there’s growing likelihood of a confrontation.
“The remainder of 2020 could pose as severe a test for the US and China as the final five months of 1941 did for the United States and Japan,” said Graham Allison, professor of government at Harvard University, as quoted by the South China Morning Post.
Malcolm Davis, a senior analyst in the Australian Strategic Policy Institute added, ““China has seen the coronavirus as an opportunity to exploit US weaknesses, and so China might be tempted to resolve territorial disputes through force. I think there’s a real possibility of miscalculation by Beijing in assuming the US won’t or can’t respond militarily.”
This would be absolutely disastrous after the year we’ve already had.
Two, rare earth supply could be pressured.
If China really wanted to stick it to the U.S., they’d cut off rare earth supply, which would be another sizable mess. After all, the world uses rare earth metals in just about everything.
At the moment, China accounts for more than 95% of the world’s production of rare earth, which puts it in a powerful position. In fact, according to Reuters, “China is the world’s dominant producer of rare earths, a group of 17 minerals used in everything from consumer electronics to military equipment.”
“Pulling rare earth elements from the ground is one thing. But creating a whole supply chain – from processing to being used for advanced technology – is another. There isn’t the infrastructure or the funding. Until then, the U.S. has to rely on China, which could leave it in a vulnerable position if relations between the two countries deteriorates further,” says NPR.
If rare earths are cut off, investors should pay close attention to related ETFs like the VanEck Vectors Rare Earth / Strategic Metals ETF (REMX).