When Chinese president Xi Jinping visited the southern Chinese province of Jiangxi, a whole bunch of rare earths miners from around the world had a fantastic day — here’s why.

In case you missed the news lately (nobody’s blaming you, Netflix is great), the US and China have been engaged in an economic cold war — with tariff and counter-tariff keeping traders on their toes.

As with most matters of state these days, the ongoing trade war can be traced back to a tweet from Donald Trump.

Although the rumblings of the current trade tiff can be traced back further, it’s really Donald Trump’s emergence onto the political scene that accelerated the current situation.

His anti-China rhetoric continued on the campaign trail, his words backed by several concerned by China’s loose attitude towards intellectual property rights and active de-valuing of the yuan — long seen as an impediment to US conducting further business in China.

But the first salvo of the current war was really fired in early 2018, when the US slapped a tasty 30 per cent tariff on solar panels worldwide.

While the tariff was ‘worldwide’, the vast majority of imports of solar panels into the US come from China, so this was squarely targeted at the middle kingdom.

Tariff and counter-tariffs have ensued for the last year and a half — with the US having handed down $US250 billion ($AU361 billion) and promised $325 billion more.

China for its part returned fire with $110 billion worth of tariffs on US goods, and rushed through a raft of measures designed (although they won’t agree with the assessment) to make life tough on US businesses in China.

If you want to get real nerdy on it, there’s a great timeline here.

It’s in this context that Xi Jinping visited Jiangxi earlier this month, and rare earths miners had a great day.

Trade wars lead to surprise victors

His visit was no accident.

Jiangxi, on its own, is a rare earths powerhouse — thought to contain about 50 per cent of the world’s entire rare earths resources.

China has about 70 per cent of the world’s rare earth minerals production. Some have it as high as 97 per cent.

Chart from Statista

It turns out that rare earths are surprisingly important given their vital role in things like phones, computers, and electric vehicles.

READ: Ever wonder what’s in your phone?

In fact, China’s dominance of the rare earths production has long been a concern for the US and companies such as Japan — which are heavy manufacturers and consumers of electronic goods.

The type of control Beijing can exert over rare earths exports (much like OPEC alters supply to inflate the price of oil) reached a crescendo in 2010 when China cut back on exports — and rare earths prices shot up by 1000 per cent.

It’s no coincidence that China and Japan were locked in a diplomatic row at the time…

Today, the US imports about $160 million in basic rare earths materials for the use in glass and ceramic manufacturing — but this doesn’t include the rare earths in things like electronics made in China and shipped to the US.

Hint, look at the back of your phone — it was most likely manufactured in Vietnam or China.

In any case, it’s a hell of a lever for China to be able to pull in the case of a trade war with the US.

Just the mere implication of Xi Jinping’s visit to Jiangxi was enough to spike rare earths explorers and producers outside of China.

ASX codeCompanyPriceMarket cap1-wk return %
LCYLEGACY IRON ORE LTD0.003$ 4,404,792.5050
ARUARAFURA RESOURCES LTD0.068$ 53,135,412.0026
PM8PENSANA METALS LTD0.02$ 24,243,002.0025
LYCLYNAS CORP LTD2.38$ 1,584,322,304.0021
TMRTEMPUS RESOURCES LTD0.18$ 6,570,000.0016
NTUNORTHERN MINERALS LTD0.07$ 133,550,920.0015
PEKPEAK RESOURCES LTD0.037$ 29,572,468.0012
SPXSPECTRUM METALS LTD0.021$ 26,554,818.0011
ALKALKANE RESOURCES LTD0.265$ 134,115,496.0010
AMDARROW MINERALS LTD0.011$ 3,459,946.7510
GGGGREENLAND MINERALS LTD0.1$ 113,264,920.008
KSNKINGSTON RESOURCES LTD0.016$ 24,140,174.007
KORKORAB RESOURCES LTD0.028$ 8,713,567.004
AXEARCHER EXPLORATION LTD0.085$ 16,685,864.001

A slew of ASX-listed rare earths companies, such as Arafura Resources (ASX:ARU) received a bump in the week to May 27 as investors mulled over a world where 90 per cent of the world’s supply was restricted.

Who wins and loses in a trade war?

While an ongoing trade war between the US and China won’t really be great for global growth, there are a few winners out of it.

Winner: Rare earths miners outside of China

As outlined above, a protracted time of trade war usually leads to a few niche industries profiting as buyers skirt around for opportunities not affected by the impasse.

To date there’s been no compelling replacement for many uses of rare earths, and the demand isn’t suddenly going to go away because of diplomatic brinkmanship.

Instead, producers either selling into other parts of the world such as Europe or emerging producers with offtakes not-yet-confirmed could find a lot more interested parties knocking on their doors.

Winner: Low-cost manufacturers that *aren’t* China

Not surprisingly, a lot of the growth in China over the past two decades was driven by the money it was able to generate from low-cost manufacturing for customers in the West.

It then took that money and put it into infrastructure and banking, driving conditions upward and creating a new middle class.

But should its low-cost manufacturing base lose a key outlet in the US, other countries such as Bangladesh and Vietnam could fill the gap.

Unfortunately, the list of losers is also pretty long.

Loser: Australia

The Australian economy is inexorably tied to the Chinese market, as it’s a major importer of iron ore and coal.

Any weakening of the Chinese economy is generally a bad thing for Australia, as China buys less iron ore to make into steel for housing and infrastructure.

It also buys less coal to fire the furnaces needed to turn the iron ore into steel.

Loser: Tech manufacturers

Their cost of production is going to shoot up pretty dramatically, unless they can find an alternate source for the rare earths minerals they use currently.

Take Apple, for example.

It’s famed for making people buy slightly different phones every two years — which every phone manufacturer has set up to replicate.

But now they’re manufacturing more, they’re more exposed to price shocks on key ingredients.

READ: Why mining’s about to get more… circular

Loser: The world, really.

Modern prosperity has been largely underpinned by the opening of new markets enabled by globalisation.

While it has some pretty pronounced downsides too, it’s generally been a great thing.

However, should a full-on trade war break out between the two largest economies on the planet, the flow-on effects would be huge.

Trade barriers would more than likely crop up in the unlikeliest of places, and barriers to trade are barriers to prosperity.

At Stockhead, we tell it like it is. While Arafura is a Stockhead advertiser, it did not sponsor this article.