China minerals curb could cost US GDP $1B: Macquarie

China’s export controls on certain critical minerals could cut gross domestic product in the United States by more than $1 billion a year, even if U.S. reliance on Chinese imports isn’t as strong as publicized, according to analysts at Macquarie Group.

The estimate — a product of modelling by a team led by chief economist Ric Deverell — was based on Chinese export curbs placed on four rare earths (samarium, lutetium, terbium, dysprosium) plus gallium. All five appear on the U.S. government’s recently updated list of critical minerals, which now has 60 items including copper and silver.

In a report published on Tuesday, Deverell and his team outlined the degree of U.S. dependence on foreign sources of these minerals. They found that last year, the U.S. was 100% import reliant on 12 of them, and over 50% reliant on 33 others.

U.S. domestic primary mine production last year hit about $17.5 billion, while total import value was $65 billion, Macquarie’s report also showed. China, the country’s main economic rival, was – unsurprisingly – the world’s biggest producer and processor by value.

Impact of Chinese controls

China wasn’t the main provider of critical minerals to Washington, as its shipments accounted for just $2 billion, or 3%, of total U.S. imports. Rather, the country’s biggest sources of critical minerals were Canada (32%), Chile (10%), Mexico (8%) and South Africa (7%). This suggests the U.S. has on the surface avoided overreliance on China.

U.S. manufacturers nevertheless remain highly dependent on several imported minerals used for defence and high-end technologies. Macquarie estimates the country is about 80% import reliant for rare earth compounds and metals, with about 70% of those coming from China.

That’s not to say that the impact of China imposing export controls on key critical minerals would be small. Macquarie estimates that the U.S. imported $170 million of rare earth elements in 2024, with $120 million coming from China.

As such, China’s export controls on rare earths – namely samarium, lutetium, terbium and dysprosium – would have the largest short-term impact, cutting U.S. GDP by more than $1 billion over a one-year period. However, the biggest cost would be strategic, they added, with several key industries in the U.S. relying on Chinese sources of rare earths. Also included in the estimate was gallium, a key material to the semiconductor industry.

Australian opportunity

Australia, which recently signed a critical minerals framework with the U.S., could potentially take China’s place as a key supplier to the North American country.

It accounted for about 2% of U.S. critical mineral imports last year, similar to China.

Macquarie data show Australia holds over 15% of the world’s critical minerals reserves and produces nearly half of those that appear on the U.S. critical minerals list. While its production has fallen over the past five years due to a weak market environment, that is expected to reverse in the coming years, with over $50 billion worth of investment in the pipeline as of October 2024, Macquarie said.