VP and Lutnick Talk Tariff Coordination in Minerals; Allies Say They'll Discuss

Vance, who spoke at an international meeting held at the State Department Feb. 4, said "this is something where our alliances and our friendships can really help one another."

He told the audience that a lot of countries' politicians have seen an example of where a lithium mine, a gallium recycling center or some other establishment aimed at expanding the sources of supply for critical minerals is announced. "Then, overnight, foreign supply floods the market, the prices collapse and investors pull out. The project stalls, and then eventually the project dies on the vine." Members in the trade zone will benefit from reference prices at each stage of production, explained Commerce Secretary Howard Lutnick, speaking the evening of Feb. 3 at the Center for Strategic and International Studies.

He said these prices, which will reflect fair market value, "will be maintained through adjustable tariffs to uphold pricing integrity."

Vance told the international audience, "a lot of us have learned the hard way ... how much our economies depend on these critical minerals."

He said that in both Europe and North America, dozens of projects to process minerals are frozen or abandoned because they can't make a profit with commodity prices where they are.

Some critical minerals are mined in the U.S. but exported to China for processing.

"Our goal here is to align trade policy, development finance and diplomatic engagement towards ... diversifying global supply in the critical minerals market," Vance said.

On Feb. 4, the administration announced that Mexico had agreed to "discuss the feasibility and development of coordinated trade policies and mechanisms, including border-adjusted price floors for critical minerals imports, focusing in the first instance on certain select critical minerals to be determined."

It also announced that the EU and Japan agreed to "explore a plurilateral trade initiative with like-minded partners on trade in critical minerals. Such a plurilateral trade initiative could include exploring the development of coordinated trade policies and mechanisms, such as border-adjusted price floors, standards-based markets, price gap subsidies, or offtake-agreements."

According to that language, tariffs may not be the way the EU and Japan want to proceed; they might instead choose guaranteed purchases (or offtake) or subsidizing production so that it isn't undercut by Chinese imports.

Lutnick compared the commercial pattern of rare earth magnets to Chinese exports of EVs in his speech. He said China needs electric cars, because it doesn't have oil and natural gas, but since the U.S. has plentiful supplies, "we don't need electric cars."

He said that Chinese EV manufacturers are engaged in cutthroat pricing in China, and produce far more than the domestic market can absorb, so they are dumping cars.

"So they take this €40,000 car, and they bring it to Europe, and they're just trying to get rid of it. So they sell it for €17,000. And then you walk into the showroom, and you see a 17,000-euro car, and you say, 'My god, that car is amazing for €17,000.' Of course, it is. It's supposed to be for sale for €50,000, and they're selling it for 17,000, because they're just trying to dump it and get rid of it," he said.

When China sells rare earth magnets for below cost, Lutnick says, they monopolize the market and hold that dominance over trading partners.

He said it seems good to be able to import goods inexpensively "until it's weaponized. And the day it's weaponized, you say, 'Holy moly, what was I thinking? What were we thinking? And why did we allow this to happen?'"

Lutnick said the U.S. was not cowed when China throttled exports of rare earth magnets, because it stopped sending ethylene, a chemical used to make plastic.

"I called it mutual assured annoyance," he said, a play on a Cold War term, mutually assured destruction.

Lutnick said China can't dump autos in the U.S., but Europe does allow them to do it. "And they're going to learn a valuable lesson," he predicted.

He then said he didn't understand why Canada created a tariff rate quota for 49,000 EVs from China, which will be allowed to enter at Canada's most-favored nation rate, rather than 100% tariffs.

"I mean, what is that now? Now I have to worry about sealing our border from those cars."

Lutnick said industrial policy also will be used for key starting materials for pharmaceuticals and for semiconductors.

"We're going to study it and understand it. We're going to make sure our tariff policy supports it," he said. "We're going to make sure our industrial policy supports it. We're making sure our government as a whole supports it."