China’s Rare Earths Move Casts Shadow on Finance Chief Meetings

In another era, annual meetings of the IMF and World Bank served as forums for discussing how to beef up contingency financing for developing nations that run into challenges, or ways to make lending to impoverished countries more effectively tied to socioeconomic improvement.

With all the fragmentation that’s occurred in recent years, however, the most important value of the gathering may simply be to bring key economic policymakers from around the world into one location, allowing for bilateral and multilateral discussions. Amid the latest US-China impasse, the confab conveniently brings Chinese officials to the US capital, affording potentially cooling in-person talks.

This week’s meetings come on the heels of a dramatic gambit by China to wield its control over the global rare earths supply chain for geopolitical advantage. While the move might have been part of Washington-Beijing tit-for-tat escalation — with US President Donald Trump now threatening to stop trade in Chinese cooking oil — it’s given a powerful jolt to the European Union.

Trouble is, the rare earth magnets China supplies are vital to manufacturing essentially everywhere. Germany, whose economy relies on industry a lot more than does the US, swiftly registered “great concern.” By Tuesday, EU officials were pledging to push back. And later this week, at an expected Group of Seven meeting — on the sidelines of the IMF-World Bank — the broader group of advanced industrial nations will have the chance to coordinate a response.

EU Economy Commissioner Valdis Dombrovskis said in Washington Tuesday he indeed expected talks at the G-7. “China is flexing its muscles, using trade interdependencies for political gain,” he said.

“We should have a tough response” to China, Lars Lokke Rasmussen, the Danish foreign minister, said Tuesday at a trade ministers’ meeting in Denmark, which currently chairs the EU’s rotating presidency.

The EU is now considering forcing Chinese firms to hand over technology to European companies if they want to operate locally, Bloomberg reported Tuesday. And fresh news emerged that the Dutch government’s recent seizure of Chinese-owned chipmaker Nexperia followed a warning from Washington.

While Chinese President Xi Jinping has long called for the EU to exercise “strategic autonomy,” the rare earths maneuver risks reaffirming the trans-Atlantic alliance — even after Trump’s repeated attacks and criticisms of European nations and some of their governments. That may well be on display as the meetings proceed in Washington this week.

In its latest World Economic Outlook, released in connection with the annual meetings, the IMF issued modest global growth forecasts for this year and next, of little more than 3% — a pace that, before the financial crisis, was once viewed as the dividing line for a global recession.

The US is seen with an expansion of 2%, with 2.1% penciled in for next year. The euro zone, where many nations are now embracing an expansion in defense spending, is expected to pick up to 1.2% growth for 2025, keeping near that, at 1.1% for next year. The IMF predicts China will log a 4.8% GDP rise this year — roughly matching the government’s target — with a slowdown to 4.2% in 2026.

All in all, the world economy has held up better than expected in the face of tariff hikes, but it’s hardly out of the woods. IMF Chief Economist Pierre-Olivier Gourinchas said in a briefing with reporters Tuesday: “We still see the risks tilted to the downside.”

Source: Bloomberg Europe