Looks like it’s time for another panic over rare earth elements. New fears are emerging that Beijing could use its dominance in the production of these vital minerals to strangle the global economy. As usual, the truth is more complex and less favorable for Beijing.
Rare earths, which are metals near the bottom of the periodic table, are crucial to many emerging technologies. Their magnetic properties make them indispensable for smartphones, wind turbines, electric vehicles, nuclear submarines and more. About 80% of the world’s processed rare earth production is produced in China.
Publicly, the Communist Party acts as if this market domination places it in the economic seat. A recent report suggested officials are looking into the damage Beijing could cause by cutting off rare earths for the West’s F-35 fighter program. In 2010, he threatened to ban rare earth exports to Japan following a territorial dispute.
Then there is the reality of rare earths. China’s share of world production, although still high, is already declining; it was over 95% as recently as 2010. Despite the name, rare earths are abundant around the world. Driven in part by the sounds of metallurgical sabers from Beijing, countries like Australia and the United States have ramped up mining and processing. Investments are underway in new recycling techniques.
This capability is already undermining China’s supposed threat to foreign armies. Defense applications in the West represent only a very small part of the total consumption of rare earths. The Trump administration has investigated the possibility of storage in the event of a supply disruption in China. While this plan has yet to take off, the United States and its allies could likely meet their military rare earth needs outside of China at short notice in the event of an embargo.
This leaves yet other industries exposed to Beijing’s gambling spirit. But Beijing’s export control threats, now and in the past, have less to do with strategic considerations than with other issues – some of which should concern the West as well. One of the main ones is that the extraction and processing of rare earths is destructive to the environment.
This explains why the West was not prepared before now to further develop its own extraction and processing capacity. Beijing’s 2010 feud with Japan was probably less of a grand strategy than trying, for environmental reasons, to curb the out-of-control wild miners in China.
He seems to have failed. Despite at least one subsequent attempt to consolidate the industry, Beijing Minister Xiao Yaqing complained on Monday that the oversupply of some rare earths in the domestic market is driving prices too low: “Our rare earths did not sell for the ‘rare’ price but sold for the ‘land price. “
Beijing is also increasing some production quotas on rare earths to support domestic high-tech manufacturing. Meanwhile, China is emerging as an importer of some raw materials, especially from Burma. This confusion – on the one hand stimulates production and imports while the other complains that prices are too low – contradicts claims that a coherent industrial policy is in place.
All of this can be good news if Western countries trust the markets, which functioned after China’s threats against Japan in 2010. Production has increased. But Western subsidies also artificially stimulate demand for green technologies and therefore for rare earths. And the United States and other countries have made rare earth mining difficult and expensive because of environmental rules.
China’s supply reduction – if that happens – will force policymakers and Western voters to compromise between the carbon benefits of wind power or electric vehicles and the environmental costs associated with manufacturing those technologies. If western mining drives up rare earth costs with full consideration of environmental effects, that would be an important price signal. The Biden administration and Congress could help by telling the truth about this compromise and reducing the burden of extracting critical minerals.
Market signals have spurred significant investment and innovation in rare earths in the West over the past decade. They remain today the best defense of the West against Chinese mineral mercantilism.
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Published in the print edition of March 4, 2021.