Rare-Earth elements and the global trade tensions


As defined by the International Union of Pure and Applied Chemistry, rare-earth element or rare-earth metal, is one of a set of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides, as well as scandium and yttrium. Rare Earth Elements (REE) are becoming increasingly important in electronic devices used in the defense, alternative energy, and communications industries. They are also used in a wide range of consumer products, from iPhones to electric car motors, as well as military jet engines, .
When recent headlines announced that rare earth elements might become a weapon in the growing trade war between the United States and China, green tech leaders may have suffered from flashbacks. Throughout the 21st century, China has dominated global production of these metals which are vital to cell phones and hard drives as well as green technologies like wind turbines, hybrid and electric cars, and some kinds of energy efficient lighting.
Roger Turner, a research fellow at the Science History Institute stated that prices spiked after China first restricted exports back in 2010, setting in motion a series of responses by private industry and the United States federal government. Those policy actions continue to affect the outlook for rare earths, as described by the United States Department of Commerce in a recently released strategy to increase internal supplies of critical materials. Some of the action items laid out in the report are quite sensible.
The report calls for advancing research and development into recycling and reprocessing technologies, as well as researching ways to reduce use or develop alternatives to critical materials. All of this began under the Obama Administration, which established in 2012 the Critical Materials Institute (CMI), a partnership between the federally funded national labs, private companies, and academic researchers across the country.
Another federal partnership program, the National Energy Technologies Laboratory’s Rare Earths program, begun in 2014, has funded experiments to recover rare earths from acid mine drainage and coal tailings in Appalachia. This is likely to benefit coal companies if it pays off, but it could create a potential pathway for coal interests to benefit from a greener energy economy.
The United States sees the trade dispute it has with China as one of many. It’s been down this road before, with Japan, Canada, Mexico and the European Union. On the other hand, China views it differently. In China, the trade issue is seen as a threat to its further development and a possible cause of instability. The compact between the party and the people, growth without political reform, could be damaged.
So, when the phrase, “don’t say we didn’t warn you” was used by state media last month it confirmed the gravity with which the situation is viewed from China. This was not a throw-away line, though on the surface it seemed quite mild. Dr. Bob Gill of Leeds University asserted that this is until we realize the significance of it.
According to Dr. Bob Gill, this phrase is old Chinese from the 19th century. It became linked with war when a Taiping rebellion (1850-64) general threatened Shanghai. The power of the phrase stems from its use during the rebellion. Like the phrase “Crossing the Rubicon” is much more than physically crossing a river outside Rome, signalling as it does a course of no return. The six-word phrase is associated with China going to war with India in 1962 and Vietnam in 1979. It could not have been used without the highest official clearance. China considers this trade dispute as a clear and present danger.
Tom Clifford, an Irish journalist, currently based in Beijing, China stated that it must be stressed that war is not likely in the short term between China and the United States, and the Thucydides trap, where an established power is challenged by an emerging power, is not pre-ordained. Besides, of all the causes to rally to the flag and take to the trenches, rare earths hardly inspire thoughts of daring-do and bravery.
Tom Clifford noted that thousands will not take to the streets in either China or United States under banners in passionate defense of say, Lanthanum or Dysprosium. These minerals and others are, however, vital for modern lifestyles and technology and, ironically, are not that rare. The methods used to extract them are heavily polluting. It’s a dirty business. Processing one ton of rare earths produces 2,000 tons of toxic waste. Consequently, few places mine them though they can be found in many countries.
Tom Clifford further noted that these critical minerals, a group of 17 elements, touch almost every aspect of modern life. Renewable energy technology, spacecraft, defense, oil refinery, electronics and the glass industry are as vital an ingredient to the global economy as oil is. This makes China the new Saudi Arabia. It sits on close to 40% of rare earth resources and its 120,000 tons of annual production accounts for about 80% of global supply. Australia, the world’s second largest supplier, produced 20,000 metric tons last year. To reinforce the point, China’s president Xi Jinping broke into his regular scheduling and visited a rare earth facility last month in Jiangxi province.
China has options, none of them enticing. It could limit supply and move prices as Saudi Arabia and OPEC have done with oil. The backlash could spur a drive to increase rare earth mining in other countries. The United States imports 80% of its rare earth needs from China. But it accounts for just 4% of China’s rare earth shipments, totalling around $160 million in 2018.
Professor Robert Nashe of Durham University argued that no other single commodity gives China such an advantage which is vital to the United States but, in terms of quantity, of minor significance to China. China sets a quota for rare earth production twice a year. In the first half of 2019, the cap was placed at 60,000 tons which is up from 45,000 the preceding half. If it is to reduce exports of rare earths, it will lower this quota. According to Professor Robert Nashe, quotas for the remainder of the year will be released in June and will be a key indicator of China’s intentions over the coming years.
According to Professor Robert Nashe, one other factor comes into play. China’s “monopoly” on rare earths is illusory. Environmental regulations, more often ignored than followed, allows extraction and refinement to be cheaper and easier than other countries. But China is trying to clean up its act. Domestic companies and illegal extractors have been sanctioned recently amid increasing concern about the environment. China is also one of the leading consumers of rare earths, and by 2025 the country could be a net importer of them. Driving up prices today could backfire tomorrow.
Besides, the mining of rare earths outside of China is also growing. Non-Chinese production has grown to about 29% of the global output from just 3% in 2009. Like the Saudis, China faces a dilemma. Cut off supplies or reduce exports and markets could be threatened. Do nothing and you will seem to be a pushover. Obviously, June is a sensitive time in China and in October the party will celebrate 70 years in power. Rare earths are the strongest card in China’s trade hand. Will it fold or hold?