A dump truck moves raw ore into the pit of the MP Materials-operated Mountain Pass mine in Mountain Pass, California, USA on Friday, June 7, 2019. MP Materials, America’s only rare earth producer, has shipped all of its production from the Mountain Pass mine in California to China as there is currently no refining capacity available to handle production anywhere else in the world, the largest shareholder said last month. Photographer: Joe Buglewicz / Bloomberg
Photo:
Joe Buglewicz / Bloomberg News
It seems time for another rare earth panic. New fears are emerging that Beijing could use its dominance in the production of these vital minerals to curb the global economy. As usual, the truth is more complex and unfavorable for Beijing.
Rare earths, which are metals at the end of the periodic table, are critical to many emerging technologies. Their magnetic properties make them indispensable for smartphones, wind turbines, electric vehicles, nuclear submarines and other things. Around 80% of the world’s production of processed rare earths is produced in China.
In public, the Communist Party acts as if this dominance of the market would place it in the economic Catbird seat. A recent report suggested that officials are investigating how much damage Beijing could do if rare earths are cut off for the West’s F-35 hunting program. In 2010, after a territorial dispute, it threatened to ban exports of rare earths to Japan.
Then there is the rare earth reality. China’s share of global production is still high, but already declining. In 2010 it was over 95%. Despite the name, there are numerous rare earths around the world. Countries like Australia and the United States have advanced mining and processing, in part due to Beijing’s metallurgical saber rattle. Investments are currently being made in new recycling technologies.
This ability already undermines China’s alleged threat to foreign military personnel. Defense applications in the West make up a very small fraction of total rare earth consumption. The Trump administration was investigating the possibility of stockpiling in the event of an interruption in Chinese supplies. While this plan has not yet entered into force, if an embargo is imposed, the US and its allies could quickly meet their military needs for rare earths outside of China.
So other industries are still exposed to Beijing’s art of playing. But Beijing’s looming export controls now and in the past have less to do with strategic considerations than with other problems – some of which should affect the West as well. A major problem is that the mining and processing of rare earths are harmful to the environment.
This explains why the West has so far been unwilling to build up more of its own mining and processing capacities. Beijing’s 2010 feud with Japan was probably less about a grand strategy than about curbing environmental savage miners in China.
It seems to have failed. Despite at least one subsequent attempt to consolidate the industry, Beijing’s Minister Xiao Yaqing complained on Monday that the domestic oversupply of some rare earths is driving prices too low: “Our rare earths were not sold at the ‘rare’ price, but to ‘. Price of the earth. “
Beijing is also increasing some rare earth production quotas to support domestic high-tech manufacturing. Meanwhile, China is becoming an importer of some raw materials, especially from Burma. This confusion – on the one hand it increases production and imports, while the other complains that prices are too low – refutes the claim that a coherent industrial policy is in place.
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All of this can be good news if western countries trust the markets that worked after China’s threats to Japan in 2010. Production increased. Western subsidies also artificially increase the demand for green technology and thus for rare earths. And the US and other countries have made rare earth mining difficult and costly because of environmental regulations.
Lower Chinese supply, if that happens, will force Western policymakers and voters to compromise between the carbon benefits of wind or electric vehicles and the environmental costs associated with producing these technologies. If western mining increases the cost of rare earths by fully accounting for the environmental impact, it would be an important price signal. The von Biden government and Congress could help by telling the truth about this compromise and easing the pressures on mining critical minerals.
Market signals have stimulated significant investment and innovation in rare earths in the West over the past decade. They remain the West’s best defense against Chinese mineral mercantilism.
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Published in the print edition of March 4, 2021.
