Introduction to Rare Earth Elements
The US-China trade conflict shows no signs of easing, with both sides stepping in and hoping they can endure the economic problems longer than the others. The dispute has once again thrust a group of metals known as rare earth elements into the global spotlight. China dominates every stage of the rare earths supply chain, controlling nearly 70% of the world’s mining and producing up to 90% of the world’s processed rare earths.
Importance of Rare Earth Elements
Rare earth elements have become an integral part of modern life due to their unique physical, magnetic and chemical properties. They are the key to making magnets that retain their magnetic properties indefinitely without the need for an external power supply. The metals are essential components of all types of high-tech goods, including smartphones, laptops, hybrid cars, wind turbines and solar cells, among others. There are also important defense applications such as jet engines, missile guidance systems, missile defense, space-based satellites and communications systems.
Challenges in Increasing Supply
Despite what their name suggests, rare earths are not particularly rare and are moderately abundant in the Earth’s crust, some even more abundant than substances such as copper, lead, gold and platinum. However, they are rarely found in high concentrations that can be economically extracted. In addition to China, there are deposits of rare earth metals in countries such as Canada, Australia, the USA, Brazil, India, South Africa and Russia. China has a near-monopoly, particularly when it comes to processing heavy rare earths.
Why is it Difficult for Other Countries to Increase Supply?
The United States was once self-sufficient in rare earths, but over the past two decades, China has emerged as a dominant player in the production of these rare earths. China’s stranglehold on these critical materials was already evident a decade ago. Many have long suspected that Beijing could use it as a bargaining chip in its geopolitical disputes. In 2010, China halted rare earth exports to Japan due to a territorial dispute, heightening concerns. At the height of a US-China trade dispute in 2019, during Donald Trump’s previous term as US president, Chinese state media suggested that rare earth exports to the US could be cut in response to American measures.
Environmental and Social Costs
China’s dominance in rare earth production came with high environmental and social costs. Mining poses risks to the environment and human health because all rare earth metals contain radioactive elements such as uranium and thorium, which can contaminate air, water, soil and groundwater. The separation and refining of rare earth metals leaves behind toxic waste and radioactive byproducts. Challenges also include building processing facilities that meet Western countries’ strict environmental regulations, which could prove more costly and time-consuming. Rare earth processing is also extremely energy and water intensive, which could lead to public opposition in areas where such facilities are planned.
Technical Complexity
Rare earth processing is also technically complex and China maintains a strong technological edge with decades of experience, trained personnel and an industrial ecosystem that is difficult for others to replicate. A report by the US Center for Strategic and International Studies (CSIS) published in July, China has “unmatched technical expertise in rare earth processing, particularly in solvent extraction” – a crucial and complex step in rare earth separation. Western companies have struggled with limited workforce capacity, limited research and development, and environmental regulations.
Need for Diversification
Diversifying away from China’s supply of rare earths requires not only new mines outside China, but also new refining facilities, a skilled workforce and economic incentives for companies, including price stability and secure purchasing contracts with downstream industries such as automotive and defense. The authors of the CSIS report called on the U.S. to develop a strategy to rebuild technical expertise in rare earths and establish processing centers. In order to become price competitive, however, it would require “more than just securing raw materials at competitive prices”. It also requires reliable access to low-cost energy, efficient transportation infrastructure, advanced processing technologies and affordable, skilled labor.
Conclusion
Even if all necessary measures were taken, commodity experts believe that China would continue to dominate the sector in the near future. But “without rapid and coordinated action,” the CSIS report emphasized, “the window of opportunity to combat China’s entrenched dominance will continue to narrow, further endangering critical technologies, industries and security interests.”
