In a recent FT article, Beijing has proposed to further impose an export restrictions on rare earths elements (REEs), which would potentially harm U.S. weapons and other manufacturing sectors. This is the latest episode of what appears to be worsening U.S.-China relations, which began under Trump’s policy to make imports of U.S. technology—especially high-tech semiconductors—difficult for China.

Rare earths sector may well become the new theater of war not only between the U.S. and China, but its restrictions equally threaten the economic interests of Japan and the European Union. REEs consist of seventeen chemically similar metals—with special properties of ferromagnetism, superconductivity, and luminescence—and are classified either as light or heavy REEs. Often coined as “vitamins of the modern world“, REEs are embedded in applications such as face-centred catalysts for efficient oil production, hybrid electric vehicles, nickel metal hydride batteries, computer hard drives, glass additives, polishing powders, direct-drive high-power wind generators, speakers, nuclear fuels, radar, most weapons systems, and over a thousand other uses (see Table 1). While the U.S. government and the European Union have separately come up with a list of critical raw materials based on their importance and severity of the supply risk, REEs come up top of their list as the most critical among primary raw materials.

Table 1. Critical REEs and their Applications

Until the mid-1980s, the Mountain Pass in California supplied nearly 60 percent of the global demand for REEs. In 2002, faced with low prices and loose environmental regulations in China, the mine was closed down and this, in turn, transformed China into a dominant single supplier for the world economy.

It is, of course, important to note that China was a reliable supplier until a shipment of REE magnets from China to Japan was halted by a group of military nationalists and local officials protesting against the territorial dispute with Japan in Sep. 2010. While the incident did not necessarily spiral into a diplomatic crisis, a concerted WTO case against China’s export restriction policy by Japan and the U.S. governments further stress the growing uneasiness of advanced industrial countries over their dependence for Chinese production of REEs. Under Trump’s America First policy, deteriorating trade relations between China and the US has sown distrust not only between the two countries, but also towards the multilateral trade order built on principles of free trade and economic cooperation.

CHINA’S QUEST FOR GEO-ECONOMIC SUPREMACY
As the consensus around globalization and economic liberalism slowly eclipses, the rest of world has begun to embrace a wider role for China. The Belt and Road Initiative spanning 70 countries aims to connect Asia, Africa, and Europe through enormous infrastructure spending with China at the center. This undoubtedly expands Chinese economic and political influence, which occurred as the U.S. under Trump reverted to isolationism and nationalism. Through this policy, U.S. allies found themselves requiring to deal with Beijing on their own, ineffectively. Although Joe Biden’s presidency signals a return to U.S. foreign policy based on rebuilding old alliances and finding a concerted front against China, the damage has been done. African countries have turned towards China for loans, credits, and in some cases, humanitarian assistance. Latin America, historically allied with the U.S. in contentious ways, has found Chinese trade and investment as a new source of regional autonomy and a weapon for contesting U.S. hegemony.

China’s attempts at consolidating its influence will meet resistance under the Biden administration. However, dependence over access to critical raw materials—REEs being the most significant—can make U.S. attempts at rebalancing geo-economic and strategic relations more complicated. Today, China controls both production and processing of heavy REEs, which means that attempts at diversifying the REE supply chain are likely to be tempered by Chinese dominance in the sector.

But, it is not only security that is threatened by China’s single supplier dominance. Clean energy technology—a transition badly needed in response to climate change—is wholly dependent upon growing imports of permanent magnets and alloys. Over the long-term, the European Union strategy of developing a secondary supply chain and emphasizing recycling and substitution of REEs might offer ways forward.

However, in the short to medium-term, both industrialized and developing countries must find ways to build a constructive economic relationship with China. On the one hand, it might require the industrialized world accepting the apparent rise of China as inevitable, and in so doing end Western hegemony built since the Industrial Revolution of the 1800s. On the other hand, developing countries have already embraced China’s role in the world, evidently shown in their pragmatic relationship with Chinese state and capital. African governments have welcomed Chinese aid and loans, for example, especially given their loose political conditionalities compared to traditional international financial lenders.

References Cited
Smith Stegen, Karen. 2015. ‘Heavy Rare Earths, Permanent Magnets, and Renewable Energies: An Imminent Crisis’. Energy Policy 79 (April): 1–8. https://doi.org/10.1016/j.enpol.2014.12.015.

* The article was originally published in the magazine Analyzing War on February 24, 2021.