Rare Earth Elements: Elements of the New trade war

Do we all remember the periodic table which we studied during our school days? Rare Earth elements (REEs) are listed in the periodic table. REEs are 15 lanthanides that belongs to 57 to 71 in the periodic table. There are additional two elements named Scandium and Yttrium with atomic number 21 and 39 respectively. REEs are not rare, rather they are in abundance. Processing, Mining and transforming them into usable form is costly, complex and damaging to the environment. The stages of production include mining, separating, refining, alloying, and manufacturing to make REEs usable. REEs are critical because of various reasons. REEs are used in modern military equipment, phone speaker, LCD, radar, aircrafts, space vehicles and also in electric vehicles. For an example Europium is used in LCD and plasma screens, Neodymium is used in smartphones, wind turbines and also in permanent magnets. The United States was a major producer of REEs till 1980, but it was China who realized the value of REEs and became a major low-cost producer and leading exporter of REEs.

China’s Strategy

Between 1975 and 1990 China’s RE policy was to develop RE mining Industry. Gradually China started to export RE products. In 1985 China also started providing Export-tax reimbursement to attract more rare earth processing Industries. China exploited other markets of REEs through its low-cost strategy, and less regulatory environment. many companies of USA, Japan and France shifted its base to China. In early 1990s China was dominant in the supply of RE concentrates and separations when its total production accounted for more than half of the global RE production. Countries like France and Japan shifted its rare earth extraction facilities to China. This was in reality China’s long-term strategy to kill the other facilities of REEs so that it can take the advantage. Shifting the bases and processing plants without realizing that dependence on one country make the things more vulnerable was a strategic mistake made by Western countries. This exactly happen in 1990 when China started making the rules and regulations for the foreign companies stricter. They were not allowed for mining rare earth projects and were only allowed in joint ventures with Chinese companies. China shares of supply was recorded highest of 97% between 2005 and 2011. Although China has large mines, but it gained the advantages due to its processing facilities which separates the elements from the rock.

In 2010, When Japanese Coast guard stopped Chinese vessels from fishing near Senkaku Island which created some dispute between two nations, China temporarily suspended the REE exports to Japan, It was the time when Japan realized the mistake, they have made between 1975-1990. Soon after the suspension, in 2011 Japan invested around 200mn USD in Australian company Lynas corporation. This company Lynas corporation became the only company outside China that is capable of processing REEs. In 2012, USA, Europe and Japan filled a trade disputes against China in WTO, it was claimed that China was providing benefit to its own Industry at the expense of other countries. Ruling was done against China and China ended its export quota system in 2015.

Is there a trade war?

In May-2019 when the president of America Mr. Donald Trump announced the process of raising tariffs on approximately all imports from China that was around $300bn, it doesn’t include REEs in the list. A few days later a state-run press agency of China warned that by “waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength.” Policymakers in the USA are concerned about the supply chain disruptions of REEs which are very critical to US defense agency. USA doesn’t have any processing plant for REEs. Though they have re-opened Mountain pass mines of California in 2017 which was shut in 2002 but mountain pass mines cannot process REEs, mined material are being sent to China for processing. If there is any conflict in coming years between US and China, REEs would play a significant role and it will definitely give an advantage to China. We are already experiencing some heated debate on China-USA on Taiwan and South China sea issue.

The way forward

The coming 10 years are definitely going to be difficult for the countries which are affected due to this. China’s dominance in REEs is very tough to dismantle. Technology sharing, cooperation among the allies is the need of the hour. USA should work with its allies and work together on enhancing the processing of REEs so that dependency on one nation can be reduced. QUAD which is an alliance of USA, Japan, Australia and India can be a good platform to discuss and formulate a proper strategy to tackle this crisis. According to a US Geological Survey report China has about 37 percent of known global REE reserves but produces about 60 per cent of global REE. India has about 6 percent of global REE reserves and produces a miniscule 1 percent of global supply. India was one of the first countries to realize the importance of REEs, in 1950 India established “India Rare earths limited” a government owned enterprise, However India has not utilized based on the capacity it should have in the exploration. India has a developed geological data available and India should come up with a policy to allow companies to explore their findings in Indian ocean, India has a strong advantage in this region due to its strong business and cultural linkages. USA has to take the leadership role and work with its allies on this issue. USA should not contest with WTO dispute settlement mechanism because ultimately USA has to suffer if it continues to contest with WTO. A responsible leadership role under Biden to make a proper strategy is required, and USA must not forget to work together with its allies like Japan, Australia and India to tackle this crisis.

Pushkar Pushp
Pushkar Pushp
Bio- Research scholar (International Business) at Fore school of management. Area of Interest- Trade & Geopolitics, Asia-pacific.