James Vincent reports America’s trade war with China has been quietly escalating for years, but this week it took a turn for the disastrous. Huawei, once the rising star of China’s tech industry, has been cut off from US suppliers, leaving the company effectively stunted. China is likely to respond somehow, but with a multitude of options on the table, many in the tech industry are now considering nightmare scenarios. One particularly chaotic option would be a ban on the export of rare earths — raw materials that are crucial for electronics. These elements are produced mostly in China, and used in the US for everything from electric cars to wind turbines, smartphones to missiles.
Chinese state media have backed the idea, calling America’s dependence on Chinese rare earths “an ace in Beijing’s hand.” President Xi Jinping hinted at that possibility when he visited a rare earth facility at the beginning of this week. (As a ministry spokesperson commented with what seemed like a nod and a wink: “It is normal that the top leader investigates relevant industrial policies. I hope everyone can interpret it correctly.”)
Rare earth elements are sometimes described as the “vitamins of chemistry,” as small doses produce powerful salutary effects. A sprinkle of cerium here and a pinch of neodymium there makes TV screens brighter, batteries last longer, and magnets stronger. If China suddenly shut off access to these materials, it would be like rewinding the tech industry back a few decades. And no one wants to ditch their iPhone and go back to a BlackBerry.
Experts in the field, though, are much less concerned about such a chilling scenario. They say that while a restriction on rare earth exports would have some immediate adverse effects, the US and the rest of the world would adapt in the long run. “If China really cuts off supply entirely then there are short term problems,” Tim Worstall, a former rare earth trader and commodities blogger tells The Verge. “But they’re solvable.” Far from being an ace in the hole, it turns out rare earths are more of a dashed hope of China.
The reasons for this are numerous, and span geography, chemistry, and history. But the most important factor is also the simplest to explain: rare earths just aren’t that rare. A group of 17 elements, rare earths are what the USGS (United States Geological Survey) describe as “moderately abundant.” That means they’re not as common as oxygen, silicon, and iron, which make up the vast majority of the Earth’s crust, but some are on a par with elements like copper and lead, which we don’t consider exotic or scarce. Significant deposits exist in China, but also Brazil, Canada, Australia, India, and the United States.
The challenge with producing rare earths (and the reason they were given their name) is that they’re rarely concentrated. These are chemically sociable elements, bonding with other compounds and minerals in the ore. This makes extracting the various rare earths from the ore is unusually difficult and costly procedure, [or more specially, to separate the 14 elements into marketable units, some have high value, but others currently have little value and are usually stockpiled for possible sale sometime in the future.]
As Eugene Gholz, a rare earth expert and associate professor of political science? at the University of Notre Dame puts it: “Once you take it out of the ground, the big challenge is chemistry not mining; converting the rare earths from rock to separated elements.” This is one of the reasons that countries like the U.S. have been more or less happy to cede production of rare earths to China. It’s a messy, expensive business, so why not let someone else do it? Other factors also helped, including lower labor costs and the existence of Chinese mines that produce rare earths as a byproduct....[the latter of which is geologically common that REE occur along with the mineralization of uranium, thorium, and other elements [see: a new deposit awaiting further development: http://www.i2mconsultants.com/downloads/corp/JGG-2-023.pdf ).
China’s sway in the rare earths market is a fairly recent state of affairs. Between the 1960s and the 1980s, the majority of the world’s supply was actually produced in America, from the Mountain Pass mine in California. The mine’s processing plant was shut down in 1998 after problems disposing of toxic waste water, and the whole site was mothballed in 2002 [this was a matter where the state and U.S. governments should have assisted the mine to continue production earlier this decade, and to encourage other mining companies to develop new REE mines in the U.S. (including Alaska)].
It’s only from the 1990s onward that China has shouldered the bulk of production, along with the associated environmental costs. (In 2010, the Chinese government estimated that the industry was producing 22.05 million tons of toxic waste each year.) An oft-referenced figure is that China now produces some 95 percent of the world’s rare earths, but Gholz says this statistic is “wildly out of date.” The USGS pegs China’s part as closer to 80 percent, and falling as new production develops. That is still a substantial chunk of the world’s supply; the question is: what happens if China does cut off the US?
Luckily, we have a very good idea of what would happen next because it’s already happened before. Back in 2010, China stopped exports of rare earths to Japan following a diplomatic incident involving a fishing trawler and the disputed Senkaku Islands. Gholz wrote a report of the fallout from this incident in 2014, and found that despite China’s intentions, its ban actually had little effect. Chinese smugglers continued to export rare earths off the books; manufacturers in Japan found ways to use less of the materials; and production in other parts of the world ramped up to compensate. “The world is flexible,” says Gholz. “When you try to restrict supplies to politically influence another country, people don’t give up, they adapt.” He says that although his report examined the rare earth industry as it was in 2010, the “conclusions are pretty much the same” in 2019.
If China did turn off the rare earth tap, there would be enough private and public stockpiles to supply essential sectors like the military in the short term. And while an embargo could lead to price rises for high-tech goods and dependent materials like oil (rare earths are essential in many refining processes), Gholz says it’s highly unlikely that you would be unable to buy your next smartphone because of a few missing micrograms of yttrium. “I don’t think that’s ever going to happen. It just doesn’t seem plausible,” he says. Even though a ban on rare earth exports is just speculation at this point, companies have begun to preempt any new Chinese restrictions. American chemical firm Blue Line Corp and Australian rare earth miner Lynas have already proposed new production facilities in the US, and rare earth stocks around the world have surged in response to the threat.
In the event of a ban, one of the most important backstops would be America’s Mountain Pass mine. Although the mine was closed after Chinese rare earths drove down prices, the facility is intact and resumed production last January. Recent estimates suggest it’s already supplying one-tenth of the world’s rare earth ores (though not their processing), and in the event of an embargo, it would be possible to bring Mountain Pass back up to speed. “By far the cheapest and fastest way to bring more material into the market — if there was a disruption — is just sitting there in California,” says Gholz. “It’s not like starting from scratch.” The kicker is how much that process might cost. Especially as any refining and separation plants built in the US would have to meet far higher environmental standards. As we’re seeing with Huawei and other casualties of Trump’s trade war, the real question isn’t whether adaptation is possible in the future, it’s how much pain you can stomach in the present.
[For also monitoring recent REE activities, see: http://i2mportal.com/search_resource.php?search_value=REE&sort=date#page=1
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