Rare earths: China's double-edged sword

I’ve just read two very interesting articles about China’s threat to restrict rare earths exports to the US. The first is from the Financial Times1 and the other is from China Law Blog2. They explain how China is warning the US that it could cut off its rare earths supply as retaliation against the new US tariffs.

On the one hand, China accounts for about 80% of the global mined supply of rare earths, and those are used in a lot of high-tech products, namely electric cars, smartphones, MRI scanners and night vision goggles. It therefore seems like a very serious threat, all the more so as the US is the first importer of Chinese rare earths (14 tons in 2017), with Japan following closely (12 tons), and South Korea far behind (5 tons).

However, the value of those rare earths imports only amounted to $160m in 2018, whereas total imports were worth $540bn the same year. Indeed, the US imports very little directly from China, and export restrictions would mainly impact Japan and other Asian countries, which China does not wish to target. Furthermore, China surprisingly became last year a net importer of rare earths, as a result of prioritizing high-tech industries such as rare earth magnets and electric motors. In addition, Australian company Lynas has woven close ties with Japanese magnet makers and the US might revive its own rare earth industry with its Mountain Pass mine in California.

What’s more, the reason behind China’s astonishingly low rare earths prices can be explained by three main reasons: low efforts to enforce environmental regulations, low wages and dire working conditions, and extremely high domestic competition. As a result, China takes the pollution and health risks, keeps it inside and exports it at an exceptionally low price so that foreign high-tech companies keep the profit for themselves. It is estimated that the current price of rare earths is at only 1/4 of the price a well-regulated operation would charge. More alarming is the fact that, since manufacturers are owned and controlled by provincial and local governments, capacity is not linked to demand and manufacturers will have to keep on increasing the supply.

This is not even a real winning situation for the West as it has now lost its capacity to process rare earths… Also, it is the same situation with polycristalline silicon, which is used to make solar cells and silicon-based electronic products.

I am surprised both that China has been willing to harm its mainland for so long to assert a monopoly that doesn’t even benefit her that much financially, and that Western countries have been naive enough not to see how giving a monopoly to a dictatorship was not a brilliant idea to say the least.


  1. https://www.ft.com/content/3cd18372-85e0-11e9-a028-86cea8523dc2 ↩︎

  2. https://www.chinalawblog.com/2019/06/chinas-rare-earths-weakness-not-strength.html ↩︎

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