China's rare earth role

How China came to monopolize the rare earth supply chain is a complex story. Today, it delivers 97 percent of the world’s rare earth elements and uses 60 percent to 70 percent. The United States had a rare-earth mine until 2002 at Mountain Pass, California. It was closed partly because of environmental violations, but more so, say officials, because of the inability to compete with the lower-cost rare earth elements being delivered onto the world market by China.

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Molycorp, a company based in metropolitan Denver, recently bought the mine has now brought the mine back into production, but is sending the ores to China for processing while it readies its own processing.

China has used its rare earth deposits strategically. It has pledged allocation of resources to companies that are at least co-owned by Chinese. The policy had the practical effect of causing a substantial number of companies to move operations to China. China has been imposing tariffs on rare earth exports for several years, and has also begun cutting back exports.

It has also used its near monopoly on rare earth supplies as leverage in diplomatic disputes. For example, as the result of a territorial dispute involving a Chinese fishing trawler, the Chinese embargoed exports to Japan for two months in 2010. In March, President Barack Obama announced that the United States would join Japan and the European Union in a protest filed with the World Trade Organization (WTO) over the restricted exports. The complaint says the WTO rules forbid discrimination against foreign buyers.

Elliot Brennan, editor at the Institute for Security and Developing Policy at in Stockholm, Sweden, argues that rare earth elements, often reduced to the acronym REE, are likely to become “the new oil,” as he says China recognized 20 years ago. “It will be increasingly important for governments to secure national reserves of rare earth elements to support local high-tech industries and prevent future conflicts over the resource,” he wrote in Asia Times Online.

But the story has greater complexity than China simply wanting to have the world by the short hairs. China’s dominance in rare-earth resources is due in part to the flourishing of illegal mines whose output is smuggled. China now wants to clamp down on the rogue mines, consolidate ownership under a few corporations, and tighten up the environmental laxness. A compelling analysis of the international intrigue is offered by foreign policy analyst Peter Lee. In a March 24 essay, Lee argues that the complaints of other nations amount to a “China-bashing ball.”

“Not only were rare earth elements declared to be at the core of Western defense technology; enjoyment of the green marvel of the Prius and the high tech wonder of the iPhone were trained by the awareness that China, with its rare earth monopoly, could snatch them away at any time,” he wrote in Asia Times Online. Lee predicts that, “in a few years the dreaded Chinese rare earth monopoly will have collapsed, with the assistance of the Chinese themselves, and the free world can enjoy its hybrid vehicles, its smart phones, its Tomahawk missiles, and its night vision goggles free of the anxiety that China will make the rare earth world go dark.”

(Banner photo by Göran Kartläsarn/Flickr)

Allen Best is a long-time journalist based in Colorado. He can be found at http://mountaintownnews.net.

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Published on May 1, 2012

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