China responded to President Trump’s tariff increases with various kinds of retaliation. Two months ago, China “suspended the export of some of the 17 rare-earth metals and magnets that are vital to American defense, energy and automotive industries,” notes The Doomslayer.
The media expressed alarm about China’s embargo of rare-earth metals. The New York Post said China was “kneecapping US industry.” The BBC said China had dealt “a major blow to the US.” The Economist wrote that China could use rare earths as a “weapon that could hurt America.”
But China has less control over American industry than the media think. It is true that China produces 61% of rare-earth minerals, and processes a whopping 92% of them. But the media’s alarm is probably overblown, because past Chinese rare-earth embargoes did not inflict the damage people feared. The Doomslayer notes that
Fifteen years ago, following a dispute with Tokyo over contested waters, China imposed a rare-earth embargo on Japan, while cutting its rare-earth export quotas to the rest of the world by 40%. Beijing’s actions rang alarm bells across the industrialized world. Prices of the rare-earth metals spiked, with cerium soaring from $4.15 a kilogram in January 2010 to $150.55 in July 2011. American defense analysts warned that Beijing was exploiting a strategic vulnerability. U.S. manufacturers scrambled for alternatives to the minerals, which play a crucial role in everything from wind turbines to precision-guided missiles….At the time China controlled 93% of global rare-earth production and more than 99% of the most valuable heavy rare earths. Congress convened a hearing on China’s rare earths monopoly, with Rep. Don Manzullo (R., Ill.) saying that Beijing’s action “threatens tens of thousands of American jobs.”
But market mechanisms undermined China’s attempt at resource leverage. In the early 2010s, supply growth outside China accelerated. Projects already in development by Molycorp in California and Lynas in Australia ramped up, adding tens of thousands of metric tons of production capacity. By 2014 China’s market share of rare earths had fallen from more than 90% to about 70%.
China’s export quotas also proved surprisingly porous. Producers exploited loopholes by shipping minimally processed alloys exempt from restrictions, while an estimated 15% to 30% of production was smuggled through neighboring countries. Beijing’s inability to police thousands of small miners fatally undercut its embargo.
Manufacturers displayed remarkable adaptability. Refineries temporarily substituted alternative catalysts, and magnet producers optimized alloys to use less rare-earth material, some even switching entirely to new technologies.
China’s 2010 rare-earth embargo was so ineffective that prices of rare-earths fell back to pre-embargo levels.
That showed how hard it is to use raw materials as an economic weapon against other countries.
Moreover, America’s U.S. defense industry has since cut its reliance on rare earths dramatically (to less than 0.1% of global demand), and U.S. weapons programs have built up rare-earth reserves to cope with embargoes and other temporary supply disruptions.
Despite being called “rare,” rare earths are actually not all that rare. One rare earth mineral, cerium, is the 25th most common element on Earth. It forms more of the earth’s crust than copper. Rare earths are deemed “rare” because they are seldom found in their pure form, and tend to be dispersed among other minerals. They also are hard to mine, because they often are bound up with mineral hosts that contain radioactive thorium or uranium. Only in that sense are “rare-earth” minerals rare.
