Keith Johnson, Corespondent for Foreign Policy - Rare Earths and the US/China Trade War

Keith Johnson, Corespondent for Foreign Policy
Rare Earths and the US/China Trade War

 

Rare earths aren’t earths and they aren’t rare.  The term applies to 17 minerals with names you’ve rarely heard of: cerium, dysprosium, erbium, europium, gadolinium and promethium, just to name a few.   And promethium is so not-rare, that there is more of it on earth than copper.

But rare earths are often hard to mine and process and usually come bound up with something else, often something radioactive like thorium or uranium, which makes it hard to handle.

In part, because it isn’t fussy about exposing its workers to dangers like radioactivity, in part because it isn’t generous when it comes to paying them, and in part because it doesn’t mind state subsidies to let loss leaders be marketed at unprofitable prices, China has virtually cornered the world market on rare earths processed for export.

The United States economy, which is heavily dependent on rare earths for everything from smart phones to ear buds, wind turbines and electric cars gets 80 percent of its imported rare earths materials from China.  Which is why Wall Street is watching carefully as the Chinese government floats the idea of putting export controls on rare earths, and denying them to America as payback for the Trump Administration’s attempt to freeze the Chinese communications company Huaiwei out of global markets.

The impact of a Chinese cut-off of rare earths to the U.S., one well-placed strategic materials expert told our guest Keith Johnson of Foreign Policy, would be devastating.  “It would affect everything – autos, renewable energy, defense, and technology,”

Did he say defense?  Indeed, he did.  The American military’s appetite for rare earths materials is like your appetite for air.  Highly processed rare earths are essential, Johnson recently reported, to “every advanced weapon in the U.S. arsenal – from Tomahawk missiles to the F-35 fighter jet to Aegis-equipped destroyers and cruisers and everything in between.”

What are the options for switching from China to some other supplier?  Not so good.  The Trump Administration is pressing mining companies in Canada and Australia to start digging up rare earths, but that would take four or five years at least before the first ore was produced, and re-building a rare earths processing industry, assuming that financing which has been hard to get, suddenly becomes available, would take five years to a decade.

Cashing in on these big investments will likely depend on the U.S.-China trade war never ending, because once it does, and the market for Chinese rare earths products reopens, China is likely to resume the tactics which have driven almost all of its international wannabe competitors into bankruptcy.

Of course, all the talk about Chinese export controls on rare earths may be nothing but a Beijing bluff, because, as China found out after a brief rare earths skirmish with Japan 10 years ago, the short-term gains from trade war tough-guyism are often negated by long-term losses from labeling yourself as an undependable supplier.

Still, the potential for a rare earths shortage seems to be one of those niggling details Donald Trump didn’t consider before he leapt into trade-combat with Xi Jinping.

 

READING ROOM

 

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. He has been at FP since 2013, after spending 15 years covering terrorism, energy, airlines, politics, foreign affairs, and the economy for the Wall Street Journal. He has reported from Europe, the Middle East, Africa, and Asia.

https://foreignpolicy.com/2019/06/11/how-china-could-shut-down-americas-defenses-rare-earth/

https://foreignpolicy.com/2019/05/21/china-raises-threat-of-rare-earth-mineral-cutoff-to-us/

https://foreignpolicy.com/2019/05/31/trump-starts-a-new-trade-fight-in-the-middle-of-an-old-one-mexico-amlo-tariffs-immigration/

https://foreignpolicy.com/2019/05/29/most-people-dont-know-what-a-tariff-is/

https://www.nytimes.com/reuters/2019/06/17/business/17reuters-china-rareearths.html?searchResultPosition=2

https://www.nytimes.com/reuters/2019/06/14/business/14reuters-usa-trade-rareearths-australia.html?searchResultPosition=5

https://en.wikipedia.org/wiki/Rare-earth_element

https://www.nytimes.com/reuters/2019/06/16/business/16reuters-china-rareearths.html?searchResultPosition=3

https://www.nytimes.com/reuters/2019/06/16/business/16reuters-china-rareearths.html?searchResultPosition=3

https://www.nytimes.com/reuters/2019/06/11/world/asia/11reuters-usa-minerals-china.html?searchResultPosition=14

https://www.nytimes.com/reuters/2019/06/11/business/11reuters-usa-trade-china-rareearths.html?searchResultPosition=15

https://www.nytimes.com/reuters/2019/06/10/technology/10reuters-china-economy-trade-rareearths.html?searchResultPosition=20

 

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