The trade conflict between the US and China shows no signs of abating, with both sides hoping to endure the economic pain longer than the other.
The controversy has once again thrown the group of metals known as rare earth elements into the global spotlight.
China dominates every step of the rare-earth supply chain, controlling approximately 70% of global mining and producing 90% of the world’s processed rare earths.
A report published this week by the International Energy Agency noted that such “high market concentration” would make global supply chains “vulnerable to potential disruptions” in strategic sectors – such as energy, automotive, defense and AI data centres.
Earlier this month, Beijing tightened controls on rare-earth supplies. Starting Dec. 1, foreign companies anywhere in the world will need approval from the Chinese government to export products that contain even small amounts of rare-earth materials that originated in China or were produced using Chinese technology.
The move comes in response to the US expanding the list of Chinese companies denied access to the most advanced American semiconductor chips and other technologies.
China’s decision has raised concerns about potential supply shortages that could disrupt production of other products such as electric vehicles, defense equipment and renewable energy systems.
US Trade Representative Jameson Greer criticized Beijing’s new measures as “incredibly aggressive” and “disproportionate”, while EU trade chief Maros Sefcovic called them “unfair and harmful”.
Both the US and the EU are in talks with Beijing to ensure adequate rare-earth supplies for their companies.
Why are rare earths so important?
Rare earth elements have become an integral part of modern life due to their unique physical, magnetic and chemical properties. They are important in creating magnets that retain their magnetic properties indefinitely without the need for external power.
Metals are essential elements in all types of high-tech goods, including smartphones, laptops, hybrid cars, wind turbines and solar cells.
It also has important defense applications, such as jet fighter engines, missile guidance systems, anti-missile defense, space-based satellites, and communications systems.
Despite what their name implies, rare earths are not particularly rare and are moderately abundant in the Earth’s crust, some even more abundant than substances such as copper, lead, gold, and platinum.
However, they are rarely found in concentrations high enough to be economically extracted. Apart from China, reserves of rare-earth metals can be found in countries such as Canada, Australia, the US, Brazil, India, South Africa and Russia.
According to the separation process, rare earths are generally divided into two categories: light rare earths and heavy rare earths.
China has a near-monopoly, especially on the processing of heavy rare earths.
According to Benchmark Mineral Intelligence, a UK-based pricing and data research firm for energy transition minerals, Chinese companies account for 99% of global heavy rare-earth processing,
Why are other countries struggling to boost supplies of rare earths?
The United States was once self-sufficient in rare earths, but over the past two decades, China has emerged as a major player in their production. China’s hold on these vital materials was evident even a decade ago.
Many have long suspected that Beijing could use it as a bargaining chip in its geopolitical disputes. In 2010, China cut rare-earth exports to Japan due to regional conflict, raising concerns.
At the height of the US–China trade dispute in 2019, during Donald Trump’s previous term as US President, Chinese state media suggested that rare-earth exports to the US could be cut in response to the US measures.
At the time, Chinese President Xi Jinping called the elements “an important strategic resource.”
But efforts to reduce Chinese dependence on rare earths have made little progress so far.
US wants to boost rare-earth production
To counter China’s dominance, the Trump administration is attempting to make deals with partners to secure supplies of rare earths.
But experts say the real challenge for China to diversify away from rare earths lies in increasing refining and processing capacity.
“The first thing the United States needs to do is prioritize the midstream, and that’s the processing and refining part,” said Carl Friedhoff, an expert at the Chicago Council on Global Affairs. A blog published on October 16 said,
“Without midstream controls, we have raw minerals, but we still have to send them to China to be processed,” he said, underscoring the need to set up processing plants and refineries in other countries.
However, this would bring a series of problems “especially on the environmental side”.
What are the challenges?
China’s dominance in rare-earth production came at a heavy environmental and social cost.
Mining involves environmental and human health hazards, as all rare-earth ores contain radioactive elements, such as uranium and thorium, which can contaminate the air, water, soil, and groundwater.
Challenges also include setting up processing plants that comply with strict environmental regulations in Western countries, which may prove more expensive and time-consuming.
Rare-earth processing is also extremely energy- and water-intensive, which may lead to public opposition in areas where such facilities are planned.
It is also technologically complex and China maintains a strong technological lead with decades of experience, trained personnel and an industrial ecosystem that is difficult for others to replicate.
according to a report Published by the US-based Center for Strategic and International Studies (CSIS) in July, China has “unrivalled technical expertise in rare earth processing, particularly in solvent extraction” – a critical and complex step in rare earth element separation.
“Western companies have struggled due to limited workforce capabilities, research and development, and environmental regulations,” the report said.
The report said a move away from Chinese rare-earth supply would require not only new mines outside China, but also new refining facilities, skilled labor and economic incentives for companies, including price stability and secure purchasing agreements with downstream industries such as automotive and defense.
The authors of the CSIS report urged the US to develop a strategy to rebuild rare-earth technical expertise and establish processing centers. However, it will require “more than securing competitively priced raw material feedstock” to become cost-competitive.
“It also requires reliable access to low-cost energy, efficient transportation infrastructure, advanced processing technologies, and affordable, skilled labor,” he said.
Even if all necessary measures are taken, commodity experts believe that China will continue to dominate the sector in the near future.
But “without rapid and coordinated action,” the CSIS report underlined, “the window to counter China’s strong dominance will continue to narrow, putting vital technologies, industries and security interests at risk.”
Edited by: Uwe Hessler