A week after Chinese cellphone giant Huawei was effectively banned from the US, the escalating tariff war between Washington and Beijing has now entered new territories.
China warned the US on Wednesday that escalating trade tensions would result in a ban on the export of rare-earth-materials to the US.
Leverage in trade war
China is the world’s largest supplier of rare-earth minerals, a sub-group of minerals where the U.S. is particularly reliant on China.
About 35% of rare earth global reserves are in China, the most in the world, and the country produced 70% of total rare earths in 2018, according to the United States Geological Survey.
It also hosts most of the world’s processing capacity, shipping in rare-earth-ores mined in California due to the absence of comparable processing plants in the US.
China supplied 80% of the rare earths imported by the United States from 2014 to 2017. The US Defense Department accounts for about 1% of that demand, which in turn accounts for about 9% of global demand for rare earths, according to a 2016 report from the congressional U.S. Government Accountability Office.
What are rare earths?
Rare earths, a suite of 17 minerals including lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, yttrium – that appear in low concentrations in the ground.
These minerals are a crucial component in the operation of electric motors, wind turbines, and development of military technology such as jet engines, missile guidance systems, antimissile defense systems, satellites, as well as in lasers. Lanthanum, for example, is needed to manufacture night vision devices.
Leading arms manufacturers in the US like Raytheon, Lockheed Martin and BAE Systems make sophisticated missiles using imported industrial-grade metal from rare earths.
In day-to-day application, rare earths are used in rechargeable batteries for electric and hybrid cars, advanced ceramics, computers, DVD players, oil refineries, monitors, televisions, lighting, lasers, fiber optics, superconductors and glass polishing. Apple uses rare earth elements in speakers, cameras and the so-called “haptic” engines that make iPhones vibrate.
Use of strategic minerals as a trade weapon
Ars Technica says processing the minerals can be environmentally taxing and wealthier countries like the US have little appetite for being home to a processing plant that creates a lot of (sometimes radioactive) waste.
But despite rare earths being difficult and costly to process cleanly, they are mined in India, South Africa, Canada, Australia, Estonia, Malaysia and Brazil. Despite the name, therefore, rare-earths are not all that rare. This considerably weakens Beijing’s presupposition it can use its dominance in the sector as a leveraging chip in the trade war.
But what poses the real challenge is the fact that other countries supplying rare earths to the US, like Estonia (6%), France (3%) and Japan (3%), derive a lot of their material from mineral concentrates and chemical substances produced in China.
In this regard, an Australian rare-earth minerals company announced last week that it would join with a US chemical company to build a rare-earths processing plant in Texas, but such a plant is likely years away from becoming a reality.
The warning is already being seen as a decisive moment for global powers to reduce their dependence on China, which has tried to restrict its rare-earths supply before.
In 2010, it cut its export quota by 40 percent and sent prices skyward. In 2012, the US asked the World Trade Organization (WTO) to intervene, and in 2014, the WTO said that China’s restriction of rare-earth-metals exports violated international trade law.
Back then, according to The Verge, “Chinese smugglers continued to export rare earths off the books; manufacturers in Japan found ways to use less of the materials; and production in other parts of the world ramped up to compensate.”
Consumer electronics such as smartphones and tablets are among the major application areas for rare earth metals and strong sales in this segment – totalling almost US$ 155 million worldwide last year – is ‘propelling’ the demand for rare earth metals.
“Currently, it’s still just a possibility that China may ban or do some kind of restrictions,” SAYS Racket Hu, a researcher at Shanghai Metals Market. “But if it does happen, then we believe prices of rare earths will surge,” he said in an interview to Bloomberg TV.
The possibility of inflation and surplus demand stemming from the export ban also sets the stage for rare earth recycling.
The US has already been looking for alternatives in treated coal sludge from West Virginia mines that are reputed to contain heavy rare earths. In April, US senators reintroduced the Rare Earth Element Advanced Coal Technologies Act (REEACT) to try to glean some of these minerals from coal-mining waste.
With respect to recycling, many tech companies have argued that such elements are not available from traditional recyclers because they are used in such small amounts they cannot be recovered. To date, less than 5% of rare earths are recycled from end-of-life devices.
But various research projects are currently underway around the world, to boost recycling rates. Leading the way is Japan, where students of Kanazawa University are hoping to replace acids with organic compounds to better recover the metals. This approach is known as chelation chemistry.
Why it matters to us
In India, where rare earths occur along its long coastline, sand mining has come under heavy scrutiny as part of a crackdown on corruption and environmental erosion.
In February, the Ministry of Mines in its notification said, “coastal areas in Kerala, Tamil Nadu, Odisha and Andhra Pradesh, where beach sand is laced with rare earth minerals, have been suffering erosion, damaging the eco-system and threatening the livelihoods of indigenous fishermen owing to unscientific and illegal mining of beach sand”.
This effectively restricted the export of beach sand minerals exclusively though State-run Indian Rare Earths Limited, banning private sector miners from directly trading rare earths.
Indian miners this week sought the rescinding of the ban. In light of the Chinese threat, a sustainable and supervised revival of rare earth mining can help India fill the vacuum and cater to the global demand for the minerals.
Prarthana Mitra is a Staff Writer at Qrius