China Flexes Marketplace Muscle

Anyone who has doubts about the growing economic power of China needs to take a close look at the country’s recent action to halt the export of important rare-earth minerals. The elements are used for a variety of consumer electronics products, as well as for military devices such as night-vision goggles, radar, and precision-guided weapons.

China currently controls 97% of the world’s market for rare-earth elements, and the country wielded its near-monopoly power in mining the metals when it imposed a de facto embargo on the export of those minerals, amid rising diplomatic tensions with the United States and Japan. The halt of rare-earth exports by China should serve as a clarion call that the world’s most populous country cannot be viewed as a reliable trading partner and does not need much of a reason to use its market power as a diplomatic weapon.

The embargo of rare-earth exports to the United States and Europe began without warning on Oct. 18 when China’s top energy official, Zhang Guobao, summoned foreign journalists in Beijing to blast the U.S. government’s announcement that it would investigate whether China unfairly provided financial support to its domestic clean-energy industry. The probe is intended to determine whether China subsidized advanced batteries and wind and solar energy products in violation of World Trade Organization (WTO) rules.

China had already ceased exporting rare-earth elements to Japan on Sept. 21. That action followed Japan’s arrest of a Chinese fishing boat captain who allegedly collided his vessel with two Japanese Coast Guard ships on Sept. 8. Japan released the captain on Sept. 24, three days after China halted rare-earth shipments to its Asian trading partner. On Oct. 28, China resumed rare-earth exports to Japan, the United States, and Europe without acknowledging that the embargo was an official response by its government to disputes with its trading partners.

Chinese Trade Tactics

Free-trade rules exist to instill basic fairness in international commerce. If one nation selectively subsidizes its companies, devalues its currency artificially to boost its exports, and sets quotas to drive up prices to foreign buyers in certain markets that it dominates, that nation should be held accountable. The Chinese policies mean that the rare-earth element lanthanum sells for less than $4,500 a ton in China but for up to 10 times that much to buyers outside of the country, according to The New York Times.
Regardless of any action that the WTO may take against China, the United States, Europe, and Japan need to develop alternative sources for mining rare-earth metals to ensure a dependable supply. They should not wait for the next time China opts to cut off the export of such minerals, since developing supplies elsewhere will take years.

Single-source suppliers of any good or service have monopoly power in the marketplace. Now that China has shown itself to be a fickle provider of rare-earth metals, investments are warranted to develop viable alternatives in the United States and elsewhere.

Despite’s China’s current hammerlock on production of rare-earth elements, it has only 37%, or 36 million tonnes, of the world’s estimated reserves, according to the British Geological Survey. The former Soviet bloc nations have roughly 19 million tonnes, the United States possesses 13 million tonnes, while sizable amounts also exist in Australia, India, Brazil, and Malaysia.

Demand is expected to rise as the use of rare-earth elements grows in electronic, optical, magnetic, and catalytic applications. The elements specifically are integral to energy efficiency, environmental technologies, hybrid and electric vehicle motors, digital technology, petroleum refining, and computer disk drives.

Exactly How Rare?

Use of the term “rare-earth” minerals is actually a misnomer, since the metals are relatively plentiful in the earth’s crust, even though none of the rare-earth elements are household-name metals like gold, silver, or copper. Specifically, rare-earth minerals consist of a group of 17 naturally occurring metallic elements, such as neodymium, lanthanum, cerium, scandium, yttrium and europium, which are used in relatively small amounts for various purposes.

U.S. government officials are starting to become aware of the significance of rare-earth elements. U.S. Secretary of State Hillary Clinton called China’s recent embargo of rare-earth element shipments “a wake-up call.”

The U.S. General Accounting Office (GAO) provided a briefing for Congressional committees on April 1 that predicted that rebuilding a U.S. rare-earth supply chain could take up to 15 years and will depend on a number of factors. Those factors include securing capital investments in processing infrastructure, developing new technologies, and acquiring patents currently held by international companies.

Legislation Stalls

However, rhetoric and cautionary GAO reports do not solve the problem. Legislation has been prepared to address the situation, and it warrants bipartisan support to become law. Bills put forth by members of both political parties are intended to support research and development to advance rare-earth technology from mining to manufacturing, as well as to provide loan guarantees for companies seeking to mine and to process rare-earth elements in the United States.

First-term Rep. Kathy Dahlkemper (D–Pa.), who was among dozens of Democrats on the losing end of Nov. 2 re-election bids, authored H.R. 6160, which passed the House on Sept. 29. But her legislation has not been taken up by the Senate, and her lame-duck status will not help to draw additional supporters before the current session of Congress ends. Another bill, H.R. 4866, introduced by Mike Coffman (R–Colo.), who won re-election Nov. 2, includes an additional provision that calls for the creation of a national security stockpile of rare-earth minerals, but it had not passed through the Democrat-controlled House by the midterm Congressional elections.

Sen. Lisa Murkowski (R–Alaska), who after losing the Aug. 24 Republican primary may have retained her seat through the most successful senatorial write-in campaign in history, introduced a rare-earth bill, S. 3521, in June that led to a Sept. 30 hearing before the Subcommittee on Energy. Her bill has five Senate Republican co-sponsors: John Barrasso and Mike Enzi of Wyo.; Mike Crapo and Jim Risch of Idaho; and David Vitter of La., who are returning in the next Congress that starts Jan. 3. They could unite to give their effort another try next year in hopes of winning support from others in the upper chamber, which will still be controlled by Democrats.

America’s current status as a rare-earth elements importer is most ironic. The United States was the prime producer of rare-earth metals until the 1990s, when China started to undercut American companies on costs, according to MIT Technology Review magazine. A rare-earth mine in Mountain Pass, Calif., shut down in 2002 because of environmental and cost issues, but it reopened in 2007. Economic assessments currently are underway for potential rare-earth mines at Bear Lodge, Wyo., Diamond Creek, Idaho, and Elk Creek, Neb., according to the U.S. Geological Survey.

Now, America must rebuild its capabilities to ensure that it will have ready access to rare-earth minerals as demand climbs.