Despite the name, rare earths just aren’t that rare
America’s trade war with China has been quietly escalating for years, but this week it took a turn for the disastrous. Huawei, once the rising star of China’s tech industry, has been cut off from US suppliers, leaving the company effectively stunted. China is likely to respond somehow, but with a multitude of options on the table, many in the tech industry are now considering nightmare scenarios.
One particularly chaotic option would be a ban on the export of rare earths — raw materials that are crucial for electronics. These elements are produced mostly in China, and used in the US for everything from electric cars to wind turbines, smartphones to missiles.
Chinese state media have backed the idea, calling America’s dependence on Chinese rare earths “an ace in Beijing’s hand.” President Xi Jinping hinted at that possibility when he visited a rare earth facility at the beginning of this week. (As a ministry spokesperson commented with what seemed like a nod and a wink: “It is normal that the top leader investigates relevant industrial policies. I hope everyone can interpret it correctly.”)
Rare earth elements are sometimes described as the “vitamins of chemistry,” as small doses produce powerful salutary effects. A sprinkle of cerium here and a pinch of neodymium there makes TV screens brighter, batteries last longer, and magnets stronger. If China suddenly shut off access to these materials, it would be like rewinding the tech industry back a few decades. And no one wants to ditch their iPhone and go back to a BlackBerry.
Experts in the field, though, are much less concerned about such a chilling scenario. They say that while a restriction on rare earth exports would have some immediate adverse effects, the US and the rest of the world would adapt in the long run. “If China really cuts off supply entirely then there are short term problems,” Tim Worstall, a former rare earth trader and commodities blogger tells The Verge. “But they’re solvable.”
Far from being an ace in the hole, it turns out rare earths are more of a busted flush.
China currently dominates the world’s supply of rare earth elements. Credit: USGS
The reasons for this are numerous, and span geography, chemistry, and history. But the most important factor is also the simplest to explain: rare earths just aren’t that rare.
A group of 17 elements, rare earths are what the USGS (United States Geological Survey) describe as “moderately abundant.” That means they’re not as common as oxygen, silicon, and iron, which make up the vast majority of the Earth’s crust, but some are on a par with elements like copper and lead, which we don’t consider exotic or scarce. Significant deposits exist in China, but also Brazil, Canada, Australia, India, and the United States.
The challenge with producing rare earths (and the reason they were given their name) is that they’re rarely found in concentrated lumps. These are chemically sociable elements, happy to bond with other compounds and minerals and tumble about in the dirt. This makes extracting rare earths from common earth like convincing a drunk friend to leave a raucous party: a lengthy and harrowing procedure.As Eugene Gholz, a rare earth expert and associate professor of political science at the University of Notre Dame puts it: “Once you take it out of the ground, the big challenge is chemistry not mining; converting the rare earths from rock to separated elements.”
Unlike convincing that drunk friend, though, this process involves a series of acid baths and unhealthy doses of radiation. This is one of the reasons that countries like the US have been more or less happy to cede production of rare earths to China. It’s a messy, dangerous business, so why not let someone else do it? Other factors also helped, including lower labor costs and the existence of Chinese mines that produce rare earths as a byproduct.
China’s sway in the rare earths market is a fairly recent state of affairs. Between the 1960s and the 1980s, the majority of the world’s supply was actually produced in America, from the Mountain Pass mine in California. The mine’s processing plant was shut down in 1998 after problems disposing of toxic waste water, and the whole site was mothballed in 2002.
It’s only from the 1990s onward that China has shouldered the bulk of production, along with the associated environmental costs. (In 2010, the Chinese government estimated that the industry was producing 22.05 million tons of toxic waste each year.) An oft-referenced figure is that China now produces some 95 percent of the world’s rare earths, but Gholz says this statistic is “wildly out of date.” The USGS pegs China’s part as closer to 80 percent.
China’s Consumption Of Coal Steadily On The Rise
Low labor costs and lax environmental regulations precipitated China’s rise in rare earth mining. Photo by China Photos/Getty Images
That’s still a substantial chunk of the world’s supply, though, and with no doubt that these are important commodities, the question is: what happens if China does cut off the US?
Luckily, we have a very good idea of what would happen next because it’s already happened before. Back in 2010, China stopped exports of rare earths to Japan following a diplomatic incident involving a fishing trawler and the disputed Senkaku Islands. Gholz wrote a report of the fallout from this incident in 2014, and found that despite China’s intentions, its ban actually had little effect.
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. “The world is flexible,” says Gholz. “When you try to restrict supplies to politically influence another country, people don’t give up, they adapt.”
He says that although his report examined the rare earth industry as it was in 2010, the “conclusions are pretty much the same” in 2019.
If China did turn off the rare earth tap, there would be enough private and public stockpiles to supply essential sectors like the military in the short term. And while an embargo could lead to price rises for high-tech goods and dependent materials like oil (rare earths are essential in many refining processes), Gholz says it’s highly unlikely that you would be unable to buy your next smartphone because of a few missing micrograms of yttrium. “I don’t think that’s ever going to happen. It just doesn’t seem plausible,” he says.
Even though a ban on rare earth exports is just speculation at this point, companies have begun to preempt any new Chinese restrictions. American chemical firm Blue Line Corp and Australian rare earth miner Lynas have already proposed new production facilities in the US, and rare earth stocks around the world have surged in response to the threat.
“IT’S NOT LIKE STARTING FROM SCRATCH.”
In the event of a ban, one of the most important backstops would be America’s Mountain Pass mine. Although the mine was closed after Chinese rare earths drove down prices, the facility is intact and resumed production last January. Recent estimates suggest it’s already supplying one-tenth of the world’s rare earth ores (though not their processing), and in the event of an embargo, it would be possible to bring Mountain Pass back up to speed.
“By far the cheapest and fastest way to bring more material into the market — if there was a disruption — is just sitting there in California,” says Gholz. “It’s not like starting from scratch.”
Worstall agrees: “Producing rare earth concentrate is near trivially simple,” he says. “I, or any other competent person, could produce that from a standing start within six months in any volume required.”
The kicker, both say, is how much that process might cost. Especially as any refining and separation plants built in the US would have to meet far higher environmental standards.
As we’re seeing with Huawei and other casualties of Trump’s trade war, the real question isn’t whether adaptation is possible in the future, it’s how much pain you can stomach in the present.
The Chinese Communist Party has always relied on deception to wrong-foot rivals and attain the advantage in negotiations. Deng Xiaoping famously counseled, “Hide your strength, bide your time.” But Xi Jinping prefers to exaggerate China’s economic strengths and conceal its vulnerabilities.
Mr. Xi’s brazen approach conditions other countries to believe that Beijing enjoys a superior hand, that China’s rise and dominance are inevitable. These erroneous beliefs weaken the will of injured parties, including Western nations, to resist predatory Chinese behavior.
President Trump and Mr. Xi confirmed a “phase 1” trade agreement Friday. Both need the deal for domestic political and economic reasons. But in every negotiation, pressure is relative, and the U.S. has more political and economic leverage than China. This insight will help the U.S. during the more difficult second phase of negotiations.
Consider why China engages in predatory, illegal economic behavior. It needs to grow rapidly to maintain fiscal stability, manage its debt and advance its strategic and military ambitions. China can’t become the dominant power in the Indo-Pacific without sustained growth. The only reliable way Beijing has of maintaining adequate growth is to support its companies with cheap credit. The rise in Chinese corporate debt since the 2008-09 financial crisis has been one of the largest and most rapid—in relative and absolute terms—for any 10-year period in peacetime economic history.
China cannot significantly deleverage without drastic changes to its political economy. The model involves offering state-owned enterprises and national champions such as Huawei cheap finance and privileged domestic-market access at the expense of an independent private sector. China showers state businesses with subsidies and stolen intellectual property, and shields them from foreign competition.
The Chinese domestic economy is slowing because of chronic overinvestment. This provides the economic rationale behind plans such as the Belt and Road Initiative and Made in China 2025. The former is a scheme to export excess capacity and lock in new regional markets for Chinese firms, especially in infrastructure. The latter is a new export-oriented approach based on dominating increasingly important advanced and high-technology sectors in global markets. Both attempt to create external commercial opportunities for protected, unreformed Chinese firms without the need to reform the country’s main economic and political institutions.
That brings us to the question of negotiating leverage.
The current Chinese model is self-defeating. Less-deserving companies continue to receive the bulk of finance and opportunity. The staggering misallocation of capital is worsening, which makes the mushrooming debt even harder to manage. And allocation of opportunity is political. This means that the private sector, and therefore household income, will continue to remain artificially suppressed—putting even more pressure on Beijing to stimulate growth through further credit expansion.
The U.S. has a far more adaptive and diverse economy than China. China’s economy is inefficient, bloated, dysfunctional—plagued by institutions and policies that are not fit for their purposes. If the tariff war resumes, it will continue to prove much more disruptive to China than to the U.S.
Moreover, by calling attention to the seriousness of Chinese trade violations, Mr. Trump is properly recasting China as the main threat to a fair and sustainable global economic system. Multinational companies are gradually assessing the commercial risk that sovereign risk poses to them—the possibility that China will arbitrarily alter laws or regulations or fail to honor government bonds when they mature.
In recent years, Mr. Xi has been openly accused by former senior officials and influential journalists and academics of mismanaging the relationship with America, decisively abandoning any market-based reforms that would make the Chinese economy more resilient and agile, and overreaching with his aggressive promotion of Belt and Road and Made in China 2025. Leaks about the abhorrent treatment of Uighurs in Xinjiang seem designed to undermine him, while continued protests in Hong Kong are a stark rejection of his authoritarianism.
Mr. Xi’s purging of more than 1.5 million officials, including top generals and party members, will come back to bite him. In addition to holding a weaker economic hand, Mr. Xi is far more vulnerable to internal rebellion, and therefore more desperate for economic pain relief, than the American president.
Mr. Trump has threatened to walk away if any agreement—including the final details of the phase 1 deal—is not to his liking. He indicated in “The Art of the Deal” that his style is to aim high and keep pushing and pushing until he gets what he wants. Let’s hope he follows through. The national interest depends on it.
It’s a standard assumption in the West: As a society progresses, it eventually becomes a capitalist, multi-party democracy. Right? Eric X. Li, a Chinese investor and political scientist, begs to differ. In this provocative, boundary-pushing talk, he asks his audience to consider that there’s more than one way to run a succesful modern nation.
Earlier this year, economist Yasheng Huang (watch his 2011 TED Talk) sparred with Eric X. Li in the pages of Foreign Affairs on a similar topic to today’s TED Talk. The TED Blog asked Huang to expand on his argument in his ongoing conversation with Li.
For several years, there has been a significant shift underway in U.S. strategy toward the Middle East, where Washington has consistently sought to avoid combat. The United States is now compelled to seek accommodation with Turkey, a regional power in its own right, based on terms that are geopolitically necessary for both. Their relationship has been turbulent, and while it may continue to be so for a while, it will decline. Their accommodation has nothing to do with mutual affection but rather with mutual necessity. The Turkish incursion into Syria and the U.S. response are part of this adjustment, one that has global origins and regional consequences.
Similarly, the U.S. decision to step aside as Turkey undertook an incursion in northeastern Syria has a geopolitical and strategic origin. The strategic origin is a clash between elements of the Defense Department and the president. The defense community has been shaped by a war that has been underway since 2001. During what is called the Long War, the U.S. has created an alliance structure of various national and subnational groups. Yet the region is still on uneven footing. The Iranians have extended a sphere of influence westward. Iraq is in chaos. The Yemeni civil war still rages, and the original Syrian war has ended, in a very Middle Eastern fashion, indecisively.
A generation of military and defense thinkers have matured fighting wars in the Middle East. The Long War has been their career. Several generations spent their careers expecting Soviet tanks to surge into the Fulda Gap. Cold Warriors believed a world without the Cold War was unthinkable. The same can be said for those shaped by Middle Eastern wars. For the Cold War generation, the NATO alliance was the foundation of their thinking. So too for the Sandbox generation, those whose careers were spent rotating into Iraq or Afghanistan or some other place, the alliances formed and the enemies fought seemed eternal. The idea that the world had moved on, and that Fulda and NATO were less important, was emotionally inconceivable. Any shift in focus and alliance structure was seen as a betrayal.
After the Cold War ended, George H.W. Bush made the decision to stand down the 24-hour B-52 air deployments in the north that were waiting for a Soviet attack. The reality had changed, and Bush made the decision a year after the Eastern European collapse began. He made it early on Sept. 21, 1991, after the Wall came down but before the Soviet Union collapsed. It was a controversial decision. I knew some serious people who thought that we should be open to the possibility that the collapse in Eastern Europe was merely a cover for a Soviet attack and were extremely agitated over the B-52 stand-down.
It is difficult to accept that an era has passed into history. Those who were shaped by that era, cling, through a combination of alarm and nostalgia, to the things that reverberate through their minds. Some (though not Europeans) spoke of a betrayal of Europe, and others deeply regretted that the weapons they had worked so hard to perfect and the strategy and tactics that had emerged over decades would never be tried.
The same has happened in different ways in the Middle East. The almost 20-year deployment has forged patterns of behavior, expectations and obligations not only among individuals but more institutionally throughout the armed forces. But the mission has changed. For now, the Islamic State is vastly diminished, as is al-Qaida. The Sunni rising in Iraq has ended, and even the Syrian civil war is not what it once was. A war against Iran has not begun, may not happen at all, and would not resemble the wars that have been fought in the region hitherto.
This inevitably generates a strategic re-evaluation, which begins by accepting that the prior era is gone. It was wrenching to shift from World War II to the Cold War and from the Cold War to a world that many believed had transcended war, and then to discover that war was suspended and has now resumed. War and strategy pretend to be coolly disengaged, but they are passionate undertakings that don’t readily take to fundamental change. But after the 18 years of war, two things have become clear. The first is that
- the modest objective of disrupting terrorism has been achieved, and the second is that
- the ultimate goal of creating something approaching liberal democracies was never really possible.
The world has changed greatly since 2001. China has emerged as a major power, and Russia has become more active. Iran, not Sunni jihadists, has become the main challenge in the Middle East and the structure of alliances needed to deal with this has changed radically since Desert Storm and Iraqi Freedom. In addition, the alliances have changed in terms of capability. The massive deployments in the Middle East have ended, but some troops remain there, and to a section of the American military, the jihadist war remains at the center of their thinking. To them, the alliances created over the past 18 years remain as critical as Belgium’s air force had been during the Cold War.
There is another, increasingly powerful faction in the United States that sees the Middle East as a secondary interest. In many instances, they include Iran in this. This faction sees China or Russia (or both) as the fundamental challenger to the U.S. Its members see the Middle East as a pointless diversion and a drain of American resources.
For them, bringing the conflict to a conclusion was critical. Those who made their careers in this war and in its alliances were appalled. The view of President Donald Trump has been consistent. In general, he thought that the use of military force anywhere must be the exception rather than the rule. He declined to begin combat in North Korea. He did not attack Iran after it shot down an American drone or after it seized oil tankers in the Strait of Hormuz. After the attack on the Saudi oil facility, he increased Saudi air defenses but refused offensive actions against the Iranians.
Given the shift in American strategy, three missions emerge. The first is the
- containment of China. The second is the
- containment of Russia. The third is the
- containment of Iran. In the case of China, the alliance structure required by the United States is primarily the archipelago stretching from Japan to Indonesia and Singapore – and including South Korea. In dealing with Russia, there are two interests. One is the North European Plain; the other is the Black Sea. Poland is the American ally in the north, Romania in the south. But the inclusion of Turkey in this framework would strengthen the anti-Russia framework. In addition, it would provide a significant counter to Iranian expansion.
Turkey’s importance is clear. It is courted by both Russia and Iran. Turkey is not the country it was a decade ago. Its economy surged and then went into crisis. It has passed through an attempted coup, and internal stress has been massive. But such crises are common in emerging powers. The U.S. had a civil war in the 1860s but by 1900 was producing half of the manufactured goods in the world while boasting a navy second only to the British. Internal crises do not necessarily mean national decline. They can mean strategic emergence.
Turkey’s alignment with Iran and Russia is always tense. Iran and Russia have at various times waged war with Turkey and have consistently seen Iraq as a threat. For the moment, both have other interests and Turkey is prepared to work with them. But Turkey is well aware of history. It is also aware that the U.S. guaranteed Turkish sovereignty in the face of Soviet threats in the Cold War, and that the U.S., unlike Russia and Iran, has no territorial ambitions or needs in Turkey. Already allied through NATO and historical bilateral ties, a relationship with Turkey is in the American interest because it creates a structure that threatens Iran’s line to the Mediterranean and compliments the Romanian-U.S. Black Sea alliance. The U.S. and Turkey are also hostile to the Syrian government. For Turkey, in the long term, Russia and Iran are unpredictable, and they can threaten Turkey when they work together. The American interest in an independent Turkey that blocks Russia and Iran coincides with long-term Turkish interests.
Enter the Kurds
This is where the Kurds come into the equation. Eastern Turkey is Kurdish, and maintaining stability there is a geopolitical imperative for Ankara. Elements of Turkey’s Kurds, grouped around the Kurdistan Workers’ Party, or PKK, have carried out militant attacks. Therefore it is in Turkey’s interest to clear its immediate frontiers from a Kurdish threat. The United States has no overriding interest in doing so and, indeed, has worked together with the Kurds in Iraq and Syria. But for the Turks, having Kurds on their border is an unpredictable threat. American dependency on the Kurds declines as U.S. involvement in the Middle East declines. Turkey becomes much more important to the United States in relation to Iran than the Kurds.
Trump clearly feels that the wars in the Middle East must be wound down and that a relationship with Turkey is critical. The faction that is still focused on the Middle East sees this as a fundamental betrayal of the Kurds. Foreign policy is a ruthless and unsentimental process. The Kurds want to establish a Kurdish nation. The U.S. can’t and doesn’t back that. On occasion, the U.S. will join in a mutually advantageous alliance with the Kurds to achieve certain common goals. But feelings aside, the U.S. has geopolitical interests that sometimes include the Kurds and sometimes don’t – and the same can be said of the Kurds.
At the moment, the issue is not al-Qaida but China and Russia, and Turkey is critical to the U.S. for Russia. The U.S. is critical for Turkey as well, but it cannot simply fall into American arms. It has grown too powerful in the region for that, and it has time to do it right. So Trump’s actions on the Syrian border will result in President Recep Tayyip Erdogan’s visit to Washington and, in due course, a realignment in the region between the global power and the regional power.