Rare Earth Elements: A Common Problem

China’s monopoly over rare earth elements (REE) - minerals and metals used in products from iPods to defense materiel – is raising concerns around the world. Some fear China will level exportation bans during disputes like it allegedly did earlier this year against Japan. Others are concerned about the potential security threat represented by China’s virtual monopoly over the strategically important REE. Finally, there is concern that China will reduce output of REE to artificially raise prices, instead of for environmental reasons as it purports, which is an abuse of its immense market power and a violation of WTO rules.The first concern is a result of China’s rise and role in the international system. Does China really seek to be a “responsible stakeholder” in the international system or will it pursue its interests by any means available?The latter two issues—security and price gouging—are caused by China’s market dominance; it controls 97 percent of the world’s REE supply. Rare earth elements are used in the manufacture of numerous high-tech products, including night vision goggles, laser range-finders, guidance systems, batteries, lightweight magnets, and other critical forms of military hardwareSimilar situations have developed in the past for other strategic resources. Arab members of OPEC enacted an oil embargo in response to the Yom Kippur War in 1973. The high prices that resulted created a rift in NATO and helped force Israel to the negotiating table after six months. The natural gas company Gazprom, in which the Russian government has a controlling stake, has used the threat of closing off supplies before in disputes with other countries, although these disputes have been directly concerned with natural gas prices.These incidents unconsciously produce much of the uproar over REE. There are some important differences, however, which suggest much of the fear over China and REE is misplaced. The United States has the second largest proven deposits in the world and there are significant deposits in Canada, Australia, Brazil, India, and South Africa among others. Moreover, there is a primarily untapped source of REE in the form of recycling since the materials can be extracted from used electronics and automobiles. The largest obstacle to this approach is that current recycling centers are not designed to extract REE. The rising price of REE could motivate development in this area.As for the strategic concerns, a recent Pentagon study concluded that China’s immense market share of REE is not a threat to the United States. Current stockpiles of REE are also sufficient to meet the United States’ needs as it and other countries increase their own production of REE.The claim that China is abusing its near-monopoly in REE and is becoming a rogue economic power is a knee-jerk reaction to a situation far more complex than it is convenient to admit. China’s stability is highly dependent on maintaining a strong economy. Although it has managed to maintain high growth during the worldwide recession, it is a mistake to think that China’s economy has not felt the effects of the recession. According to the World Bank, China’s GDP growth rate has fallen from 13% in 2007 to 9% in 2008. Many in the United States can be justifiably envious of a 9% growth rate, but for Chinese leadership this rate is coming unnervingly close to the 8% rate that is felt to be necessary for China to maintain internal stability. Chinese efforts to raise the price of a key export are understandable in this light.Another fact to consider is that China announced the planned reduction of REE production over a year ago citing a desire to not overstretch its supply and environmental concerns. It may be questionable as to whether or not these are merely serviceable excuses while China raises the price of REE, but what is clear is that neither this reduction nor the emergence of China’s massive REE industry were surprises to the rest of the world. China has been developing its REE industry since the 1980s. Decrying China’s success in the industry is shifting the blame that ought to go to the countries that failed to maintain their own domestic REE resources.While China should not be allowed to violate the terms of its WTO agreements and incidents like the dispute with Japan are regrettable, the depiction of China using its REE industry as an “economic weapon” is mistaken, as are claims that vital U.S. security interests are at stake. The outcry against China over REE is overwrought and misplaced. This image is being used under Creative Commons licensing. The original source can be found here.