China has more and more included important minerals and uncommon earth export controls into its geopolitical coercion toolkit, and portrayed its dominant place in uncommon earth provide chains as a strategic trump card able to constraining the US and its allies. China’s “uncommon earth card” includes parts comparable to neodymium, praseodymium, dysprosium, terbium, lanthanum, and cerium. Gallium, though it’s not a uncommon earth ingredient, has additionally been included into China’s broader toolkit of strategic strain as a important mineral.
Nonetheless, as soon as the uncommon earth provide chain is damaged down into its part components, it turns into clear that Beijing’s benefit just isn’t rooted in technological management. As an alternative, China’s dominance in uncommon earths rests to a a lot better extent on low labor prices, weak environmental constraints, and a improvement mannequin during which native governments have lengthy absorbed externalized prices. Due to this fact, whereas China can disrupt world uncommon earth provide chains within the quick time period, it’s far much less able to exercising long-term strategic coercion.
The Reality Behind China’s Uncommon Earth Benefit
Whether or not China can leverage uncommon earths for geopolitical and geoeconomic benefit is dependent upon the construction of the uncommon earth provide chain itself. Typically talking, the business consists of 4 levels: reserves, mining, refining and separation, and downstream manufacturing (with about half of all extracted uncommon earths being made into magnets). These 4 levels symbolize the total path by which uncommon earths transfer from underground sources to marketable commodities.
China dominates the worldwide uncommon earth provide chain by accounting for 50 % of worldwide reserves, 65 % of mining, 85 % of refining and separation, and 90 % of magnet manufacturing. Nonetheless, China’s price benefits differ considerably throughout the varied levels of the uncommon earth provide chain.
On the stage of reserves and mining, though roughly half of at present recognized uncommon earth reserves are situated in China, these are solely recognized reserves, not the world’s complete reserves. Regardless, reserves and mining primarily mirror a rustic’s useful resource base and mining improvement capability, quite than any specific technological benefit.
Within the subsequent stage, the environmental air pollution brought on by uncommon earth refining is likely one of the hidden prices behind China’s uncommon earth benefit. The Chinese language authorities has acknowledged that uncommon earth air pollution is a longstanding downside. China’s two main uncommon earth facilities, Baotou in Interior Mongolia and Ganzhou in Jiangxi Province, are among the many examples of those prices.
In 2010, areas surrounding the Baiyun Obo mining district in Baotou reported unusually excessive incidences of most cancers amongst villagers, skeletal deformities, and developmental problems amongst kids, which had been extensively linked to the extreme environmental air pollution generated throughout uncommon earth mining and refining.
In 2022, environmental air pollution issues resurfaced in Longnan, a county underneath Ganzhou in Jiangxi Province, as soon as once more highlighting the high-pollution dangers and long-term governance pressures related to the event of the uncommon earth refining business. After years of uncommon earth extraction, some native river water was not secure to drink.
A 2021 report from Harvard quantified the environmental prices of uncommon earth separation. Producing one ton of uncommon earths generates 13 kilograms of hazardous mud, 9,600 to 12,000 cubic meters of hazardous gasoline, 75 cubic meters of wastewater, and roughly one ton of radioactive residue. Refining and separation are usually not a high-profit, cutting-edge business. Quite the opposite, they represent a enterprise with restricted revenue margins, huge air pollution, and excessive political resistance.
Furthermore, though China’s uncommon earth business enjoys a value benefit, this benefit just isn’t merely the product of market effectivity or technological management. To a substantial extent, it’s constructed on low labor prices, comparatively weak labor protections, and industrial circumstances during which many exterior prices have been handed on to others.
For instance, take one of many core industries within the uncommon earth sector. Neodymium-iron-boron (NdFeB) magnets are extensively utilized in electrical automobiles, offshore wind generators, superior robotics, protection industries, and aerospace gear. Roughly 30 % of worldwide uncommon earth output is in the end used to fabricate NdFeB everlasting magnets.
China’s NdFeB magnet manufacturing accounts for 96 % of the worldwide market. Nonetheless, a lot of its manufacturing has adopted a low- to mid-end market technique, that’s, capturing market share by decrease costs quite than totally dominating the high-end market. Excessive-end NdFeB everlasting magnets have lengthy remained dominated by Japanese firms.
Is China’s “Uncommon Earth Card” Actually Highly effective?
Within the quick time period, if China selected to deploy the “uncommon earth card” as a coercive device in opposition to different international locations, new vitality industries could be probably the most uncovered. Electrical automobiles (EVs) and wind energy methods depend upon uncommon earths. A battery electrical automobile sometimes requires 2 to three kilograms of uncommon earth everlasting magnets, whereas a big 3-megawatt direct-drive wind turbine could eat roughly 715 to 1,100pounds of uncommon earth supplies. A sudden provide cutoff would due to this fact hit these sectors first and hardest, not solely as a result of their demand is big, but in addition as a result of different provide chains are nonetheless too immature to soak up a serious shock within the close to time period.
Nonetheless, in different industries, China’s export restrictions on related important minerals wouldn’t essentially trigger equally critical results. For instance, semiconductor manufacturing does contain important minerals comparable to gallium, in addition to cerium oxide (CeO2) utilized in sprucing and processing. China has beforehand imposed export restrictions on a few of these parts, and such strikes have been seen as a possible technique of pressuring corporations like Taiwan Semiconductor Manufacturing Firm (TSMC).
Nonetheless, since these supplies account for under a restricted share of complete price and complete enter quantity, and since corporations normally buy advance inventories, the extra doubtless consequence could be lowered manufacturing, rising prices, and adjustment strain, quite than speedy paralysis. In response to the specter of a possible provide disruption, TSMC’s related stockpiles might assist operations for one to 2 years. If firms comparable to the US’ MP Supplies and Australia’s Lynas can construct up different capability along with their allies throughout that one- to two-year window, China’s important mineral and uncommon earth export controls can solely have a short lived deterrent impact.
The identical applies to the protection sector. The F-35 fighter jet requires substantial portions of uncommon earths for motors, actuators, sensors, and radar parts. Precision-guided munitions require everlasting magnets to drive management surfaces. Nuclear submarines additionally depend upon uncommon earth supplies to make sure quiet propulsion and detection accuracy. All of this reveals that uncommon earths are important foundational supplies for contemporary protection industries. At current, the US nonetheless maintains a sure diploma of strategic reserve, together with 1,100 tons of lanthanum reserves, 300 tons of oxide reserves, and 450 tons of magnet reserves. In accordance with the U.S. State Division, if these had been used solely for navy manufacturing, they may assist output for roughly six months to at least one 12 months. Due to this fact, if the U.S. and its allies can rebuild a part of the availability chain throughout this buffer interval, which may be sufficient to deal with China’s deployment of the “uncommon earth card.”
The truth is, uncommon earth costs per se are usually not significantly excessive. Exactly as a result of most uncommon earths are usually not actually scarce and complete demand stays comparatively restricted, this business is unlikely to generate sustained windfall earnings in the best way oil can. Some uncommon earth oxides are priced at lower than $1 per kilogram, whereas the market value of the important thing precursor praseodymium-neodymium oxide is solely round $75 per kilogram.
When costs stay low, business earnings are naturally restricted. In 2024, the web earnings of China’s two main uncommon earth smelting and separation firms – Northern Uncommon Earth and China Uncommon Earth – had been $139.4 million and adverse $39.9 million, respectively. Amongst a number of main downstream everlasting magnet corporations, earnings ranged from $40.4 million to only $1.7 million. Whether or not upstream or downstream, this isn’t a extremely worthwhile sector able to simply overlaying large environmental prices.
The Phantasm of China’s “Uncommon Earth Card”
Technologically, China’s dominance in uncommon earths just isn’t similar to the positions of ASML and TSMC in semiconductor manufacturing, whose positions relaxation on hard-to-replicate technological limitations. Neither is it like Gulf oil, whose strategic weight is grounded in extraordinary useful resource rents.
China’s dominance in uncommon earths is best understood as a type of geoeconomic benefit: it’s prepared to keep up a provide chain that different international locations are reluctant to interact in deeply, by tolerating decrease environmental requirements, weaker price internalization mechanisms, and stronger state coordination. In different phrases, this is a bonus rooted in who’s extra prepared to soak up the prices, not in who completely controls the applied sciences of the longer term.
As a device of geoeconomic coercion, China’s “uncommon earth card” can certainly create short-term provide panic, elevate prices, and drive corporations and governments to reassess important mineral safety. Nonetheless, the extra often it’s used, the extra it can spur the US, Japan, Australia, the European Union, and Southeast Asian international locations to speed up the development of different provide chains, refining and separation capabilities, and strategic reserve methods. Which means that future competitors over uncommon earths and significant minerals is not going to merely hinge on who holds extra deposits underground, however on who can construct a extra sustainable industrial system – one which higher balances prices, environmental safety, technological functionality, and political resilience.
