Rare Earth Elements and Geo-Strategy: Part 1

Will Clegg is the foreign and defence correspondent for Government Magazine, and a Commonwealth Scholar at Balliol College, Oxford.

 Rare earth element, Scandium

Rare earth elements (REE) are vital to modern manufacturing, especially the manufacture of high technology goods. In tiny amounts, their unique magnetic and phosphorescent properties make them essential for components in products such as hard drives, hybrid cars, and satellites. The fact that most of these technologies are ‘dual-use’, that is, relevant to both the defence and commercial economies, only adds to the import of rare earths.

Despite their name, REEs are in fact naturally abundant. The problem is that extracting and processing rare earths is difficult, costly, time-consuming, and – unless well managed – environmentally damaging. A fruit of US defence-led technology development in the early Cold War, REEs have been used in high technology manufacturing for a little under a century. But the global REE supply chain has been shifting for the last 20 years. Until the early 1980s, almost all the world’s REE mining occurred at Mountain Pass, California. Today, China is the world’s monopoly supplier. China only controls 35 percent of the world’s rare earth reserves, but it has succeeded in dominating the market. In addition to producing 95 percent of rare earth oxides, China produces around 90 percent of rare earth metal alloys, also dominating the manufacture of key components and devices that incorporate REE.

Concerns about China’s market dominance reached a fever pitch in September 2010 when China ceased exports of rare earths to Japan, the world’s largest importer of rare earth metals. In line with its comprehensive approach to national power, China believes that dominance of the global market for REE adds to its global leverage. In cutting off Japanese supplies of REE, China aimed to gain leverage in negotiations over disputed maritime territories.

The dramatic use of export restrictions should not conceal the principal strategic benefit bestowed by China’s rare earths monopoly, viz. the incentive for foreign firms to establish high technology production facilities within China, helping China step up the technology ladder and thus add to its wealth and military strength. In the long-term, national prosperity, national security, and regime survival depend, in part, on the national economy’s strength in high technology industry.

As China and America compete for global influence, technological prowess and economic strength will be critical factors affecting the outcome of their competition. Officials in both countries recognise this fact, but so far it is China that has been able to pursue a disciplined strategy and obtain a striking geo-economic edge with geo-strategic consequences. As is argued in parts two and three of this post, China’s control over the global rare earths supply chain threatens the commercial and defence interests of its geo-economic and geo-strategic competitors, and might be quite difficult to break.

This post is the first of three parts. Read part two, or part three.