The 2010 Rare-Earth Metals Trade Dispute & Supply Chain Resiliency
For decades, countries and industries did not properly build security and resiliency into all tiers of the fundamental critical minerals and rare-earth metals supply chain. As a result, global supply chains for critical minerals create massive business risk.
In my last blog on Critical Minerals, I dove into how the United States is now making our critical minerals supply chain a national security priority.
Part of the historical context for this new-found emphasis on critical mineral security is rooted in the early 2010s “Rare Earth Metal Trade Dispute” with China.
China controls 97% of the production of rare-earth metals, a group of 17 metals with highly magnetic and conductive properties.
Used to produce the magnets in computer hard drives, electric motors, speakers, high-speed trains, and many other modern technological marvels, these minerals run the world.
Gone are the days of steel and fuel defining world superpowers.
Today’s technological and economic superpowers earned their enviable positions based on their unique abilities to explore and utilize untapped parts of the periodic table (and the world) to unlock new technological capabilities made possible only by the most exotic of elements.
So, when China decided to limit exports of rare-earth minerals (and by extension, magnets) in 2010, it sent shock waves through the global economy.
For instance, the price of neodymium (see Figure 1) increased nearly five-fold from 2010 to 2011 as a result of China’s export limit on rare-earth metals.
In this blog, I explore an important inflection point in the complex story of our ever-important rare-earth supply chain.
Let’s dive in.
Figure 1: Neodymium Oxide prices spike in 2011 as a result of China’s 40% export quota reduction. [Source: Statista.com]
The 2010 Rare-Earth Metal Trade Dispute:
The Rare-Earth Metal Trade Dispute dates back to 2006 when China first started putting duties and quotas on exports of rare-earth metals.
From 2006 until 2010, the global economy adjusted to these quotas and duties. But in 2011, the Chinese government suddenly cut the country’s export quota by 40%.
While the Chinese government claimed that their export quotas helped curb the environmental harm caused by mining rare earth metals, critics correctly saw past this cover noting that the low price of rare-earths in China compared to the rest of the world gave Chinese companies an unfair competitive edge.
Critical minerals, especially rare-earth metals, are ubiquitous in technology. This is especially true for weaponry and defense technology, which makes the world’s dependence on Chinese supply a massive threat to national security for the United States and allied nations.
This trade dispute became so hot-button that 60 Minutes ran a segment on it titled Modern Life’s Devices Under China’s Grip?
In September of 2010, the trade dispute escalated on the back of the Senkaku Boat Collision Incident, in which a Chinese boat collided with a Japanese Coast Guard patrol boat in disputed waters.
The Chinese government used the incident to justify completely cutting Japan off from importing rare-earth metals. At this point, the United States, the European Union, and Japan brought the incident to the world stage.
Trade Dispute Resolution
At the time, the main course of action for the rest of the world to rectify the rare-earth supply chain was to bring the case against China to the World Trade Organization (WTO).
The WTO was established as a resiliency mechanism to rapidly settle large international trade disputes without resorting to war or dramatic sanctions.
In theory, the organization should catch and convict any violators of international trade law.
The case against China:
In this particular case, the United States argued that China breached their 2001 Accession Treaty, which disallowed export quotas and duties outside of a list specified in the treaty.
China maintained its reasoning that the quotas were to conserve resources and the environment, though the WTO ruled that their case did not hold up.
Under pressure from the WTO, nearly ten years after the export restrictions started, China dropped the duties and quotas in January 2015.
The institutional purpose of the WTO seemed to have worked.
Still, the rest of the world saw a massive second-order resolution that came out of this incident.
With prices for rare-earth metals so high outside of China, mining companies (established and startups) were able to raise capital to develop technologies and new mines in the US, Europe, and in other western countries. However, once China dropped its prices, many of these mines were no longer economically viable.
Future responses to price hikes or trade restrictions of rare-earths need not only be met with short-term investment in new mining projects. Rather, the United States needs to strategically invest in enabling technologies for mining and producing rare-earths that drive costs down by orders of magnitude over the long run. Autonomous vehicles and equipment will play a crucial role here, among many other technological marvels of 2020.
Furthermore, American companies must price the risk of adversarial price hikes and export restrictions into their supply-chain and sourcing calculus.
The next time that a country decides to cut off its exports of globally critical rare earth metals, these new mines (and technology) that are diversified around the globe will be the ultimate resiliency strategy for the industry.
Looking Forward Recommendations
In addition to working through the WTO (though whether the WTO is now compromised in favor of China is a current topic of debate in the political sphere) and investing in domestic production, the United States government and industrial base and allies must build a robust strategy for being resilient in the face of trade cut-offs from China.
The United States government is building a new strategy for creating a secure, reliable, and resilient supply chain for critical minerals, including these rare-earth metals.
The rare-earth metal sector should follow the calls to actions outlined in this strategy closely.
This includes developing new surveying data acquisition technologies, mining technologies, processing technologies, and especially recycling technologies.
Next, we must focus on the entire rare-earth supply chain, not just mining. Of particular emphasis for building a more robust supply chain of rare earth metals moving forward must be creating the processing infrastructure for these materials.
With much of the electronics industry’s manufacturers located overseas, it is critical to building up the manufacturing capacity to make products from these rare-earth materials domestically.
Finally, to drive the point home: companies and countries must incorporate resiliency calculations into their raw materials inventory and stockpiling calculations for rare-earth metals.
Conclusion
No longer can the United States and other Western countries take rare-earth metals (and other critical minerals) supply chains for granted.
As the United States is doing now, countries, industries, and individual companies must develop business continuity plans and supply chain resilience strategies to combat China’s next attempt to choke the technologically essential rare-earth metal supply chain.
