China’s tryst with Rare Earth Elements: A monopoly over the global supply chain
As the global demand for smartphones increases, the sources of some rare components in them are becoming exhausted. The question arises, how will phones of the future be built? The smooth running of almost every piece of technology we use is down to something called rare earth metals. Rare-earth metals are a group of 17 lesser-known elements that are fundamental ingredients for some of the world’s most advanced technological devices and equipment. However, their supply chain is monopolized by China and that is causing global concern. The rare earth elements are silvery metals found in tiny concentrations embedded in hard rock and are not so rare, as their name suggests, but are very difficult to isolate. They are found in just about every tech device we use, starting from cellphones to televisions.
Roughly, 85% of the world’s supply is cornered in China. There are 17 rare earth elements with catchy names such as Yttrium and are ultra-thin in nature but act as powerful magnets that are used in batteries and computers. In the periodic table, the elements with the atomic number 57 to 71 in the periodic table i.e. the 15 lanthanides along with Scandium and Yttrium come under the category of rare earth metals. These 17 elements are divided into groups i.e. the Light Rare Earth Elements (LREE) and the Heavy Rare Earth Elements (HREE), based on their atomic masses. The Light elements are found in more abundance than heavy elements in the earth’s crust.
These elements were first discovered in the year 1787 in Sweden. Even after their discovery, these elements were not used on the industrial scale due to their very similar chemical and physical properties, and because of that, these elements were very difficult to separate from each other. Later on, in the year 1884, the elements were first used at the commercial scale for the production of incandescent mantles which were used in the gaslighting industry. Later, these elements were used in the production of coloured glass and, after a few years, for increasing the refractive index of glass. Later, during the Second World War, when ‘Manhattan Project’ was initiated for the research and development of the nuclear weapons, it also led to the discovery of new methods which led to the separation of these closely related elements. After this, these elements started becoming available on a commercial scale. With the advancement of technology, scientists started looking for new and efficient energy options. CFLs and LEDs also have some amount of rare earth metals. Rare earth metals are also used in the production of ‘Multi-Layer Chip Capacitors’ which are used in almost all the gadgets today. Also, as humanity is facing adverse effects of ‘climate change’, new inventions in the field of green energy like ‘hybrid cars’, ‘wind turbines’, ‘solar panels’ and ‘hybrid batteries’, also require some amount of the rare earth elements.
Rare earth elements are important components of many technological gadgets, equipment and platforms like wind turbines, smartphones, televisions, hybrid vehicles, computers, magnets, oxygen sensors, batteries, fuel cells, fiber optics, and other equipment. Some of these elements are also utilised in the defence sector, like Neodymium doped Yttrium Aluminium Garnet (Nd YAG) based lasers are utilised in the finding the range and are used in advanced weaponry system. These elements are also used for the development of missiles, radars, communication systems, high power tubes, ion thrusters, and advanced satellites. Terbium alloy is used in SONAR and other similar applications.[i] Due to the above mentioned strategic importance of the ‘Rare Earth Elements’, they are sometimes referred to as “the new oil.” These elements are a part of nearly all the industrial supply chains. The nation controlling the supply chain of these rare earth elements can easily make the dominant presence in the value chains of the gadgets, defence systems, green energy and in other hi-tech industries.
The emergence of China in the Supply Chain of Rare-Earth Elements
The US, which was well-positioned with its dominance in rare earth elements, due to technological advancement and other breakthrough discoveries, has lost its industrial capacity and has allowed the growth of China in this sphere. China was not always occupying this dominant position in the supply of these resources, it is actually a result of the growth of the manufacturing sector in the country. Beijing emerged as a major player in the supply chain of ‘rare earth elements,’ ”when the U.S. Nuclear Regulatory Commission (NRC) and International Atomic Energy Agency (IAEA) amended its definition of source material (broadly, material containing uranium or thorium) for nuclear weapons.” Due to the change in definition, the ‘heavy rare earth elements’ suddenly came under extensive rules of licensing, disposal and liability, which eventually led to the termination of production and refining in the US majorly due to the added cost. Meanwhile, China was not constrained by these regulations as it was only an observer in the agency. Therefore, China was easily able to replace the US and snatch its position. Currently, China is occupying a dominant position in the supply of these elements and is also using this position for its wider strategic goals.[ii]
The Chinese government also took many important steps for the growth of rare earth industry and to help it compete at the global level in its nascent stage. The mining companies in China were provided with various tax rebates and subsidies for boosting exports of these elements. This provided an uneven advantage to the mining companies, and therefore, they gained a strong foothold in global trade and later on the entire supply chain. From 1985 to 1995, “China’s rare earth mining production exploded from just 8,500 metric tons to roughly 48,000 metric tons, and its share of global mining output widened from 21.4 per cent to 60.1 per cent.” China has been exploiting its cheaper labour and lenient environmental tax laws and gained a competitive edge in the market supply chain in the supply of the rare earth elements, and is controlling nearly 85% of all the Rare Earth’s elements supply worldwide. China is also looking forward to the other countries like Vietnam, Myanmar, Burundi and the United States for mining work, so that its resources and environment can be protected.
Trade Analysis
The trade in the field of the rare earth is not much as compared to the other commodities like the crude oil, but the value in the net supply chain is immense. For instance, each Apple iPhone requires some rare earth elements like Europium, Neodymium, and Cerium etc. for the screen, speaker and polishing respectively. In 2019, “Apple sold $142.4 billion worth of iPhones”, which would not have been possible without these elements.
From the year 2008-18, “China has exported around 4,08,000 metric tons of the rare earth elements”, which is around 42.3 of the total export during this period. The second-largest exporter i.e. the US stands far behind with just 9.3 per cent share in global exports during the same period. The third and fourth in the list are Malaysia and Austria with 9.1% and 9.0% share in the global exports.[iii]
As per the data of ‘China’s General Administration of Customs’, in 2019 itself China has exported around 46 thousand metric tons of rare earth metals having worth of around $399 million. Japan is the largest recipient of Chinese rare earths, as it is receiving around 36% of the total exports. The US was the second-largest recipient with around 33.4% of the net exports from China. Lanthanum was the most exported rare earth element by China, which is used in the batteries of various hybrid vehicles. Terbium was the second most exported rare earth element, which is significantly used in SONAR Systems, Television screens and other solid-state electronic devices like diodes, integrated circuits, transistors etc. [iv]
Global dependence on China
China has developed a monopoly in the global trade of rare earth elements and due to this monopoly, China has attained the ability to use the disruptions in the supply chain to achieve its political ambitions. For example, in 2010, a captain of a Chinese boat was arrested by Japan after it smashed into a Coast Guard vessel of Japan near the Senkaku islands. It is worth noting here that Japan and China have territorial disputes over these islands. China retaliated soon and halted the supply of rare earth elements to Japan for nearly two months. In recent times too, there were reports that China could use the supply chain disruption in rare earth elements as a “counter weapon” in the US-China trade war. These rare earth elements are widely used in the US Defence Sector. These are used in a wide variety of equipment like jet engines, SONAR systems and communication platforms for different types of missiles.[v] As per the Congressional Research Service, “each US F-35 multirole fighter requires about 427 kg of rare earths, and each Virginia-class nuclear submarine requires nearly 4.2 metric tons.”[vi]
Way Forward
Some countries have also taken important policy decisions for reducing their dependency on China for the Rare Earth Elements. For example, Japan has successfully reduced its dependency on China for the import of rare earth elements. From 2008 to 2018, “the share of Japanese rare earth imports from China fell from 91.3 per cent to 58 per cent”. Other countries are also looking for various options through which they can reduce the dependence on Chinese exports. The US has also taken steps to increase the production of rare earth elements at the domestic level. Australia and the US have also started a joint venture, through which it will be able to get the various rare earth elements from the production site in Malaysia, directly to the US for final processing, which is currently going to China for the final processing.
Apart from international efforts, the demand for the rare earth elements has increased in the domestic market of China as well. Chinese production in the nuclear energy, renewables, hybrid vehicles, electric vehicles and other modern technological equipment’s is touching new heights every day. “Between 2014 and 2019, the number of electric vehicles in China swelled from approximately 90,000 to nearly 3.4 million.”[vii] Therefore, it is getting difficult for China to lead the global supply chain of rare earth elements after fulfilling the demand by its own domestic industry. With the increasing international efforts and growing domestic needs of China, it is expected that Beijing’s dominance over rare earth elements at the global level would be reduced significantly in the near future.
Notes
[i] “Dominating the World China and the Rare Earth Industry.” n.d. Accessed November 20, 2020. https://www.researchgate.net/publication/313477894_Dominating_the_World_China_and_the_Rare_Earth_Industry.
[ii] “How the United States Handed China Its Rare Earth Monopoly.” n.d. Accessed November 21, 2020. https://foreignpolicy.com/2020/10/27/how-the-united-states-handed-china-its-rare-earth-monopoly/.
[iii] Morrison, Wayne M. 2019. “Trade Dispute with China and Rare Earth Elements Background.” www.crs.gov%7C7-5700.
[iv] “Does China Pose a Threat to Global Rare Earth Supply Chains?” n.d. Accessed November 23, 2020. https://chinapower.csis.org/china-rare-earths/.
[v] “Does China Pose a Threat to Global Rare Earth Supply Chains?” n.d. Accessed November 23, 2020. https://chinapower.csis.org/china-rare-earths/#easy-footnote-bottom-1-6466.
[vi] “Rare Earth Elements in National Defense: Background, Oversight Issues, and Options for Congress (Name Redacted) Specialist in Defense Acquisition.” 2013. www.crs.gov.
[vii] “Global EV Outlook 2020 – Analysis - IEA.” n.d. Accessed November 23, 2020. https://www.iea.org/reports/global-ev-outlook-2020.
Pic Courtesy-John Caspari atunsplash.com
(The views expressed are personal.)
