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Is China’s “Trump” card in the Ongoing Trade War with the U.S. the Rare Earth Element (REE)?
Is China’s “Trump” card in the Ongoing Trade War with the U.S. the Rare Earth Element (REE)?
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By - Adedoyin Shittu

Posted - 05-06-2019

Rare Earth Elements (REE) can be found in almost all massive rock formations. However, their concentrations range from ten to a few hundred parts per million by weight. Therefore, finding them where they can be economically mined and processed presents a real challenge. It is difficult to separate them from their ores to get a pure substance.

What are the Rare Earth Element (REE)

Rare earth elements (REE) are the 15 Lanthanide series element in the Periodic table namely: lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium. Scandium and Yttrium are also REE because they appear in low concentrations in the ground.

REE can be found in a variety of minerals, but the most abundant are found primarily in bastnaesite and monazite.

According to the U.S. Geological Survey, bastnaesite deposits in China and the U.S. make up the largest percentage of economic rare earth resources. Monazite deposits, found in Australia, Brazil, China, India, Malaysia, South Africa, Sri Lanka, Thailand, and the U.S. make up the second largest segment. Other examples of minerals known to contain REE include apatite, cheralite, eudialyte, loparite, phoshporites, rare-earth-bearing (ion absorption) clays, secondary monazite, spent uranium solutions, and xenotime.

Without REE, most of the world’s modern technology would be vastly different and many applications would not be possible. For one thing, we would not have the advantage of smaller sized technology, such as the cell phone and laptop computer, without the use of rare earth elements.

How China Strategically came to Control the World’s Rare Earth Element Market

There has been a great deal of interest in the study of the REE, their chemical properties and potential uses since its discovery by  Lieutenant Carl Axel Arrhenius, a Swedish army officer, in 1787. The U.S., not so long ago, was the leader in both the innovation and supply of the REE until the 1970s. The Mountain Pass rare earth mine in California at that time was the largest supplier in the world.

As China began to gain a foothold in the industry, U.S. interest in the REE began to reduced as they focused on other things and left the academics for other nationals.

China as a country is not only interested in the technology of things but also in the academic aspect of it.

With the vast deposit of bastnaesite at the Chinese disposal, it seems only fitting that they should be interested in the study of it and the Chinese sure studied it.

In fact, it is reported that nearly 50 percent of the graduate students who come to study at the U.S. Department of Energy’s Ames National Laboratory are from China and each time a visiting student returns to China, he or she is replaced by another Chinese visiting student.

A great deal of money went into the researching of the REE in order to push for domestic innovation in the 1980’s. China focused on two basic types of research on the REE; the fundamental of the REE and its application.

China steadily strengthened its hold on the world’s REE market by investing in the industry even outside China and selling at such low prices that the Mountain Pass Mine in California U.S. and many others throughout the world were unable to compete and stopped operation.

Now China controls approximately 97 percent of the world’s rare earth element market.

China is the largest producer, consumer, and supplier of REE and also REE products. Japan and the United States are the second and third largest consumers of REE respectively. The U.S. relies on China for 80% of its imports of the REE and REE products.

 

China is home to at least 85% of the world’s processing plant for the REE to products for manufacturing companies and it would take years to build enough processing plants to match China’s processing capacity of 220,000 tonnes. This is five times the combined capacity of the rest of the world and if processing plants are built in other countries, they would struggle to compete with China’s low costs in the future.

It is therefore no surprise that China giant leaped from a third world country to become a world superpower because of this technological advantage.

Application of the Rare earth element

What makes the REE special is in their application. Rare earth elements are present in a wide range of consumer products, from iPhones to electric car motors, as well as military jet engines, satellites and lasers. Rare earths are used in rechargeable batteries for electric and hybrid cars, advanced ceramics, computers, DVD players, wind turbines, catalysts in cars and oil refineries, monitors, televisions, lighting, lasers, fiber optics, superconductors and glass polishing.

Though used in trace amounts, their unique magnetic, heat-resistant, and phosphorescent qualities make them essential in the production of products like batteries, car engines, and LCD TV displays.

They interact with other elements to form materials with properties that neither element could offer on its own. For example, when combined with iron and boron, the rare-earth neodymium helps create one of the strongest magnets on the market, which is useful in iPhones and hard drives.

Also Read: China Refuses to be Bullied by the U.S., “Threatens” War if Pushed

What makes a ban of the rare earth element a threat to the U.S.

Rising tensions between the United States and China have sparked concerns that Beijing could use its dominant position as a supplier of REE for leverage in the trade war between the two global economic powers. So far, the U.S. government has exempted rare earths from tariffs on Chinese goods.

The prices of the REEs have held largely steady for the past several months but a rare visit to the largest rare earth processing firm in southern China on May 20 by the Chinese President Xi Jinping’s have caused a jump in the price.

The price of neodymium metal – used in magnets and speakers – increased 26.5% since May 20. Dysprosium metal (used in lasers), erbium oxide and gadolinium oxide (used in medical imaging and fuel cells) are up around 10%.

What makes a ban of the REE fearful is because of the price setting ability China has as the world’s largest supplier.

This was demonstrated when the country used REE as a diplomatic tool in 2010, when it unofficially halted exports of certain elements to Japan. At that time,  Japan was the largest importer of Chinese REE. China also introduced quota into the market and reduced the amount of REE exports leaving the country in other to meet with domestic consumption. This pushed up the price of the REE by 10%.

It took the intervention of the World Trade Organization to force China to push up the quota exported to the rest of the world.

In addition, China has monopolise the market. Since China exerts significant control through the size of its operations over the entire supply chain from mining to separation, processing, alloy production and ultimately component manufacture, it is the dominant buyer as well as the seller in almost every stage of this value chain.

China had identified rare earths as a key policy tool but using them to advance Beijing’s interests is risky.

For example, while the 2010 export ban was a significant blow to Japanese companies, China’s reputation as a supplier suffered as well. The move led businesses to develop alternatives to rare earths in case a similar incident occurred. Since then the industry have been looking for an alternative to the Rare Earth Element.

If China decides to restrict rare earth exports or introduce tariffs there will be upward pressure on prices as demand outgrows supply.

There are good reasons for China to restrict rare-earth exports in the on going trade war, but if the country chooses to do so, it could create a major challenge for tech companies like Apple and even the US Department of Defense

It is however  worth noting that many of the US manufacturers reliant on rare earth elements have already based their manufacturing in China, or outsourced it to Chinese companies, which could mean they are able to remain unaffected by mineral export restrictions.

China’s dominance of the rare-earth market may not last forever. A large deposit was discovered off coast of Japan last year. A recent discovery in Japan highlights the challenges facing other countries. Around 16 million tonnes of rare earths have been found near the island of Minami-Torishima in Japan, buried 5,600 metres below sea level though it will take a  new mining techniques and equipment for it to be exploited.

The trade war between U.S and China gets hotter as both countries wants to damage the other’s both economically and technically but using a ban of the REE will put China in a very bad place as it would mean shooting itself in the leg for the Eastern country.

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