Back in 2019 the United States had a dust-up with China regarding trade and tariffs and as part of its response China threatened to reduce export of rare earth elements (REEs) essential for many civilian and military electronics. The Chinese then as now held a dominant position in the mining and processing of these metals. China did not carry through on its threat and by early 2020 both nations signed an agreement that deescalated the trade war.
Fast forward to today and we have China and the United States deescalating a trade dispute far broader in its scope with both sides reducing tariffs and China agreeing to drop its restrictions on exporting REEs to the United States. But none of this alters China's stranglehold on REEs production and mining. And China's return to exporting these strategic metals means its dominant position in that market gives it continuing power over key electronic industries worldwide that are dependent on Chinese supplies. China currently controls 69 percent of the REEs mine production and almost 90 percent of the processing of these elements.
To guard against ongoing dependence on Chinese supplies, the Trump administration has provided capital for a facility that will produce high-strength magnets made from REEs for delivery to the U.S. military by becoming part owner of the only operating REEs mine in the United States. The U.S. Department of Defense (DOD) will guarantee prices that are almost twice the current world price for such magnets for 10 years. This move was followed by a DOD award to U.S. company developing facilities to increase production of scandium, niobium, and titanium, the first of which is an REE. Investors believe there are more investments to come in other companies by the U.S. government.
The price guarantee offered by the Trump administration is crucial because with the return of China to the REEs market prices are likely to stay low by historical standards. China's low-cost mines and processing have allowed it to dominate the market and so historically low prices allow China to keep other countries with high-cost deposits from developing them. And that's what's missing from the Trump administration strategy. It only focuses on the needs of the military. The broader U.S. consumer and business electronics industries remain dependent on Chinese supplies, supplies that could be upended at any time.
Of course, the same is true for the entire global electronics industry unless non-China producers can come up with a coordinated strategy—which will almost certainly involve price guarantees over long periods in order to break the Chinese near monopoly on REEs. And this would require the governments of the countries in which these non-China producers operate to engage in the kind of industrial policy that they are not used to and that their neoliberal devotion to free markets tells them not to engage in.
But in a world of increasing resource nationalism governments that don't secure supplies of critical materials for their industries will likely find themselves at the mercy of those who embrace resource nationalism. This trend also runs counter to globalization and suggests that more of the value added to raw materials will be added closer to where those materials are sourced.
Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique, Oilprice.com, OilVoice, TalkMarkets, Investing.com, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at kurtcobb2001@yahoo.com.
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