A new report released by the US Energy Department paints a grim picture on future supplies of rare earths, which have shot into prominence due to artificial shortages triggered by China?s sovereignty dispute with Japan. According to this official American prognosis, it could be 15 years before the US can free itself from dependence on China for medium and heavy rare earth elements that are essential components for manufacturing electric motors, fluorescent bulbs and a host of other green technology products.
The prediction has alarmed American green energy companies, which are already being outcompeted by Chinese firms owing to the latter?s massive production and export subsidies. Attaining self-sufficiency in raw materials critical to one?s core industrial base is not a new notion in national security circles, but it has suddenly acquired a panicky feel to it as a result of China?s export controls that sprang from a territorial spat with Japan earlier this year.
The US, the European Union and Japan have all recently suffered worrisome cuts of varied amounts in rare earth shipments from China, which stands accused of holding importers by the scruffs of their necks through blackmail. The weaponisation of commodities by a monopolist to extract territorial or political concessions from its customers was first felt by the advanced industrialised economies in the 1970s during the two ?oil shocks?, when Arab countries and Iran held back oil exports amidst war and revolution in the Middle East.
In the rare earths case today, motives ranging from grabbing islands in the East China Sea?whose ownership China contests with Japan?to preparing local Chinese corporations for dominating world markets are driving Beijing?s confrontational stance.
China accounts for a whopping 96-98% of global supplies of some rare earth elements, a commanding position achieved through exploitative labour and environmental policies. From around 1990, the logic of outsourcing?which has cost minimisation at its root?enabled Chinese mines with the worst safety standards and worker casualties to overtake their American counterparts in unearthing and processing rare earth elements. Up to the decade of the 1980s, Mountain Pass mine in California single-handedly generated 70% of the world?s rare earth supplies. This became ancient history once the Chinese offered the same at much cheaper rates and became the world?s preferred supplier.
Now that the Chinese policy of leveraging their rare earth supremacy for bargaining and linkage on other foreign policy issues has come to the fore, reviving long-abandoned industrial capacities for these precious inputs has become a major public policy concern for Japan, Germany and the US. However, rebuilding or freshly investing in hollowed out industries is only a medium-term possibility because western economies not only deserted rare earth mining in investment terms but also in scientific R&D. The US Energy Department glumly noted that ?there are thousands of rare earth researchers in China and dozens in the United States.?
What can jolted dependents do when their assured market-based supplies dry up and they cannot themselves become self-reliant any time soon? The Japanese, whose automobiles, electronics and defence industries are enduring the biggest blows from China?s hostage-taking strategy, are sewing up bilateral deals with rare earth producers in Australia, Mongolia and the US. ?Urban mining? of electronic waste?from used-and-thrown cell phones to motherboards for semiconductors?has also begun in earnest desperation.
In a treacherous world where dependence lurks not far below the surface of interdependence, China has reduced its political rivals to ragpickers and recyclers! The Financial Times cited a smug Chinese rare earth consultant mocking Japanese efforts to break free of Beijing?s stranglehold as follows: ?After you sign the contract (with non-Chinese suppliers), getting the product is not such a simple matter.?
By abusing its monopoly power in the rare earths market, China has shattered confidence that free trade will meet everyone?s needs while enabling specialisation based on comparative advantage. With China climbing to the helm of world affairs, a prolonged spell of economic nationalism and cut-throat behaviour lies in store. From the liberal world of mutual help, we are headed back to the ?self-help? ways of the jungle.
The author is vice-dean of the Jindal School of International Affairs
