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Rare-earth elements between the United States and China

The “rare-earth elements”, also called rare-earth metals or rare-earth oxides, or lanthanides are a set of 17 white soft heavy metals.

The uses, applications and demand for rare-earth elements have expanded over the years. Globally, most rare-earth elements are used for catalysts and magnets in traditional and low-carbon technologies. Other important uses of rare-earth elements are applicable to the production of alloys, glass and high-performance electronics, such as for petroleum refining and diesel additives. The rare-earth elements in this category are used in hybrid and electric vehicle engines, generators in wind turbines, hard disks, portable electronics, mobile phones, microphones, loudspeakers, etc.

This is another area, which also pertains to clean and environmentally friendly energies, in which the United States and China are playing an important game.

At a Summit between the United States, Japan, India and Australia held not long ago, strengthening cooperation on rare-earth elements between the four countries became a key topic. The United States has always hoped to reduce its dependence on rare-earth elements and minerals from other countries. But the US government’s review of key minerals and rare-earth supply chains says that even with radical changes, it will still take at least ten years for the United States to become self-sufficient.

Indeed, over the past three years, the US Administration’s attention to rare-earth issues has increased. Rare-earth elements have become a key test for some US politicians to prove that “China threatens US security”, and have also become an important motivation for the White House to reformulate its rare-earth policy. Indeed, over-politicising the rare-earth issue and even linking it to national security will do more harm than good to both People’s Republic of China and the USA itself.

Firstly, the United States has no clear understanding of the current situation of the rare-earth mining industry. Currently, the vast majority of rare-earth products are manufactured in China, and this is because China’s low-cost mining has led to the closure of rare-earth mines in other countries. Therefore, the model of rare-earth elements as chains of the processing industries gradually developing in China is not the result of China’s monopoly, nor of rare-earth extraction in the People’s Republic of China.

Currently, China’s rare-earth reserves have fallen from over 70% of world production to about 30%, thus making China the world’s largest importer of rare-earth elements. In fact, many countries have rare-earth mines and rare-earth reserves outside China can be used by everyone for hundreds of years.

From today’s perspective, the advantage that Chinese industry derives from rare-earth elements is gradually shifting from the scale of extraction to that of their processing. Rare-earth processing is crucial for China, as most of the major patents in rare-earth production are still controlled by Western countries.

Firstly, the focus of future global competition is the ability and capacity for technological innovation. The key pathway for improving China’s industry thanks to the possession of rare-earth elements lies in technological innovation, rather than in expanding the market share of rare earth extraction and processing.

Although China has tightened up its control over the rare-earth industry in recent years, this has not been done simply through an export ban, but primarily through improved environmental protection and technological processing requirements to promote industry improvement. Although these measures have stimulated price increases in rare-earth products, they are far from threatening the US national security.

Secondly, the US actions have increased its financial burden. During President Trump’s Administration, the White House linked the supply of rare-earth elements to national security and joined Australia and other countries in calling for the exclusion of Chinese rare-earth products in the defence sector.

Nevertheless, as the human and environmental costs of rare-earth mines in Western countries are much higher than those in developing countries, it is absolutely unlikely that the minerals they extract will be competitive in the marketplace, and Western governments are paying for this.

Just for the imaginary Chinese threat, the US Department of Defence is investing huge amounts of capital, which will further increase the burden on citizens due to the country’s high fiscal deficit.

Moreover, the rare-earth processing industry hardly exists in the United States any longer. Rare-earth elements extracted

there have to be transported to China for processing. This so-called “getting rid of dependence on Chinese rare-earth elements” is actually self-deception. If the United States wants to rebuild its entire chain of rare-earth processing plants, it will not survive relying solely on the arms industry (as in the case of Afghanistan in 2001-2021), unless the US administration convinces Congress that it can use taxpayers’ money to subsidise these military installations anywhere in the world indefinitely.

Before Congress decides on any steps in any sector, entrepreneurs rarely venture to invest in building factories dedicated to rare-earth elements, as in this case. Therefore, the White House’s expectation of “ten years of self-sufficiency” is actually an overly optimistic and unrealistic assessment.

As long as China does not fully implement its ban on rare-earth exports, it will be difficult for the USA to rebuild its rare-earth industry. This was President Trump’s hope to bring manufacturing back to the USA through the imposition of tariffs and duties.

Thirdly, the weakening of mutual trust in Sino-US cooperation can easily lead to strategic misjudgements. In the current complex international economic and political situation, China and the United States are both competitors and partners. The competition between China and the United States is not a fight to the death between opponents who cannot stand each other, but requires healthy competition and cooperation on the basis of mutual trust. For a long period of time, competition between the two countries will mainly focus on the economic and technological sectors, especially the high-tech sectors, which will determine the future of both countries and also of the entire world.

Some politicians and interest groups in the United States have spread the generic “Chinese threat theory” for their own interests. The “rare-earth threat theory”, in particular, obviously bears the shadow of the US military industry group and mine owners.

When policies are subservient to interest groups, if the proliferation of conspiracy theories and threats is not contained, they will weaken mutual trust in cooperation between countries, and even increase the risk of strategic miscalculation between the two major powers. This is detrimental to global peaceful development.

China also needs to be straightforward and not immersed in the context of cheaply sold rare-earth raw materials and/or monopolistic reserves of these minerals. The aim pursued by the People’s Republic of China is the transformation from a country of rare-earth extraction into a country of rare-earth processing and production. This is occurring since large amounts of funding have been invested in rare-earth science and technology – projects that are advancing with great strides.

In short, the US policy of rare-earth independence is just wishful thinking and has no practical meaning for the USA itself.

Regardless of what others may think, as long as the People’s Republic of China continues to adhere to a pragmatic policy in the rare-earth industry, and it maintains open cooperation on development concepts – oriented toward innovation and ongoing improvement of the scientific and technological level of the rare-earth industry – it can become a strong pillar of national development, but it will also present itself as a business card that shows the level of its industrial technology, as well as its political credit at the international level.

Giancarlo Elia Valori