In the latest round of feuding between the world’s leading economies, China has vowed to retaliate after the United States ordered its consulate in Houston shut within 72 hours. Although the latest move by Washington is being viewed as an attempt by President Trump’s campaign strategists to deflect attention for his failure to deal decisively with the Covid-19 pandemic, it could quickly escalate into another ugly tit-for-tat trade war. As trade and political tensions between Washington and Beijing flare up, the specter of China using rare earth minerals as a ‘nuclear option’ has once again resurfaced.
It’s not a far-fetched idea: At the height of last year’s trade war between the two nations, China threatened to curb exports of rare earth minerals to the United States, responsible for supplying 80% of the country’s needs. It was not empty rhetoric, either: In 2010, China restricted exports of these vital minerals leading to global shortages and serious price hikes.
Although a less dominant player in this space than it was a decade ago, China has maintained a stranglehold on the industry over the years, exporting more than 70% of the world’s supply of rare earths over the past few years. China’s Bayan Obo mine alone supplies close to half the world’s rare earth elements.
This in effect means that dozens of key U.S. industries would likely be left in the cold if Beijing decided to ban exports of these minerals to the U.S.
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Distribution of rare earth element deposits
Source: ArsTechnica
Recycling Rare Earth Elements
Source: Scientific American Neodymium, yttrium, dysprosium and praseodymium. These exotic-sounding minerals with tongue-twisting names are the so-called rare-earth elements (REE), a group of 17 relatively rare elements used in small amounts in the manufacturer of consumer electronics including smartphones and PCs, electric vehicles, green technologies such as wind turbines, medical equipment and tools and even in military hardware.
The glass industry is one of the largest consumers of REE: For instance, lanthanum makes up as much as 50% of cell phone cameras and other digital camera lenses. An average hybrid EV also uses about 10-15Kg of lanthanum in its batteries. Meanwhile, neodymium or samarium greatly increases the potency of magnets, allowing those components to shrink in size.
U.S. industries rely heavily on Chinese imports of rare earth minerals with China supplying 80% of its $170 million REE imports in 2019. To complicate matters even further, U.S. REE imports from other countries including Estonia (6%), Japan (3%) and France (3%) are themselves heavily dependent on chemical substances and mineral concentrates produced in China.
Another worrying statistic: Although the U.S. mined 18,000 metric tons of its own rare earths in 2018 and 26,000 metric tonnes in 2019 , the U.S. Geological Survey has revealed that all domestic production of mineral concentrates was exported.
In short, U.S. industries are utterly dependent on China for their supply of rare earth minerals.
It, therefore, comes as a big surprise that only around 1% of REE are recycled from end-products at the end of their life-cycles.
Yet, the potential of recycling rare earths is huge.
A 2013 paper says that simply boosting the collection rate of batteries, bulbs, and magnets could improve the recycling rate of REE from one percent up to 20-40%. That would amount to up to 5% of global REE mine production, or nearly half of the U.S. annual mine supply. But we could do even better. As Simon Jowitt, assistant professor at UNLV’s Department of Geoscience, has told ArsTechnica, much more than 40% of REE could be recycled depending on adoption rates of technologies like EVs.
To be fair, recycling that amount of rare earths would not be a walk in the park
The diverse types of electronics being recycled would not necessarily contain enough rare earths and in the right proportions to make recycling those elements profitable. In many cases, the manufacturers usually are not responsible for running recycling operations, meaning they might not even be privy to which components contain which materials.
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Maybe the United States REE industry needs to borrow a leaf from Europe.
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The EU’s Waste of Electrical and Electronic Equipment WEEE requires manufacturers of electronic devices to not only finance or perform the recycling of those devices but also requires sellers to offer free e-waste collection.
In the final analysis, REE recycling all boils down to the federal government’s commitment to secure REE supplies within its own borders. According to Jowitt: “If your government puts a lot of strategic value in those rare earths and wants them kept within the US, and actually to develop a domestic way of producing them by recycling, then that's something [where] government could actually start to invest in research and development.”
An Ace in Beijing’s Hand?
Obviously, it would take years, if not decades, before the U.S. could become self-sufficient in REE by improving its recycling loops and growing its industries. That said, REE might not be the potent ‘Ace in Beijing’s hand’ politicians sometimes make it out to be.
A sudden ban of REE to the U.S. by China would certainly hurt a lot of industries in the short-term. However, critical industries such as defense would be unlikely to be affected much due to their huge stockpiles, while many manufacturers could probably be able to quickly realign their supply chains as we pointed out here.
By Alex Kimani for Oilprice.com
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If, however, President Trump does resume the trade war, he will find that China has very powerful weapons in its arsenal.
The first is for China to offload its holdings of US Treasury bills estimated at $1.3 trillion. That will immediately cause a steep devaluation of the dollar.
The second weapon is for China to impose an embargo on the supply of rare earth minerals to the United States. That could potentially cripple large swathes of US industry from smartphones, turbines, lasers, missiles, advanced weapon sensors, stealth technology and jamming technology to name but a few.
A third weapon is to use the petro-yuan to undermine the petrodollar as the world oil currency. By undermining the petrodollar, China would be also undermining the US financial system and also the US economy.
More than two centuries ago, Napoleon Bonaparte uttered a wise dictum that “China is a sleeping giant. Let her sleep, for when she wakes she will move the world’. Now this giant is hell-bent on dethroning the indispensable superpower and establish a new world order.
The United States’ gripe is that China exited the lockdown much earlier than itself and is on the way to full economic recovery by the end of the year.
And whilst the COVID-19 pandemic might have shown an aspect of rivalry between the United States and China, their rivalry goes far beyond it. It is about the next world order and who will emerge as the dominant power in the 21st century. It is also about the petro-yuan supplanting the petrodollar as the oil currency of the world.
The inevitable rise of China is being underpinned by the fact that it is the world’s largest economy, the growing importance of the petro-yuan, the Belt and Road Initiative (BRI) and the Russian-Chinese strategic alliance which will lead the new world order in the 21st century.
The BRI has enabled China to integrate its economy in the global trade system far deeper than the United States’. Moreover, by offering loans and helping most countries of the world modernize their infrastructure and starting wealth-creation projects, China’s economy is benefiting immensely by expanding the market for its global trade.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London