The rumor that China might play its “rare earth card” was the rumor today that helped push down both stock and oil markets according to a variety of reports. The trigger for this seems to have been a visit on May 26 by China’s president, Xi Jinping, to a rare earth facility, along with some rumbling statements associated with that visit. They may not do it, but the possibility of blocking exports to the US of exports of rare earth metals shows that China has potential weapons if Trump follows through with more vigorous trade barriers. How serious is this threat?
It is probably not as serious as it might have been a decade ago. In 1990 a solid majority of these critical elements were produced outside of China, with the US being a major source, particularly California. But production here and in some other nations such as Australia was reduced substantially as mining of many of these involves substantial environmental damage. At the same time China entered the opening and expanded production, getting to be the source of about 90 percent of all production by 2010. However, due to events then increased efforts to increase production of them elsewhere, especially Malaysia, Australia, and South Africa, has reduced this to 70 percent.
China’s cost advantage is the elements are both economically and environmentally costly to mine. The refining process is expensive, laborious, toxic, difficult and dangerous. China is willing to do it; the US is not. That is the main reason why 85% of global production takes place in China, despite having 50% of global reserves. The refining process has migrated to territories like China that have lax labor and environmental regulations. Much of this is Overhead cost in the processing of REE which are less in China and still exist in the US and substantially higher.
China’s comparative advantage is not being bound by the same Overhead such as environmental, labor, and other restrictions western nations have in place to protect the former two and any others considered important. The dumping of photoelectric chemicals in the manufacturing of cells in the village of Gaolong is one example. I was in Shanghai during its worst air pollution day in its history of measuring such. The building of massive shopping centers and stories high apartment building where people will never shop or live in (digging holes and filling them in[?]) is an example.
There “may be” a strategy in the Trump administration to force the reopening of Mountain Pass, CA due to China controlling the market. Murkowski had a bill in Congress to do such. Heritage Foundation opposed it stating the present economics status does not require the US to do more. Trump is ordering up 6 months or more of hell to start up that mine. In 2009/10 when automotive cut back on production, many of the semi-conductor companies shut down their capacity also. A key part of this is the growing of the crystals which are layered (packaging) in the manufacture. To meet a growing need after 2010, 1-2 years passed. The electronics industry controlled the world and extracted higher prices to obtain product (you can see the same in cancer drugs).
China is not the only country that has discovered rare earth elements in their area of influence. Japan has discovered a very large deposit of rare earth elements in their area of influence near Marcus Island, and as I understand it, are working on plans to mine this. And Japan is not an unfriendly country to the United States.
Welcome to Angry Bear. First time commenters always go to moderation to weed out spam, spammers. and advertising.