Two seismic economic and technological shifts are emphasizing the need for uninterrupted access to essential minerals such as REEs, lithium, cobalt and nickel. REEs are crucial components in permanent magnets used by wind turbines and electric vehicles; they're also vital components in military technologies like precision-guided weapons systems.
Although developed countries possess rich national geological endowments of key minerals, environmental policies which restrict new production have prevented expansion.
China holds the world's largest reserves of rare earth elements (REE), an essential group of 17 minerals used in everything from smartphone batteries and electric cars to rapid Covid-19 testing devices. China dominates global supply chains supplying REEs; their presence became well-known after Beijing tightened export quotas and caused prices to soar, sparking widespread discussions of REEs among major industrial economies who updated critical minerals lists and began rebuilding supply chains closer to home. This crisis caused major economies to seek independence from Chinese influence by diversifying supply chains using domestic resources from sources within their borders - prompting major industrial economies update their critical minerals lists and attempt at breaking interdependence through rebuilding supply chains closer to home.
Horizon Advisory's report suggests that China's global REE industry dominance may not merely reflect commercial value. Instead, Beijing appears to be using this industry for geopolitical competition with Western nations.
JT: Emily de la Bruyere, senior analyst with Horizon Advisory and author of this report, has studied the rare earth market for over a decade and worked on multiple projects related to geopolitics and economic competition between China and other nations. What have been your primary insights from your research?
Geopolitics is an ancient concept, first appearing in Western political thought via Aristotle and Montesquieu's writings. This field studies the relationship between power and geographic space; particularly emphasizing land versus sea powers' role in world history.
Rare earth minerals represent one such instance of geopolitics's political impact. Media reports continue to heighten concerns that China could cut off access to REEs in order to demonstrate its growing military and economic might, sparking fear among other nations that this will result in reduced ecosystem degradation on land and at sea caused by rapid extraction activities. While such concerns are valid ones, they misrepresent the big picture by neglecting to account for how rapid extraction could damage ecosystems both inland and at sea.
Concerns have also been expressed that the US may not take its race for critical minerals seriously enough given its focus on building domestic energy markets. While domestic supply should remain secure, efforts should still be undertaken to leverage global supply chains with allies such as Europe in order to reduce reliance on dominant players like China.
Assure that the United States remains competitive in the race for rare earths is by intensifying exploration efforts in Africa - where there is the second-largest reserve, yet exploration budgets here are only half those spent by Canada, Australia and Latin America.
Two major economic and technological shifts - decarbonisation and digitalisation of economies - have highlighted rare earth metals as essential inputs for high tech, renewable energy, defence applications. Unfortunately, when industrial economies had the opportunity to use 2010 rare earth crisis to develop robust plans for managing supply and demand, few took the lessons seriously - instead, its source caused knee-jerk responses by governments that only compounded problems further.
Reliance on China for critical minerals makes good business sense, with companies finding it more cost-effective to purchase from state-owned Chinese enterprises that operate with discounted subsidies, low wages and lax environmental standards compared with their foreign competitors. This trend supports 19th century economist David Ricardo's theory of comparative advantage - that countries gain trade advantages by prioritizing activities which can be accomplished more economically than their competition.
But this strategy cannot remain sustainable; Europe must diversify its raw material sources and expand its processing capacity for rare earths - something made more difficult by society's awareness surrounding mineral extraction. Sweden, for instance, has stringent exploitation license requirements which make mining difficult - even with strict exploitation license requirements making mining operations possible at LKAB's Norra Karr deposit being mined successfully. Thankfully Neo Performance Materials' separation plant in Estonia should open later this year, marking only the world's third commercial-scale rare earth separation facility outside China - an important step toward Europe becoming self-sufficient in electric motor and magnet production.
Japan boasts some of the world's largest deposits of rare earth minerals, but is taking steps to lessen its reliance on China for these essential materials. Recently, its industry ministry announced that Sojitz and Japan Organization for Metals and Energy Security (JOGMEC) acquired shares in Australian rare earth mining company Lynas that produces dysprosium and terbium - two essential ingredients found in electric car motors as well as other technologies.
Japan may seem risk-adverse when investing in Lynas, but in reality the move is smart: Lynas will help diversify Japan's rare earth supplies and reduce China's political pressure, as well as supporting companies and projects that recycle rare earths or develop alternatives to China's processing facilities.
Tokyo successfully reduced its dependence on Chinese rare earth imports from 90% to about 50% within ten years and expects that figure to fall further by 2025. Meanwhile, Washington implemented tariffs against some Chinese REE products; however, heavy reliance on Chinese equipment and inputs makes the US vulnerable to Beijing's leverage during mining; without increased domestic production capacity in place, America will have no choice but to turn towards China for rare earths as well.