China’s near monopoly of rare-earth metals (REM) has been a subject of concern for many industrialized countries which need REMs for advanced, eco-friendly technologies such as hybrid cars, wind turbines and rechargeable batteries.
The discovery of what has been oxymoronically referred to as a “semi-infinite” supply of REYs (rare-earth elements and yttrium) off the coast of the Minamitori (Marcus) Island has therefore been hailed as having a potentially transformative effect on the global economy. Despite a plethora of sensationalist headlines, a more thorough investigation into the actual implications of the discovery reveals a more nuanced story.
The most immediate dampener to the festivities is the fact that neither Japan nor any other country actually has the technology to mine the vast resources located in the oceans surrounding Minamitori Island. REMs are currently extracted exclusively on land, and while there have been plans to test deep sea mining capabilities in 2019, the targets are intended to be copper, zinc and gold rather than REMs. Therefore while headlines proclaiming that the global economy could be drastically altered by this discovery are technically correct, they are extremely misleading.
Even if we operate under the massive assumption that the technology will be sufficient by 2019 to commence mining around Minamitori Island, the advantages of breaking China’s monopoly of REMs are far less beneficial than one would initially presume. While it is true that China currently controls about 90 percent of the world’s production of REMs, this is less a testament to China’s abundance of the resource than it is to the rest of the world’s unwillingness to absorb the high costs associated with its extraction.
Despite being called rare-earth metals, REMs are actually quite common in the earth’s crust and are distributed fairly evenly across the globe. Herein lies the problem, however. While REMs do have significant value in many important technologies, the costly extraction and refinement process oftentimes makes mining them a financial liability rather than a positive.
Furthermore, the method by which REMs are removed from the ore that is extracted is very complicated and dangerous because it produces many chemical byproducts and is radioactive. Due to the prevalence of REMs throughout the world, capitalist nations have no incentive to seek domestic production of REMs as the costs generally outweigh the benefits.
This reality explains why the United States — which was the world’s leading producer of REMs before the 1980s — was willing to concede its control over the industry to the Chinese, whose state-owned companies were more able and willing to absorb the costs more so than private American corporations were.
The outsourcing of REM production, however, led to the entirely rational fear that Chinese monopoly over its production would grant the Chinese a significant leverage over the rest of the world. This fear is perhaps the primary reason behind the excitement generated by the Minamitori Island discovery. However, this fear is for the most part irrational.
In 2010, China attempted to take advantage over its REM monopoly when it limited exports following a dispute with Japan over the Senkaku Islands. The impact on the global economy, however, was far from devastating. While prices did rise, Japan managed to find alternative suppliers while also lowering use of REMs in batteries and motors so as to decrease demand.
The ease with which Japan managed to evade China’s price manipulation speaks to the flimsiness of China’s supposed grip over the world’s REM market. A think tank report on this event concluded that, “Even with such apparently favorable circumstances, market power and political leverage proved fleeting and difficult [for China] to exploit.”
Fear over the Chinese monopoly can therefore be attributed to broader concerns about China’s potential ascension to superpower status rather than the actual material risks. The hype surrounding Japan’s newfound REM reserves should similarly be viewed with skepticism.
Of course, discovering 16 million tons of any type of resource should be a source of great enthusiasm for any nation; however, claims that this discovery has the potential to alter the global economy ought to be properly placed into perspective.