- Given their highly concentrated supply chains, critical minerals, including rare earths, which are of immense importance for high-tech, renewables, and defence applications, have become a focal point of geopolitical competition between China, the EU and the US
- While COVID-19 has put China’s dominance of critical minerals’ supply chains and the resulting potential to create strategic dependencies back on the agenda of European and U.S. policymakers, policy responses have been far from concerted and are couched in excessive rhetoric of geopolitical competition
- Any long-term and sustainable policy approach to rare earths and critical minerals must include the developing world as equal stakeholder and should prioritise the preservation of the global commons, most importantly concerning climate change
Two seismic economic and technological shifts taking place in a climate of fraught geopolitics have again spotlighted the criticality of rare earths that are indispensable inputs for high tech, renewables, and defence applications. First, the decarbonisation of the global economy is no longer in question. Political will and rapidly declining production costs have accelerated the shift in response to the worsening climate crisis. As of 2019, major economies (the EU, China, Japan, Korea) have announced their goals to reach climate neutrality mid-century. Even the United States has now rejoined the Paris Accord and laid out its plans for net-zero emissions, economy-wide, by no later than 2050. Second, spurred on by the need to respond to the global pandemic, the deployment of artificial intelligence (AI) and 5G networks have ushered in the fourth industrial revolution earlier than initially anticipated.
Both of these monumental shifts are happening in an atmosphere of geopolitical upheaval. China’s rise, its growing global impact, and increased assertiveness under Xi Jinping have triggered an increasingly aggressive response by the United States that has framed power re-alignments in terms of bipolar Sino-American competition. Moreover, China’s global Belt and Road Initiative that unites Eurasia and Africa and loops in South America forms a novel network of land, maritime, and digital connectivity. China is thus re-imagining the map and creating new spheres of influence. Alarmingly, in a spillover effect, the geopolitics of contention have polarised the transition to a decarbonised global economy and have made digitalisation a battleground over who will control the tech-imperium. As a result, these transitions are no longer confined to the normal parameters of trade competition. They constitute an open and heated rivalry over influence, economic power, supply chains, information, norms, values, and governance. An uninterrupted access to critical minerals (CRMs) that include rare earths (but also lithium and cobalt) are a sine qua non for this transition and because there is a new race to control the resources themselves and their extensive globalised supply chains.
The problem is that rare earths and other critical minerals are all highly geographically concentrated and vulnerable to disruption. Moreover, the amounts needed will skyrocket moving forward. According to a 2020 World Bank report the production of lithium and cobalt may increase by 500% by 2050 to meet clean energy demand alone. In accessing these resources, China seems to hold the upper hand. It still controls, for instance, the production of rare earths (REEs) and the supply chains from mine to market. Moreover, other critical minerals mostly originate from developing countries where China has over time consolidated its strong relationships and secured its dominant position. This has left China’s competitors, that had previously dominated industrial innovation and production, feeling exceedingly vulnerable.
What’s striking is that the 2010 rare earth crisis had offered industrial economies a unique opportunity to plan ahead in light of changing technologies; though the lessons went largely unheeded. A trawler incident, in 2010, involving a Chinese vessel and the Japanese coast guard quickly turned into a geopolitical bras-de-faire provoking an “unofficial” and short-lived embargo of rare earths to Japan. It was a wake-up call for major industrial actors that for the first time recognised an important vulnerability that could be exploited if China decided to flex its muscles. The 2010 crisis, therefore, provides a salient case study of how resource competition impacts geopolitical rivalries. It also spotlighted the fact that most of China’s competitors were largely dependent on the market to deliver solutions, whereas China had developed its rare earths sector openly, yoking private and public partnerships to meet its goals.
Dependency on China for rare earths, however, was never fully tackled because prices normalised quickly enough. Companies returned to China to purchase the rare earths they needed because it made economic sense in the context of the need to maintain their competitive share prices and protect their bottom line. Mining for rare earths elsewhere and rebuilding global supply chains was, in the end, too cumbersome, too expensive, and necessitated long lead times. Moreover, global power relations at that juncture, while increasingly competitive, were not as fraught, nor had persistent impediments to global trade reared their head. Over a decade later, the most advanced economies are once again scrambling for ways to build up their stocks, find alternatives sources of REEs, and diversify supply chains.
Major industrial nations have updated their critical minerals lists, are attempting to build resilience against possible disruptions, and are seeking to re-constitute supply chains closer to home. In the United States decarbonisation politics turned into urgent calls to desinicise supply chains in order to thwart China’s ability to control the CRM space. Under Trump, breaking interdependence and supply networks reliant on China was priority number one. On 30 September 2020, Trump signed an Executive Order that addressed the “Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries,” calling it a national emergency. Three years earlier, in December 2017, Trump had also signed Executive Order 13817 (A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals), that required the Secretary of the Interior to identify critical minerals. Moreover, it tasked the Federal government with making policy “to reduce the Nation’s vulnerability to disruptions in the supply of critical minerals.” The administration announced plans to collaborate with Australia to finance and develop CRM projects in 2019 and the State Department launched the Energy Resource Governance Initiative (ERGI) as a critical material initiative.
Anti-China sentiment continues unabated under the Biden Administration and tensions are on the rise. The first high level meeting between the US and China that took place in Alaska in March 2021 brought to light the level of ongoing animosity in what was described as an “undiplomatic war of words.” Moreover, having made it his goal to urgently decarbonise the US economy and lead in the production of new green technologies, just like his predecessor, Biden continues to underwrite efforts to build US resiliency and desinicise supply chains. On 24 February 2021, Biden signed an executive order asking for a “report identifying risks in the supply chain for critical minerals and other identified strategic materials, including rare earth elements (as determined by the Secretary of Defense), and policy recommendations to address these risks.”
Decoupling from an economic giant like China is not, however, a realistic option nor a recommended one. In response, to Washington’s flurry of activity, China and the member states of ASEAN plus Australia, Japan, South Korea and New Zealand signed the Regional Economic Comprehensive Partnership (RCEP) in November 2020. It was a moment that the PRC government used to drive the point that “ideas such as decoupling with China are nonsense and … nations who pursue such are likely to end up on the outside of the world’s economic gravity.”
The European Union has chosen a different tack, a policy of carrots and sticks. It signed a major trade deal with Beijing in December of 2020, though it acknowledges China as a systemic rival. It has, moreover, announced ambitious and concrete plans to decarbonise. With China in mind, Europe speaks about growing supply chain resilience but has also strategically chosen – unlike the United States – to attract global investment, build new networks of interdependence, and strengthen existing ones without alienating the PRC. In 2017, Europe took an important step into the future. It formed the European Battery Alliance to address the need for efficient batteries that were essential for transport, power, and industrial applications. Four hundred industrial and innovation actors from mining to recycling have come together under the EBA to help build a strong and competitive European battery industry. This initiative demonstrated that it is possible for the EU to strengthen its position as a producer of applications for the new low carbon economy without severing networks of interdependence. It is not, therefore, surprising that Chinese and other Asian companies are already investing in Europe because the opportunities for collaboration are highly attractive from a business standpoint. The EU has followed a similar logic in launching the European Raw Materials Alliance in the Fall of 2020. ERMA which is the largest consortium in the raw materials sector worldwide is designed to support a multi-sourcing strategy of REEs, ensure resilient supply chains, and increase European industrial competitiveness. With respect to the growth of AI, the EU is cognisant of the fact that it may find itself sandwiched between two combatting technological giants, the US and China. So as not to be left behind, in 2018, the Union drafted a Coordinated Action Plan on Artificial Intelligence that supports ethical, secure, and cutting-edge AI made in Europe.
In western media, there are countless stories being published about rare earths and other critical minerals that spread confusion and often distort reality. Most stoke fears that China will cut off the world from rare earth supplies in order to demonstrate geopolitical strength. They are calling for a robust plan of action under the spectre of impending confrontation. The headlines reflect the perspectives of major economies. There is shockingly little discussion on how fraught geopolitics undermine multilateral efforts to address the worsening climate crisis threatening the global commons. Moreover, they fail to problematise the socio-economic impacts of the race for minerals on the developing world and overlook the unprecedented ecosystem degradation on land and sea that frenzied extraction will cause. Even more egregious is the silence surrounding the need for knowledge sharing and building the production capacity for these technologies with and in the developing world. They turn a blind eye, to the developed world’s promise to create green jobs and bolster their economies in order for them to genuinely leapfrog into the next economic transformation.
Even the geopolitics of critical minerals are not as linear as portrayed, but far more complex. Nuance, however, hasn’t proven as effective as the polarising narrative which triggers “urgent,” though often haphazard, government responses. Once again, if anything, the 2010 rare earth crisis has already demonstrated that a knee jerk reaction does not produce effective long-lasting policy solutions. They have also systematically ignored China’s perspective which would have been instructive and enlightening. To begin with, the PRC has repeatedly declared its ambitious plans to decarbonise and digitalise its own economy and to become a leading producer of new technologies. In the government’s view, it is hard to rival strong existing industries. There is more opportunity to become a leader in new technologies that are not yet saturated. Their plan requires a higher supply of rare earths for domestic production. In fact, since 2018, China has become an importer of rare earths, particularly of the more valuable ones such as praseodymium and neodymium used in magnets. It has also become the leading importer of monazite from Brazil, Madagascar, Thailand, and Vietnam. This is of particular significance because monazite is highly radioactive and up until recently not a preferred source of rare earths as it required strict storage permits and incurred high costs for handling and transport. It does, however, offer a further indication that the PRC will be looking for higher quantities of rare earth for the production of tech applications.
Following the 2010 rare earth crisis, moreover, China sought to consolidate and streamline the industry in order to reduce environmental pollution, but also to curb smuggling of REEs outside the PRC. This was a crucial government objective because domestic stability relies on a social contract that values continued economic growth and effective pollution reduction. Perhaps the Chinese government did try to instil a level of insecurity vis-à-vis future access to rare earths in its row with the Trump administration. In 2019, in the midst of the US-China trade war, Xi Jinping’s visit to a rare earths mining site with his chief US-China trade negotiator, led to headlines that suggested that the PRC might be ready to “weaponize” the elements in its dispute with the US. Still, China has not pulled that trigger even while it continues to protect and strengthen its overall strategic position in the rare earths sector. New alarms were again raised in 2021, when China made known its plans to further standardise the management of the rare earth industry and promote its high-quality development. According to the Ministry of Industry and Information Technology (MIIT), the PRC intends to strengthen the management and supervision of the whole industrial chain, which will allow it to exert better control over supply, demand, and pricing dynamics.
There is no doubt that critical minerals and their supply chains are now at the centre of geopolitical wrangling with businesses caught in the crossfire. While tensions are often stoked by junior miners that see an opportunity for government support in the prevailing climate, companies by and large are eager to see governments lower the political rhetoric and look at the bigger picture. Severing ties of interdependence in a globalised economy is counter-productive and a strategic mistake. While economic competition will certainly continue, this is not the time for a narrow realist frame of pitting countries’ national interests against the other. It is a false and misleading dilemma to project as the greatest battle of our time the fight between democracy and autocracy when the planet is in peril. This logic is a pretext for the upcoming battle over who will lead the tech imperium. Still, it is the climate crisis and the urgent need to embrace a far more comprehensive ecological and sustainable development paradigm that constitute the greatest challenges to the global commons. It must include the developing world as an equal partner. Dividing the world is a recipe for disaster when it’s crucial now to include the developing world as an equal partner. China, the US, Europe and other powerful actors are accountable for what transpires next. As elements, rare earths are enablers. As political instruments, they are increasingly turning into a catalyst for unnecessarily fraught relations.
This article gives the views of the author, and not the position of the China Foresight Forum, LSE IDEAS, nor The London School of Economics and Political Science.
The image used with this blog was created by photoangel.