Does China pose a threat to global ‘Rare Earth’ supply chains?

As China’s domestic consumption of rare earths grows, the country will be increasingly reliant on imports to feed its appetite for the materials.

China already became the world’s largest importer of rare earths in 2018, and it is expected to become a net importer by the middle of the decade. Under these conditions, Beijing’s influence over the global rare earth industry would be significantly reduced, and new players might finally find themselves able to compete.

Does China pose a threat to global ‘Rare Earth’ supply chains?

As China’s economy has developed over the last several decades, its leaders have sought to transform the country into a key player in strategically important industries. Toward this end, Beijing has established China as the dominant global supplier of rare earths, a collection of 17 minerals that are indispensable to the manufacturing of smartphones, electric vehicles, military weapon systems, and countless other advanced technologies.

Beijing has demonstrated a willingness to leverage its weight in the global rare earth industry in pursuit of its political objectives, raising alarm bells in several major countries. However, China’s influence within the industry is likely to be eroded in the coming years as changing market dynamics empower new actors to compete.

The global marketplace for ‘Rare Earths’

The global rare earths trade is relatively small compared to other commodities. In 2019, the value of worldwide rare earth imports stood at just $1.15 billion – a fraction of the more than $1 trillion in global crude oil imports. The total value of goods produced using rare earths, however, is immense. Each Apple iPhone, for example, relies on multiple rare earth elements. Neodymium is used to make tiny, yet powerful, magnets that allow iPhone speakers to function. Europium is used in trace amounts to produce red colors on screens, and cerium is used to polish the phones during the manufacturing process. During the 2019 fiscal year, Apple sold $142.4 billion worth of iPhones.

Despite their name, most rare earth elements are relatively abundant. The process of mining rare earths and transforming them into usable materials is, however, expensive and damaging to the environment. For years, Beijing exploited its relatively low-cost labor force and lax environmental laws to gain a competitive edge in the global market and become the leading supplier of rare earths. From 2008 to 2018, China exported nearly 408,000 metric tons of rare earths, which amounted to 42.3 percent of all rare earth exports over the period. The United States was the second-largest exporter, supplying roughly 9.3 percent of the global total. Malaysia (9.1 percent), Austria (9.0 percent), and Japan (7.1 percent) rounded out the top five. […]

Deep Reliance on China

China has demonstrated a willingness to leverage its influence in the global rare earth industry in pursuit of its political objectives. While several major countries have sought to limit their exposure to supply chain disruptions emanating from China, they nonetheless remain deeply reliant on Chinese rare earth exports.

Beijing’s most notable use of rare earths as a political tool came in 2010 amid a heated dispute with Tokyo. After Japan arrested the captain of a Chinese fishing boat that rammed a Japanese Coast Guard vessel in the waters near the contested Senkaku/Diaoyu Islands, China restricted rare earth exports to Japan for two months.