Economic analysis

Why China’s days as a rare earth bully are numbered

Have you ever begged your six-month-old to stop throwing the pacifier off the edge of the high chair­ only to watch him do it again with a profoundly amused, puffy-cheeked smile? That must be how American, Japanese and European diplomats feel today. After pleading with China not to re-issue rare earth quotas, Beijing did just that, imposing new restrictions that would keep exports of the strategic materials at roughly last year’s levels.

Rare earth metals are the little-known but vitally important stuff that things like iPhone and laptop monitors, and wind turbine and hybrid car parts are made of. As Maclean’s reported last November, these metals are so crucial to much of the high-tech industry that, like oil and diamonds, they have effectively become a tool for geopolitical arm-twisting.

Mostly, they are a tool for the People’s Republic, which produces more than 90 per cent of the world’s rare earth metals. For example, when Beijing and Tokyo got into a diplomatic scuffle last year, China shut off exports of rare earth metals to Japan. Prices for the key metals skyrocketed up to 475 per cent as a result, spreading panic among Japanese manufacturers and prompting their government to comply with Chinese demands.

That’s why eggheads in Japan, Europe and North America were so disappointed with the new quotas announced today. The European Trade Commission called Beijing’s move “highly disappointing,” which, in diplomatic speak, is pretty heavy wording.

China, though, doesn’t seem too bothered by the global outpour of consternation, nor by threats to bring the whole affair before the World Trade Organization, which polices its member countries’ adherence to free trade practices.

But Beijing may soon need to change that attitude. China’s strong-arming has prompted some big manufacturers, such as Toyota, to come up with ways to avoid using the scarce materials altogether. Most importantly, two recent discoveries of vast rare earth deposits could challenge China’s monopoly on the stuff. This month, an estimated 267 million metric tons of rare earth deposits were found in Madagascar, where mining is expected to kick off in 6-8 months. And last June, Japanese scientists found between 80 and 100 billion metric tons of the metals on the floor of the Pacific Ocean.

All of which is to say that China’s days as a rare earth bully may be numbered.