Rare Earths: China's Weapon Too Soon

Friday, October 1, 2010

Alex Calvo

By Alex Calvo

The latest crisis in East Asia, involving a Chinese trawler's collision with two Japanese coastguard vessels, has prompted Beijing to resort to a potential weapon widely discussed by some observers, but never before used: an embargo on rare earths exports.

Rare earths, also known as "strategic metals," are a number of scarce elements necessary for many contemporary technologies, both military and civilian. Among the products implicated are wind turbines, hybrid cars, night-vision equipment, and radar.

Rare earths are scarce, not because they are not widespread, but because they are not normally found in high enough concentrations to make their exploitation economically feasible.

Over the last decade, China has emerged as the main producer and exporter of these elements, and currently supplies some 97% of world demand. This is a result both of its lower production costs, as well as the stricter regulatory and environmental policies in the United States. One key example is the closure of Mountain Pass Mine in California in 2002.

Actually, China only holds one third of recoverable reserves, with the United States, Russia, Australia, and India also having a significant but not exploited portion of the balance.

Concerns over this Chinese quasi-monopoly are widespread and increasing, and have even prompted the Pentagon to commission a report. Over the last two years, these concerns have been fuelled by a tightening of export quotas by Beijing, officially on environmental grounds, but widely seen as an attempt to hike up prices.

The embargo during the latest Senkaku Islands incident should therefore come as no surprise - after all, why renounce the use of such powerful weapon if one can humiliate Tokyo and send a shot across the bow of other countries in the region?

The matter is not quite so easy for Beijing however.

History teaches us that the decision to use a weapon must take into account not only its immediate effects, but also the longer run impact. This is particularly the case when, by its very nature, a certain weapon is likely not to be available as soon as an enemy develops countermeasures.

Since China's current quasi-monopoly on rare earths is not purely the result of their natural distribution, but rather of the decision by other countries not to pursue their production, Beijing cannot count on this advantage forever.

Furthermore, every instance where this monopoly is used in the realm of foreign and defense policy, or even where it is simply threatened, provides an added incentive for potential victims to, at the very least, create or reinforce strategic stocks and perhaps seek alternative suppliers.

Beijing could therefore be expected to be cautious about the implications of its recent move, downplaying the threat to importers and reserving this powerful instrument for some decisive future engagement.

Although it seemed until recently that this was indeed the policy Beijing was following, the unofficial embargo imposed on Japan over the trawler skipper has put to rest any such assumptions. China pressed the button, and now there is no going back: The regime will never again be able to credibly assure other countries that they have nothing to fear from its stranglehold on supplies.

The latest Senkaku incident may therefore be seen as a pyrrhic victory for Beijing, since it may have forsaken the future use of a powerful weapon in exchange for no substantial gain other than the satisfaction of seeing the "dwarf pirates" (as the Japanese are traditionally know in China) climb down.

It is of course still too soon to see how Japan and other countries will react, but those voices clamoring for an increase in strategic stockpiles of rare earths and a reopening of mines will have seen their points of view validated.

After all, who will be China's next victim be?

India refused to send combat troops to Korea in 1950 and helped mediate an end to the conflict, only to see her efforts rewarded by war in 1962.

Tokyo, whose decision to go to war in 1941 in search of a decisive blow leading to a negotiated peace was at least partly prompted by the US-British-Dutch oil embargo, surely remembers the vital importance of assuring industrial supplies.

An urgent debate is therefore needed that leads, ideally, to a reopening of Mountain Pass Mine, environmental considerations notwithstanding, and an effort by countries such as Australia and India to develop their own mines. There should also be an effort to pool strategic stockpiles among democracies.

Alex Calvo is Professor of International Relations and International Law, European University in Barcelona (Spain).

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