If Beijing fulfils its threat, Europe and the US will need to diversify their supply
China is threatening an export ban on rare earth metals in response to Washington’s recent decision to impose restrictions on exports of high-end semiconductors to Beijing. This is not the first time that China has mooted such a ban, with rumours circulating since at least 2019 as well as formal threats in 2021.
If such a ban came into effect it could, in theory at least, be quite damaging. Rare earth metals are needed to produce the magnets that are used in everything from wind turbines to hard disk drives to electric vehicles. Everything from a smartphone to a Tesla has a substantial need for these elements, while US military technology is also dependent on them, with the F35 fighter jet requiring 417kg of rare earth metals.
China is by far the largest producer of usable rare earth metals, accounting for 60% of rare earth mining, 85% of rare earth processing and 90% of high-strength rare earth permanent magnet manufacturing. Yet there are questions that arise about whether the sanctions would work. We have seen since sanctions were imposed on Russia last year how difficult it is to regulate commercially available technology. There is every chance that even if China banned exports of rare earth metals to the US, America could simply buy it through a third party — just as Europe is buying Russian oil via intermediaries in India.
The threats, however, are likely to push Western countries to find new sources of supply. Japan has already paved the way in this regard after the imposition, in 2010, of a two-month ban on rare earth exports from China. This followed a territorial dispute which broke out when Japan arrested a Chinese fishing boat captain near the contested East China Sea islands. The Japanese were then spurred to diversify the source of their rare earth metals and, as of today, they only import around 60% of their supply from China. Recently, Japan has been exploring the possibility of tapping into deep undersea reserves.
Diversifying the sources of rare earth metal purchases may prompt a renewed debate about the environmental consequences of rare earth metal processing, which creates toxic waste and has a high risk of causing damage to both the environment and to human health. These realities are embarrassing to those who advocate the use of technology like wind turbines and electric vehicles to save the environment. If China is no longer willing to do our dirty work, we may find ourselves with a national debate on the dangers and downsides of rare earth processing.
Ultimately, if China makes good on its threats, we should expect the price of rare earth metals to rise. Even if the sanctions do not work to prevent the US from gaining access to rare earth metals, they will likely lead to supply chain issues and rising costs. The same is true if we start to process these metals domestically. This means higher prices for Western consumers — and that includes everything from smartphones to green energy. Should Beijing’s threat be fulfilled, ramifications will be felt well beyond the corridors of Washington.