The Great Wall of Subsidies

How China's Financial Support Alters Global Trade Dynamics

Rare Earth Elements (REEs) are crucial for the world economy, but their supply chain is intertwined with geopolitics. Experts and policymakers are debating ways to reduce dependency on China, including geographical diversity, innovation, recycling, international collaborative ventures, and policy changes. In the October Issue of Skillings Mining Review Senior Correspondent Mike Harris looks at the Chinese dominance of rare earths and its effect on Western dependence.

A Brief History of the Rise of the REE Titan:

China entered the REE industry in 1980.

1990: Complete mastery of REE separation.

2005: Aggressive efforts to gain control of non-Chinese REE mining.

2010: A monopoly is established, and REE shipments to Japan are terminated.

2015: Western competitors, such as Molycorp and Lynas, have financial constraints.

2022: Despite outsourcing 40% of REE mining, China maintains a solid hold on the lucrative REE metals and magnets manufacture.

Rare earths have emerged as the twenty-first century's equivalent of oil, a strategic commodity with significant impact over the global landscape. As Guillaume Pitron points out, our reliance on China for these materials mirrors the 1970s' hazardous reliance on OPEC. This inquiry dives into the depths of China's strategic monopoly on rare earths, as well as the implications for Western economies and government.

Rare Earth Elements (REEs) are important elements at the heart of the world economy. These minerals are essential to the fundamental foundation of our highly advanced civilization, from cellphones to green technology. However, its supply chain is a fragile web, intricately intertwined with geopolitics, owing mostly to China's dominance over the majority of REE mining and processing.

Experts and policymakers are debating the best way to lessen the world's dependency on China for these critical materials as they enter this complex sector. Some argue for geographical diversity of supply chains, analogous to an adventurer spreading their risk by sourcing treasures from many locations rather than betting everything on one trove. Countries with untapped REE reserves, such as the United States, Canada, and Australia, could become alternate centres in this scenario. However, like with any new company, this technique may be vulnerable to the vagaries of global market changes or the environmental consequences of mining.

Then there's the way of the innovators who are avidly searching for new materials with an eye to the future. Instead of avoiding China, this method seeks to potentially alter demand. If successful, this might be more than a sidestep, but a major leap in reducing the global demand for REEs.

However, not all solutions are concerned with the outside world. Turning inward, some professionals advocate for the cause of recycling. Discarded electronics, like a phoenix rising from the ashes, might be given new life by providing REEs with a second cycle. However, one cannot help but wonder if present recycling efforts are sufficient to satiate the world's ever-increasing desire for these elements.

International collaborative ventures are also on the table in a world where teamwork often yields the sweetest fruits. Nations may unite their talents, resources, and brains here, creating a picture of global solidarity in the face of the REE issue. However, as with any delicate diplomatic dance, the timing and rhythm of such agreements might be surprising.

There is a press from the corridors of power for policy and regulatory changes that will allow nations to strengthen their internal capacity by either easing REE mining or investing resources in alternatives.

No thread stands alone in the great fabric of REE solutions. A combination of methods, intertwined with foresight and adaptability, could be the key to shaping a future in which the global economy is no longer at the mercy of a single dominant player in the REE sector.

Environmental Implications and Considerations:

Environmental problems have hampered China's rise in the REE extraction arena. The Bayan Obo mines have wreaked havoc, producing massive water pollution and raising concerns about radioactive waste. However, the West's devotion to strong environmental rules, while ensuring safer extraction methods, inadvertently raises costs, making competing with China difficult.

At this critical point in history, there is a tug of war between harnessing REEs for eco-friendly technologies and comprehending the environmental consequences of their extraction. This scenario highlights the critical need for novel mining technology and recycling solutions to reduce environmental damage.

The Alternatives Race:

Recycling REEs from old devices appears to be a viable alternative. However, the economic feasibility of scaling this technology remains debatable. Countries such as Japan, which has led the way in this field, may be able to provide significant insights to others.

Concurrently, research organizations are working hard to discover synthetic REE replacements. While some leads appear promising, the scalability of these alternatives is still an issue. Bio-mining is an intriguing area being investigated, with scientists exploring using microorganisms to extract REEs, providing an eco-friendly alternative.

The Long Journey Ahead:

Navigating the complex maze of the REE challenge necessitates imaginative leaders capable of balancing economic, geopolitical, and environmental considerations. As the world addresses this common threat, international collaboration in research and policymaking becomes critical. The current status quo, with all of its complications, begs for change. While difficult, this shift is not insurmountable. A diverse and environmentally conscious REE landscape can be sculpted with deliberate efforts.

The story of rare earth elements is a significant reflection on world politics and economic structures. It highlights the need for forethought, collaboration, and inventiveness. Solutions to these difficulties require more than just economics or technology; they necessitate a strategic, long-term vision. The story of REEs is still being told, with future paths awaiting judgment and action.

The multiple consequences of rare earth elements highlight the complicated dance of geopolitics and global economics. It's a narrative about hardships, but also about the limitless opportunities that await those who are bold enough to take them. As the story progresses, the pen is in our hands, and the result, while unpredictable, is loaded with possibilities. The economic chessboard, on which pawns and knights symbolize REEs and nations, is a study in strategy and foresight. However, this is not a two-player game. It's a multifaceted struggle in which every move has ramifications for global trade, the environment, and geopolitics.

Further investigation reveals that the drive for REE independence is about more than just minerals or technology. It is also about power dynamics, influence, and the basis of long-term planning. REEs have become the sought item, the modern-day spice that nations are clamoring for, much as salt and spices defined trade routes and alliances in ancient civilizations.

However, unlike in the past, the twenty-first century provides a greater understanding of sustainability and environmental responsibility. As countries consider expanding mining operations, they must also consider the environmental impact. Balancing economic prosperity with environmental prudence becomes a delicate dance. For example, Australia's unspoiled terrains, which are rich in REEs, are also home to unique ecosystems. The question then becomes, can we afford to damage these natural havens in our pursuit of technological dominance?

Similarly, while recycling is frequently lauded as a cure, it is not without its challenges. The infrastructure and technology necessary to extract REEs from discarded electronics are both complex and costly. Furthermore, the question of whether there will ever be enough discarded electronics to meet world demand remains unanswered.

On the other hand, technological innovation, which has always been a wild card, remains unpredictable. Breakthroughs cannot be planned or predicted. Waiting for a revolutionary material to replace REEs may be likened to waiting for Godot - full of anticipation but with an uncertain payoff. Furthermore, the threat of geopolitics looms enormous. The geopolitics of trust and national interests emerge as governments negotiate international joint ventures. While such partnerships appear to be promising on paper, they may become embroiled in the greater web of diplomatic complexities.

The story of REEs is more than just a supply chain concern; it is a contemporary drama. It addresses issues such as the environment, the economy, diplomacy, innovation, and global power dynamics.

China's Dominance in Rare Earths: A Threat to Western Dependence

China's dominance in the rare earth elements (REE) arena is well known. A deeper investigation, however, reveals an ingeniously integrated strategy that is about global leverage as much as it is about business. China has established itself as the hub of REE production and innovation through a combination of subsidies, technological control, and extensive research ecosystems.

The Dominance Tools:

Several approaches demonstrate China's market dominance in rare earth elements (REE). The country purposefully uses a 13% VAT to stimulate the export of finished magnets while discouraging the export of raw REE. This strategy puts producers outside of China in a difficult position. China uses soft subsidies in addition to harsh subsidies. Their competitive labour force, excellence in education, commitment to environmentally friendly methods, and research funding make it difficult for others to compete.

Furthermore, the commercialization of REE technologies from the United States in China raises concerns about potential intellectual property infringements and technology transfers. China's unique structure, in which the state and enterprises interact smoothly, adds to their edge, as does their refining capacity and cost-effective capital approach.

China's Control of the REE Value Chain:

China has expertly rewritten the laws of the REE sector, giving it unprecedented sway over global pricing. Such control has spread to critical industries, such as EV batteries, underscoring China's significance in the arena.

Ecosystem of R&D and Innovation:

China has a thriving REE research ecosystem, complete with national laboratories and a patent filing rate that dwarfs Western endeavors. This points to a future in which China will continue to lead in REE innovation.

Legislative Dilemmas:

The West's efforts to confront China can feel reactive and, at times, unproductive. For example, while legislation such as HR 2849 may have excellent intentions, it may end up benefiting China.

Unpacking the Issue:

China's monopoly ensures its dominance over premium NdFeB (neodymium) magnets. Policymakers' jobs are made more difficult by misinformation and misleading data. Furthermore, the West may be unintentionally boosting China's supremacy through technological transfers as a result of thorium-centric rules.

An In-Depth Look at Human Capital:

China's human resources in the REE field vastly outnumber those of the West. It is estimated that about 12,000 full-time researchers operate in this subject in China. This emphasis on R&D, which began in the mid-1980s, demonstrates China's forward-thinking policy. Their mining capabilities, illustrated by the Bayan Obo mine, provide them with unrivaled advantages.

The REE Geopolitical Strategy of China:

China's Belt and Road Initiative (BRI) is more than just infrastructure development; it places China at the forefront of the global REE supply chain. They secure vital REE deposits by investing in nations like Myanmar.

The Asia Infrastructure Investment Bank (AIIB) strengthens their plan even further. China's control over the REE supply chain gives them enormous political influence, as evidenced by the 2010 limitation on REE exports to Japan during a territorial dispute. As the world moves toward a greener future, the demand for rare earth elements (REEs) will increase. China, having identified this transformation early on, is well positioned to play a key role.

US and Allied Reactions:

Despite acknowledging the strategic importance of REEs, the U.S. Initiatives by the Department of Defense, such as the Defense Production Act, have not made a dent in China's hegemony. Collaborations with Australian-based Lynas, for example, have only produced temporary answers. When compared to China, the United States lags in REE R&D, while they are investigating potential breakthroughs. Efforts are being made to develop new mines in the United States, however environmental rules, particularly those pertaining to thorium, pose difficulties.