SUMMARY :US and Australian policymakers are actively working to head off future supply bottlenecks of rare earth minerals and other key inputs in the high-tech exports of tomorrow.
Rare
earths represent fertile ground for bilateral cooperation between Washington and
Canberra. Both governments share an aversion to overreliance on Beijing for
supply, and Australia is stepping up as an alternative producer. The country
accounts for around 2.8% of global rare earth mineral supply and more than half
of the world’s planned new facilities.
China is
currently the world leader in rare earths mining and processing by a large
margin, a position that leaves US producers susceptible to disruptions. Around
78% of all rare earth imports into the United States come from China. Beijing
has brandished rare earths as a diplomatic weapon in the past against Japan,
and there have been rumblings of it doing so again in the trade war.
Rare
earth minerals refer to a collection of mineral inputs that are critical to a
variety of high-tech products, ranging from wind turbines to electric car
batteries to fighter jets.
BACKGROUND
US-Australia
cooperation on rare earths and other key mineral inputs has been building since
the advent of the trade war, and it has picked up further momentum in recent
months.
In early
September, Australia released a report outlining 15 rare earth and critical
mineral projects to fill holes in the supply chain and alleviate overreliance
on China. The report proposes some A$5.7 billion worth of new facilities,
covering rare earth minerals, antimony, magnesium, and tungsten – all of which
China currently controls the global supply of. The plan also calls for the
construction of a new rare earths mine and processing plant in Western
Australia.
Lynas
Corp, the Australian miner building the new processing plant, also has plans
for a new facility in Texas.
Days
after the Australian announcement, the United States State Department revealed
its own initiative to shore up an alternative global supply chain of rare earth
minerals, joining together with Australia, Botswana, and Peru to promote
‘responsible mining’ of critical inputs. In the words of Secretary of State
Mike Pompeo: “[The United States] wants to ensure that these important mineral
commodities remain free from international coercion and control.”
IMPACT
A few
key points to note about rare earth minerals:
First,
they aren’t rare. In fact, they’re relatively abundant and can be found in
Canada, Australia, Myanmar, Vietnam, Greenland, Malaysia, the United States,
and other countries. But getting them out of the ground and preparing them for
their industrial application can be an expensive and environmentally
destructive proposition.
Second
(consequently), China’s current monopoly is more the result of political will
than geographic endowment. China built up its current position via public
subsidies and ‘dirty’ industrialization from the 1990s onward, and Western
producers were content to see their own dependency grow.
Third,
the geopolitical context – and by extension political will in Western countries
– is now shifting in fundamental ways. In the old post-Cold War assumptions of
WTO-led global free trade, China’s dominance over global supply was not an
issue because there was no perceived threat of disruption. China’s rise as a
challenger to the West’s status quo, along with the disruptions inherent to the
recent US-China trade war, have changed the security equation. We’ve already
seen the lower levels of Western manufacturing chains shift from China to
surrounding low-cost alternatives like Vietnam and Taiwan. In this we’re seeing
the top-level shifts follow suit, the critical inputs. However, these are less
tradable and credible alternatives will take more time to become established.
Fourth,
rare earth minerals and other critical inputs are only becoming more important
as time goes on and their associated products become fixtures of the
contemporary global economy. Production of rare earth minerals was just 20,000
metric tons in 1980; by 2017, the number had reached 140,000. Demand is
expected to grow exponentially over the decade ahead.
FORECAST
Looking
ahead we can expect ongoing divergence between the China-centered supply chain
of old, and a new West-centered supply chain centered around Australia and
other ‘reliable’ partner countries. And like many of the geopolitical forces
unleashed by the US-China trade war, this trend is likely to outlive any
ostensible resolution to the present trade tensions between the world’s two
largest economies.
Washington
will have its work cut out for it in accomplishing its goal. Though Australia
may make for a natural partner in culture and aversion to overreliance on
China, other worldwide producers will be a different story. States like China
and to a lesser degree Russia are earlier adopters of the mercantilist view of
the global economy, and as such have been currying favor and influence in key
producers. It won’t be possible, let alone easy, for the United States to walk
in and usurp all of these relationships that have been nurtured over the course
of decades. In the end it will be less about best practices, and more about
ponying up the investments and financial assistance to make the projects
happen, and this is one field where the United States has continued to lag
behind the comparatively profligate authorities in Beijing.
**Originally
published on October 3, 2019.