Lanthanum, Cerium, Neodymium, Praseodymium. These are some of the elements known as rare earths that are critical components in hi-tech consumer products such as smartphones, digital cameras, computer hard disks, flat-screen televisions and computer monitors.
Rare earths are also pivotal in the defence industry for a wide range of uses, including precision-guided weapons, communications equipment, GPS equipment, batteries and stealth technology. They comprise 15 elements that range in atomic number from 57 (lanthanum) to 71 (lutetium) on the periodic table of elements.
Due to their unusual physical and chemical properties, such as unique magnetic and optical properties, rare earths are a fundamental part of the energy transition and the push towards clean technologies and renewables. The transition to a low-carbon economy as part of the climate-change agenda will drive up the demand for green technologies across strategic sectors, including industrial, renewable energy, e-mobility, defence and aerospace.
For instance, to meet the goals of the Paris Agreement to keep global temperature rises below 2°C and achieve net-zero emissions by 2050, the mineral demand for clean energy technologies is expected to quadruple by 2040. The end use application of rare earths as catalysts and permanent magnets, in combination with other critical minerals, in wind power generation and electric vehicles, has already sparked a surge in demand for cobalt, lithium and nickel by up to 80%.
In addition to the centrality of rare earths for the push towards a decarbonised global economy, the projected surge in demand has implications for supply chains that are subject to disruptions and price volatility. More importantly, the high geographical concentration of production of rare earths has also served to underscore their value as a strategic commodity, with political and economic implications.
A strategic commodity is a commodity for which lack of access constitutes a security risk in terms of economic prosperity and security. Strategic commodities may not only intensify geopolitical competition as states jostle for market dominance in supply and production, but may also be leveraged by dominant states to advance economic and geostrategic interests in the international arena.
At present, China holds a near monopoly in rare earths from mine to market, with control more than 57.6% of global rare earths production and about 80% of processing. China’s stranglehold in the rare earths industry has flared up the insecurities of global actors such as the US and EU, which have frantically escalated measures to reduce their dependencies and vulnerabilities in the face of potential disruptions and supply risks.
The high-stakes repercussions of China’s dominance of such a vital commodity came to a head in a 2010 diplomatic incident in which China halted rare earth exports to Japan because of a maritime incident in the disputed waters of the Senkaku/Diaoyu islands in the East China Sea. This unprecedented rare earths crisis awakened the rest of the world to the stark realisation of the sharp end of China’s economic statecraft, its willingness to weaponise its monopoly to leverage a territorial dispute, and the imperative of eliminating vulnerabilities in supply chains of vital commodities.
In response, the US, EU and Japan brought complaints about China’s quotas on rare earth exports in the World Trade Organization, while also ramping up trilateral co-operation in scientific research and innovation to diversify supply chains.
It is worth recalling that rare earths in themselves are not actually “rare” in the conventional sense. What makes them rare is the low concentration in which they are found in the earth’s crust, and the complex and costly process of mining and separating them for end-use applications. The onerous chemical and extractive processing of rare earths also results in hazardous by-products that are detrimental to the environment and the health of workers and residents in mining areas.
China’s rare earth mines have resulted in the pollution of rivers, damaged ecosystems, acid rain and the spread of toxic waste dumps. It is ironic that the rare earth elements that are pivotal to what we deem to be clean energy technologies mask a dirty process with a heavy toll on the environment and health.
The story of how China came to dominate the rare earth industry is one of foresight and planning, couched in the broader strategic vision of China’s rise and consolidation as a global powerhouse. In the decades before the 1980s the US was at the forefront in the rare earths industry, but mounting domestic environmental pressure as well as the pursuit of low-cost labour shifted production overseas.
From the 1990s China capitalised on growing demand and economic trends to rationalise its domestic production of rare earths through a series of measures including centralisation, strategic price competition and intensive resource allocation for R&D, in sync with its comparative advantage in manufacturing and advanced tech sectors.
Today’s tense geopolitical climate, amid a conventional war in Europe, tariff wars between the US and China and recriminations about Taiwan, has spurred intensified competition for dominance over the tech-imperium and control of strategic commodities given their political and economic value.
After China’s threat in 2020 to cut off the supply of rare earths to three US defence manufacturers, including F-35 producer Lockheed Martin, the US and other major powers have elevated the issue of securing local supply chains on their national security agenda.
The Biden administration issued directives for a review of gaps in the domestic supply chains for rare earths and other critical minerals, in addition to tax incentives and regulations around sourcing for defence supply chains and an investment boost in innovation and processing technologies.
Other key players such as Australia have ramped up government financing of the rare earth sector and provided multimillion loan packages to companies such as Hastings Technology Metals and EcoGraff. The EU has unveiled an overarching critical raw materials strategy aimed at boosting EU-based mining, but also on diversifying supply chains and promoting sustainable recycling.
The private sector has also been concerned with reducing dependency and uncertainty, as seen in a recent agreement between electric vehicle manufacturer Tesla and Australia’s Syrah Resources to source graphite from Mozambique.
For its part, China is strengthening its dominance over the rare earths industry and acquiring stakes in strategic mines across Africa, Central Asia, Southeast Asia and Latin America. In January, it approved the merger of three state firms to create a behemoth, China Rare Earth Group, which will consolidate Beijing’s lead role in both supply and downstream processing. The next step for China is to move up the value chain and close the technology gap between Chinese and foreign manufacturers of semi-finished and end-use products.
From a geopolitical risk perspective the diversification of supply chains of critical raw materials and creating a buffer against entrenched Chinese monopoly is of paramount importance. However, such a move also demands long-term government intervention, significant investment and conducive environmental and fiscal policy.
One way of offsetting supply bottlenecks is through the recovery and recycling of rare earths. In the long-term, like-minded countries will also need to double-down on the economic diplomacy and form strategic partnerships and alliances to reduce dependencies and proactively address supply risks.
• Mabera is a senior researcher at the Institute for Global Dialogue, specialising in African peace and security issues, geopolitics and foreign policy analysis.
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