La decisi\u00f3n de las autoridades chinas de responder a la pol\u00edtica de restricciones de ventas de tecnolog\u00eda avanzada por parte de EUA, ha puesto en alerta sobre los riesgos que el monopolio chino en el mercado de minerales cr\u00edticos como las llamadas \u201cTierras Raras\u201d, presentan para las cadenas de suministro globales. A modo de ejemplo, China ha anunciado restricciones en las exportaciones de Germanio y Galio, dos metales esenciales para diversos empleos en desarrollos de alta tecnolog\u00eda de empleo civil y militar. Las Tierras Raras resultan vitales adem\u00e1s para avanzar en la transici\u00f3n en el \u00e1rea de la energ\u00eda, por su empleo en variadas aplicaciones como veh\u00edculos el\u00e9ctricos, turbinas e\u00f3licas y paneles solares. A menos que EUA y sus aliados puedan escapar a la \u201cestrategia de pinzas\u201d que impone China, las ambiciones de lograr alcanzar objetivos de emisiones netas de \u201ccarbono cero\u201d as\u00ed como el desarrollo de otras innovaciones tecnol\u00f3gicas futuras se ver\u00e1n seriamente afectadas.<\/p>\n
Bookending Treasury Secretary Janet Yellen\u2019s recent fence-mending trip to Beijing were two largely overlooked, but nonetheless ominous, developments which demonstrated unambiguously China\u2019s dominance over global supply chains for critical minerals needed for the energy transition because of their use is essential in various applications\u2014including electric vehicles (EVs), wind turbines, and solar panels. Unless the United States and its allies can escape the pincer, their ambitions for net-zero carbon emissions\u2014to say nothing of those for other future technological innovations\u2014may well be stillborn.<\/p>\n
China\u2019s Rare Earth Metals Monopoly<\/strong><\/p>\n On July 3, citing national security interests, Chinese authorities\u00a0announced export restrictions<\/a>\u00a0beginning next month on gallium and germanium, two metals that are key to high-speed computer chips and fiber optic cables as well as some sensitive military uses like night-vision and satellite imagery. China produces 80 percent of the world\u2019s supply of gallium and 60 percent of that of germanium. Beyond the implications for chipmakers and other manufacturers, the move\u00a0sparked concern about supply chains for rare earth elements<\/a>\u00a0(REEs)\u2014the group of seventeen metals with strategic applications in defense, aerospace, energy, and transportation technologies\u2014over which China has an even tighter grip, controlling more than 90 percent of global output. After the Independence Day holiday, even President Joseph Biden\u00a0tweeted<\/a>, \u201cChina has dominated the production of raw materials needed for critical products for too long.\u201d<\/p>\n But what is even more telling is what has happened with REEs, prized for their strong magnetic properties allowing for energy efficiencies in EVs and other electric devices as well as military uses, including lasers, missile guidance systems, aircraft, and satellites. Instead of rising as watchers might have expected given the export curbs on the gallium and germanium, the price of praseodymium neodymium alloy, for example, subsequently sunk to its lowest level since 2020, down more than two-thirds since January of last year. While part of this is attributable to a slackening of demand\u2014new wind power installations are down globally\u2014a significant part of this appears to be intentional policy. As\u00a0one analyst told Reuters<\/a>, \u201cIf you\u2019ve got 90 percent market share of magnet processing capacity, there\u2019s a goldilocks price where you earn a return but you don\u2019t encourage anyone else in the rest of the world to build capacity.\u201d<\/p>\n This market dominance is the greater challenge to efforts to secure reliable access to critical minerals like REEs because it remains an economic barrier to entry, even if geological resources are located elsewhere. China\u2019s own natural resources endowment allowed the country to cultivate the mining and processing of rare earths, but it was the Communist regime that dictated the\u00a0late 2021 merger of three of its biggest state-owned REE mining firms<\/a>\u2014China Minmetals Rare Earth, Chinalco Rare Earth & Metals, and China Southern Rare Earth Group\u2014to form the China Rare Earth Group. This consolidation permits the regime to control the global market more easily by facilitating synergies to lower overall production costs even further (the new juggernaut controls almost two-thirds of China\u2019s heavy rare earths production), thus deterring any potential foreign competitors from even entering the business and eventually competing with it.<\/p>\n The strategic implications of this de facto monopoly are not hypothetical. In 2010, in response to the detention of the captain of a Chinese fishing boat that provocatively rammed two Japanese coast guard vessels off the Senkaku Islands, Beijing\u00a0blocked export to Japan of REEs<\/a>. As I noted in a\u00a0study last year for the Krach Institute for Tech Diplomacy<\/a>, that embargo, while short-lived, underscored both the risks of dependence on China as a single supplier and China\u2019s willingness to exploit its supply chain dominance for political leverage. Realizing the need to secure an alternative REE supply chain, the Japanese government teamed up with Japanese businesses to support rare earths mining at western Australia\u2019s Mount Weld by\u00a0Lynas<\/a>, an Australian company that has subsequently become what is currently the only significant producer of separated rare earth materials outside of China. (Such is the Chinese comparative advantage in REE processing that the largest single rare earth mine in the world, the open pit at Mountain Pass, California, just southwest of Las Vegas, Nevada, has been sending its raw ore to China for processing before the metal returns to the United States as finished magnets used in EVs and other applications.)<\/p>\n A Three-Prong Plan<\/strong><\/p>\n To escape this veritable trap of dependency, the United States\u2014and, of course, its allies, including the European Union, which is currently elaborating\u00a0its own critical minerals strategy<\/a>\u2014should adopt a three-pronged approach:<\/p>\n First<\/strong>, an \u201call-of-the-above\u201d mindset is required to deal with the supply side of the equation. Where it makes geological and economic sense, domestic production should not only be cheered on politically but actually enabled by a rational and timely permitting process. The Biden administration, for example, has used a variety of existing federal programs and legal authorities to\u00a0support the establishment of a facility<\/a>\u00a0by\u00a0MP Materials<\/a>\u00a0to separate the heavy REEs from its Mountain Pass mine and manufacture permanent magnets without first exporting them to China for ore processing and mineral refining.<\/p>\n Where domestic supply chains are impractical or insufficient, new partnerships have to be developed to secure access to vital resources, such as a \u201cbuyers\u2019 club\u201d like the nascent State Department-led\u00a0Mineral Security Partnership<\/a>, which includes Australia, Canada, Finland, France, Germany, Japan, South Korea, Sweden, the United Kingdom, the United States, and the European Commission.<\/p>\n In other instances, the answer might be found in innovative approaches like the Lobito Corridor, championed by White House senior advisor Amos Hochstein, which aims to link Angola, the Democratic Republic of the Congo, and Zambia\u2014three African countries with significant reserves of critical minerals and other strategic materiel\u2014to global markets and catalyzing the African nations\u2019 value chains with improved energy and other interconnections, supported by the G7\u2019s flagship infrastructure initiative, the\u00a0Partnership for Global Infrastructure and Investment (PGII)<\/a>.<\/p>\n Moreover, as I have\u00a0argued here previously<\/a>, given that the single most significant challenge is that any one country or entity so dominates supply chains that it is able, at will, to block others\u2019 access to critical minerals, diversification of supply is\u00a0the<\/em>\u00a0overriding priority and key to de-risking, even if it might entail having to do business at times with countries or firms that might otherwise not be viewed as preferred, or even desirable, partners.<\/p>\n Second<\/strong>, the United States and other countries should continue to facilitate the growth of new ventures with the potential to compete and even supplant the current Chinese monopoly, whether by bringing new sources of raw materials online or developing technologies to bypass the midstream processing (refining, alloying), both presently dominated by a Chinese firm.<\/p>\n Notwithstanding the political and diplomatic controversies over the enactment and implementation of America\u2019s\u00a0Inflation Reduction Act<\/a>, the legislation not only provided numerous tax credits and other incentives for companies to invest in critical minerals and EV supply chains, but bolstered existing programs like the\u00a0Department of Energy\u2019s Loan Programs Office<\/a>. Other existing agencies, like the\u00a0Defense Logistics Agency<\/a>\u00a0and the\u00a0U.S. International Development Finance Corporation<\/a>\u00a0(DFC) also have roles to play. While not all of these experiments will succeed, some will; a few might even prove transformative. (Full disclosure: I am a non-executive director of\u00a0Rainbow Rare Earths<\/a>\u00a0which, with a modest indirect investment from the DFC via Ireland-based\u00a0TechMet<\/a>, has a pilot plant in South Africa to produce mixed rare earth sulfate from waste gypsum stacks that, in turn, at a second facility under construction in Florida, will be separated into rare earth oxides for eventual sale to permanent magnet manufacturers.)<\/p>\n Third<\/strong>, given that the sustainability of supply chains is dependent upon demand and the demonstrated power of the current Chinese monopoly over the global market for REEs, it is imperative that the United States and like-minded countries help level the playing field for emerging alternative suppliers via instruments like off-take agreements linked to national strategic reserves or incentives to private companies to enter into similar deals. Without this basic lifeline, it would be almost inconceivable for new entrants into the market to survive the cut-throat and uneven competition. The fate of the French firm Rh\u00f4ne-Poulenc, whose now closed La Rochelle factory at one time processed half of the purified REEs in the world, should be a sobering reminder of the raw power that Chinese state-owned enterprises can bring to bear in a yearslong price war to take down a rival.<\/p>\n Better Late than Never<\/strong><\/p>\n For the moment, there is no denying that China has built a formidable position in the global quest for critical minerals in general and for very strategic rare earths in particular. But Beijing\u2019s decision to lash out against U.S. curbs on advanced technology sales by both export restrictions of its own on select materials and a preemptive price war on others may have inadvertently alerted the world to the risks that its effective monopoly poses to vital supply chains. Late as it may be in the game, there is still an opportunity to shift the play.<\/p>\n