The Geoeconomics of Critical Rare Earth Minerals

The world heavily relies on a single source for critical rare earth materials: China. This fact is evident in all stages of the rare earth value chain, from mining and production to refinement and formation into usable alloys for end use in manufacturing. Rare earths are critical components in military industries, energy efficiency, and technologies key to climate change response. Access to these resources is critical to both maintaining capacity in the American security-industrial complex and keeping an edge in next-generation green technologies. Rare earths came into close focus by the national security community and political risk analysts in 2010–2011 after the Chinese allegedly placed an export ban on Japanese imports in the midst of a territorial dispute. Following this perceived use of economic coercion, rare earth prices were incredibly volatile, sparking global discussion about establishing sources outside of China to protect against supply chain and price risks. Galvanized by this geopolitical threat, Japan, in particular, swiftly moved to diversify, but progress on these efforts elsewhere has been slower.1 This paper describes the mechanisms by which dominance in the rare earth industry transitioned from the United States to China in the 1990s, focusing on the role of Chinese industrial policy. Evidence from an analysis of price shifts in the 2010–2011 period and Chinese intellectual property in the sector indicates that despite shared knowledge of dependence on China, concerns about price volatility and supply chain vulnerability remain. Tracing the policies behind why the rare earth market is concentrated in China helps suggest paths to greater resilience, including diversification in production and capacity building and talent retention in post-production processes.