China’s Rare Earth Dominance: How Usable a Weapon?

1. As one former rare earths trader puts it in a recent interview with The Verge: “Producing rare earth concentrate is near trivially simple…I, or any other competent person, could produce that from a standing start within six months in any volume required.” During a crisis, even an intensely regulated jurisdiction such as the United States could find ways to override the environmental hurdles that currently dis-incentivize domestic rare earth ore refining.
2. But while customers of Chinese rare earths could likely adapt, draw down inventories, and source and process rare earths using alternative channels, Chinese firms reliant on imported semiconductors would face a much longer, harder, and uncertain adaptation slog.
3. In contrast to the dozens of China-based rare earth producers and refiners (and the attendant likelihood of embargo leakage), the highest-end semiconductors and semiconductor production equipment are controlled by a handful of firms that guard the intellectual property of their high-added-value products jealously.
4. If a sufficient mass of foreign firms decided that sourcing higher-end products and critical input materials from China posed unacceptable risks, a rolling exodus of such operations would set back Beijing’s ability to realize many of its key industrial development objectives, such as moving higher up the global manufacturing value-added chain.
5. The extant signature example came in the fall of 2010 when the Chinese government restricted exports of rare earths to Japan following Tokyo’s detention of a Chinese fishing boat captain after he collided with two Japan Coast Guard vessels near the disputed Senkaku Islands.
6. As Washington and Beijing brace for a protracted trade war, Chinese sources increasingly discuss the potential for weaponizing the Middle Kingdom’s major mineral advantage: rare earth elements (REE).
7. China controls substantial parts of the global rare earths supply chain, but as described above, users can diversify their sources.
8. Third, an REE embargo could lead to much more damaging reciprocal American responses—such as more severe restrictions on the export of semiconductors and other critical technology subcomponents that many Chinese firms literally cannot survive without.
9. At present, the United States completely overestimates its ability to manipulate the global supply chain….” Importantly, this authoritative publication states, “I advise the US side not to underestimate China’s ability to safeguard its own development rights and interests, don’t say I didn’t warn you!”
10. So exactly what options does China have for potentially weaponizing its commodity advantage? In theory, Chinese mineral might is fearsome as Beijing is the world’s leading REE producer.

https://nationalinterest.org/blog/buzz/china%E2%80%99s-rare-earth-dominance-how-usable-weapon-61307