America’s trade war with China has been quietly escalating for years, but this week it took a turn for the disastrous. Huawei, once the rising star of China’s tech industry, has been cut off from US suppliers, leaving the company effectively stunted. China is likely to respond somehow, but with a multitude of options on the table, many in the tech industry are now considering nightmare scenarios.
One particularly chaotic option would be a ban on the export of rare earths — raw materials that are crucial for electronics. These elements are produced mostly in China, and used in the US for everything from electric cars to wind turbines, smartphones to missiles.
Chinese state media have backed the idea, calling America’s dependence on Chinese rare earths “an ace in Beijing’s hand.” President Xi Jinping hinted at that possibility when he visited a rare earth facility at the beginning of this week. (As a ministry spokesperson commented with what seemed like a nod and a wink: “It is normal that the top leader investigates relevant industrial policies. I hope everyone can interpret it correctly.”)
Rare earth elements are sometimes described as the “vitamins of chemistry,” as small doses produce powerful salutary effects. A sprinkle of cerium here and a pinch of neodymium there makes TV screens brighter, batteries last longer, and magnets stronger. If China suddenly shut off access to these materials, it would be like rewinding the tech industry back a few decades. And no one wants to ditch their iPhone and go back to a BlackBerry.
Experts in the field, though, are much less concerned about such a chilling scenario. They say that while a restriction on rare earth exports would have some immediate adverse effects, the US and the rest of the world would adapt in the long run. “If China really cuts off supply entirely then there are short term problems,” Tim Worstall, a former rare earth trader and commodities blogger tells The Verge. “But they’re solvable.”
Far from being an ace in the hole, it turns out rare earths are more of a busted flush.
The reasons for this are numerous, and span geography, chemistry, and history. But the most important factor is also the simplest to explain: rare earths just aren’t that rare.
A group of 17 elements, rare earths are what the USGS (United States Geological Survey) describe as “moderately abundant.” That means they’re not as common as oxygen, silicon, and iron, which make up the vast majority of the Earth’s crust, but some are on a par with elements like copper and lead, which we don’t consider exotic or scarce. Significant deposits exist in China, but also Brazil, Canada, Australia, India, and the United States.
The challenge with producing rare earths (and the reason they were given their name) is that they’re rarely found in concentrated lumps. These are chemically sociable elements, happy to bond with other compounds and minerals and tumble about in the dirt. This makes extracting rare earths from common earth like convincing a drunk friend to leave a raucous party: a lengthy and harrowing procedure.
As Eugene Gholz, a rare earth expert and associate professor of political science at the University of Notre Dame puts it: “Once you take it out of the ground, the big challenge is chemistry not mining; converting the rare earths from rock to separated elements.”
Unlike convincing that drunk friend, though, this process involves a series of acid baths and unhealthy doses of radiation. This is one of the reasons that countries like the US have been more or less happy to cede production of rare earths to China. It’s a messy, dangerous business, so why not let someone else do it? Other factors also helped, including lower labor costs and the existence of Chinese mines that produce rare earths as a byproduct.
China’s sway in the rare earths market is a fairly recent state of affairs. Between the 1960s and the 1980s, the majority of the world’s supply was actually produced in America, from the Mountain Pass mine in California. The mine’s processing plant was shut down in 1998 after problems disposing of toxic waste water, and the whole site was mothballed in 2002.
It’s only from the 1990s onward that China has shouldered the bulk of production, along with the associated environmental costs. (In 2010, the Chinese government estimated that the industry was producing 22.05 million tons of toxic waste each year.) An oft-referenced figure is that China now produces some 95 percent of the world’s rare earths, but Gholz says this statistic is “wildly out of date.” The USGS pegs China’s part as closer to 80 percent.
That’s still a substantial chunk of the world’s supply, though, and with no doubt that these are important commodities, the question is: what happens if China does cut off the US?
Luckily, we have a very good idea of what would happen next because it’s already happened before. Back in 2010, China stopped exports of rare earths to Japan following a diplomatic incident involving a fishing trawler and the disputed Senkaku Islands. Gholz wrote a report of the fallout from this incident in 2014, and found that despite China’s intentions, its ban actually had little effect.
Chinese smugglers continued to export rare earths off the books; manufacturers in Japan found ways to use less of the materials; and production in other parts of the world ramped up to compensate. “The world is flexible,” says Gholz. “When you try to restrict supplies to politically influence another country, people don’t give up, they adapt.”
He says that although his report examined the rare earth industry as it was in 2010, the “conclusions are pretty much the same” in 2019.
If China did turn off the rare earth tap, there would be enough private and public stockpiles to supply essential sectors like the military in the short term. And while an embargo could lead to price rises for high-tech goods and dependent materials like oil (rare earths are essential in many refining processes), Gholz says it’s highly unlikely that you would be unable to buy your next smartphone because of a few missing micrograms of yttrium. “I don’t think that’s ever going to happen. It just doesn’t seem plausible,” he says.
Even though a ban on rare earth exports is just speculation at this point, companies have begun to preempt any new Chinese restrictions. American chemical firm Blue Line Corp and Australian rare earth miner Lynas have already proposed new production facilities in the US, and rare earth stocks around the world have surged in response to the threat.
In the event of a ban, one of the most important backstops would be America’s Mountain Pass mine. Although the mine was closed after Chinese rare earths drove down prices, the facility is intact and resumed production last January. Recent estimates suggest it’s already supplying one-tenth of the world’s rare earth ores (though not their processing), and in the event of an embargo, it would be possible to bring Mountain Pass back up to speed.
“By far the cheapest and fastest way to bring more material into the market — if there was a disruption — is just sitting there in California,” says Gholz. “It’s not like starting from scratch.”
Worstall agrees: “Producing rare earth concentrate is near trivially simple,” he says. “I, or any other competent person, could produce that from a standing start within six months in any volume required.”
The kicker, both say, is how much that process might cost. Especially as any refining and separation plants built in the US would have to meet far higher environmental standards.
As we’re seeing with Huawei and other casualties of Trump’s trade war, the real question isn’t whether adaptation is possible in the future, it’s how much pain you can stomach in the present.
Comments
.Just as the US will adapt to the likely ban of rare earth minerals. Huawei will likely adapt and survive the ban on using Android on its phone. The point is that everyone feels the pain on both sides which might likely lead to huge shifts in the status quo.
By Micrones on 05.23.19 12:47pm
No Huawei is facing a lot more problems than Android. They will essentially shrink their global presence back to China only. They don’t have Windows for laptops, ARM, Intel, Qualcomm, Apps like Facebook, What’s app, etc. Their products will be decimated outside of China. They can make their own OS and App store but they won’t have an US companies working with them. It will be like any Chinese OEM now who can’t expand beyond China. Also their other business will take a nosedive like telcom products. Huawei will survive since they are backed by the Chinese government but they will shrink considerably and will not be the same it is today.
By MA2756AM on 05.23.19 12:57pm
Certainly, Huawei will shrink but only in the short term, this will also lead to the emergence of another OS in the nearest future. Do you think Samsung and other OEMs are not concerned about Huawei’s ban. This might look simple on the surface but their reliance on the US is seriously being questioned.
I sense we will remember this ban as one of the key milestones in the coming disruptions on the global technology stage.
By Micrones on 05.23.19 2:15pm
Samsung is in South Korea. The US and South Korea have great trade relations and are Allies. When steel tariffs were put on a lot of countries SK immediately made a bilateral agreement to avoid them. Samsung will keep looking at making their own OS, but the relationship with the US and Google is on very solid ground.
By Lamin41 on 05.23.19 4:31pm
Getting another OS well supported is a hard enough task, but losing ARM is the real fatality imo. They don’t have a fabrication plant, so if they tried to use it unlicenced the fabs could block them.
By tipoo on 05.24.19 8:34am
The Android ban is also just for googles version. I believe they will still have access to the Android Open Source Project which gets update a little later than googles version but fine to use. They would have to replace google services but already do in China and have some in the western world.
Hardware especially the ARM licence is the much bigger issue, I doubt they are even able to buy ARM chips from others.
By Pete2 on 05.24.19 7:32am
or the global economy will adapt and buy from elsewhere instead of huawei
By JamesWr8 on 05.23.19 1:20pm
like Xiaomi, Oppo, and Vivo which also happens to be Chinese company?
They are probably preparing for the worst if it comes their turn.
Chinese smartphone still offer great value for people in the developing countries and i don’t see Samsung willingly dilute their brand by offering the same value for money as Chinese brand.
By wilstreak on 05.23.19 9:26pm
Huawei makes infrastructure level equipment and has practice dumping which led to them controlling too much contracts and hardware in telecom infrastructure which is where the security concern lies, the smartphone business is actually nothing but collateral here. On the other hand all the others in your list are only consumer level gadget makers, so they have nothing to fear actually because they don’t touch that sensitive space which threatens security on a national level.
Instead I think Oppo and Vivo is gearing up to mop up Huawei’s smartphone market share and laugh their way to the bank, they will have no sympathy for Huawei.
By houkoholic on 05.24.19 12:08am
Samsung struggle with margins on the lower end, its part of the reason they have moved some production to China.
By Pete2 on 05.24.19 7:33am
Samsung has already launched some phones of great value. The M series was made to compete with cheap Chinese phones, and it is putting a lot of pressure on cheap Chinese firms in India, for example.
With the ban in place, Samsung just needs to not screw things up to extend their lead in the global smartphone market.
By Manuel Rocha on 05.24.19 8:53am
its not like when this company fail to exist no one will buy any phone. they will buy freom new oem and they will become the top 5
By JamesWr8 on 05.30.19 1:28pm
You mean the entire country China, the world’s largest supplier of rare earths by far, who have been in this trade for decades, do not actually know anything about the rare earths or the state of the global market?!
Brilliant article (especially the title), unveiling secrets that even Wikipidea could not offer
By nfu on 05.23.19 12:52pm
straw man.
By purplesaltyqueso on 05.23.19 12:56pm
china man*
The article was not about what China does or does not know, it is about what the rest of the world can do about it.
By MA2756AM on 05.23.19 12:58pm
I understand the point, i am just calling out how distasteful it can come across, but then again that may not be the case for The Verge’s target audience.
By nfu on 05.23.19 1:08pm
Why did it come across distasteful? Is it disappointing to you that what many considered China’s big lever isn’t really that big at all?
By jake-the-bear on 05.24.19 8:10am
Do you mean "people who aren’t idiots?"
By ardent on 05.24.19 8:38am
I’m sincerely confused with your comment. Is there sarcasm in the last statement? It seems to contradict the comments above it. If there is, please try to annotate correctly in the future.
By msadro on 05.23.19 1:54pm
Plz stop making comments that lack substance, my dear comrade.
It works on weibo but not here.
By Paytowin on 05.23.19 2:25pm
I think the misleading thing in the headline is the implication that "China" – a country of 1.4 billion people – is convinced of something, when the article makes it clear that what may actually be happening is a political decision by Chinese leadership to "punch back" after Trump’s Huawei decision. I don’t think Xi is actually convinced that china has a stranglehold on rare earths, and reading the article, I don’t think it implies that either.
I do think that if they announced that they were cutting off exports to the US, that it’d be front page news on the Wall Street Journal and most business-related media, and would probably be a lead story on a lot of cable news and other media. I guarantee you that local TV stations would have stories like "thinking of buying a new computer or smartphone? Well, because of something China did today, you might not be able to!" It’d cause share prices in some tech companies to fluctuate, and generally be messy for a few days/weeks. It’d cause fear mongering in the US, and might be an effective PR tool to pressure leaders in DC to come to terms.
if it goes on longer term, yes, not a disaster, but it’d probably increase prices for rare earths significantly, and that’d have knock-on effects on the prices of consumer electronics, oil, and electric cars, amongst others.
By sing_electric on 05.23.19 2:41pm
Totally agree. This title says: ‘haha china thinks they have leverage, but look at what I discovered: rare Earth metals aren’t rare! Those Chinese are so stupid!’
This is basically a rehash of the "rare Earth metals aren’t rare article" but with a clickbait title about how silly those Chinese are.
Moreover, "china thinks" is a completely guess.
By Azortje on 05.23.19 5:03pm
"Media thinks china thinks" could work
By CHeif_Eagle on 05.23.19 11:04pm
We’re basically talking about a country that bans Winnie the Pooh on political grounds. If this isn’t silly I don’t know what else is. I mean, someone might not like Trump and all, but advocating for a country that bans Wikipedia and Winnie, just because of Trump, WTF?
By alan_wolf on 05.24.19 3:19am
Much better to have graphic violence, but absolutely no nipples, right? Pot, meet kettle.
Sent from the UK, which is currently a whole kitchen of blackened pans.
By rbrian on 05.24.19 12:03pm