From China’s point of view, ceasing exports of rare earth elements (REEs) makes a lot of sense outside of ideology. China needs these minerals for its own manufacturing as much as any other countries do, so the Chinese might well reason that they want to keep all of these resources available for themselves.
Global production of rare earth oxides (Market Oracle)
However, the way events played out, it appears that the Chinese are motivated entirely by revenge and ideology. The result is increasing international polarization.
Rare earth elements have to be extracted from mines, in the way that copper and iron ore are extracted, but as the name implies, they’re much harder to find and extract. There are 17 metals in this category, according to Reuters, all with the names that end in “ium.” The ones in biggest demand are dysprosium, terbium, neodymium, praseodymium and europium.
REEs are used in electronic devices, everything from the iPhone to hybrid cars to to military weapons. There is some concern that the U.S. military is particularly dependent on China’s rare earth mineral exports.
The REE export ban began as an act of revenge by China following the incident last month where a Chinese fishing boat captain was arrested by the Japanese following a confrontation in waters disputed by both countries. The Japanese backed down in order to avoid antagonizing the Chinese further, but Beijing overreacted enormously. (See “26-Sep-10 News — China turns the screws on a humiliated Japan.”)
China demanded a formal apology and compensation, embargoed exports of rare earth minerals to Japan, and made additional threats. After a few days, it became clear that China had quietly embargoed rare earth mineral exports to other countries as well. Then, yesterday, the NY Times reported that China has just as quietly resumed shipments. However, this occurred only after the sudden visibility of the issue has caused something of a worldwide panic.
Germany is a country that depends on imports of most of its raw materials, and has been hit particularly hard by China’s embargo. Germany is calling for increased international regulation of the market for rare earth minerals, according to Associated Press, and is appealing to the World Trade Organization for help.
China produces over 90% of the world’s supply of rare earth minerals. REEs are not particularly rare, but they are expensive to mine because of labor costs and poisonous byproducts that pollute the environment, according to an analysis by Market Oracle.
Apparently, the current situation is due to the foresight of former Chinese leader Deng Xiaoping, according to Global Post. In the 1980s, he put the country on track to be the world leader in development of REEs, though some say it was by taking advantage of China’s cheap labor costs and weak environmental laws.
The REE controversy is a boon for Australian mining companies that still produce them, according to the Sydney Morning Herald. Prices are going so high, according to the article, that a new bubble has been created, and it’s likely to burst at some point.
Other countries, including the U.S., couldn’t compete with China on price, and they simply stopped developing REEs in the 1990s and the early 2000s.
One American supplier, Molycorp Inc., has a mine in Mountain Pass, Calif., that was closed almost ten years ago, and could reopen, but it would take four years. Other suppliers might require up to ten years.
Didymium oxide, a combination of neodymium and praseodymium, two rare earth elements from Molycorp Mineral’s Mountain Pass Mine
On the other hand, India has now decided to restart production of REEs for the first time since 2004, according to Reuters, and expects to be in production in 2011. India hopes to meet Japan’s need for REEs as quickly as possible. This is part of a Comprehensive Economic Partnership Agreement (CEPA) signed by Prime Minister Manmohan Singh and his Japanese counterpart, Naoto Kan.
This agreement is significant for a number of reasons, according to an analysis by Asia Times. Japan is eager to develop a strong trading relationship with India these days, but that wasn’t the case a few years ago. Until recently, Japan complained of bureaucratic bottlenecks and corruption in India, but China’s actions on REE’s seem to have turned things around.
When we look back at this controversy five or ten years from now from the point of view of Generational Dynamics, it may turn out to have spiraled into something big, or it may have fizzled into nothing. What makes it interesting now is that it supports the overall expected trend. The prediction is that we’re headed for a new world war with China, as the mutual xenophobia between China and the West continues to grow. Thus, we expect Japan to be allied with India and the U.S., and China to be allied with Pakistan.
A part of the CEPA agreement mentioned above between Japan and India is that Japan may be investing in nuclear power plants in India. This would have been unthinkable a few years ago, because of Japan’s post WW II nonnuclear policy, having been the target of nuclear weapons in 1945. But the generations of survivors of that attack are now pretty much gone, and Japan may conclude a nuclear deal with Japan.
At the same time that’s going on, the United States has asked Pakistan to provide more information about a civilian nuclear agreement that they’ve concluded with China, according to the Times of India.
From the point of view of Generational Dynamics, these are all small incidents in what will be an increasing number of incidents, feeding increasing mutual xenophobia. With almost all of these countries in a generational Crisis era, at some point, one of the incidents will cross a line that can’t be ignored, and the result will be war.
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