As Trump talks up trade war with China, fears rise for rare earths supply

One resource expected to be swept up in the conflict is the rare earth minerals, which are essential to the production of electronics, vehicles, and weapons, as President-elect Donald Trump prepares for a second trade war with China once he takes office on January 20.

Despite what their name suggests, rare earths are abundant everywhere on earth, with estimates from the US Geological Survey and the International Energy Agency indicating that China accounts for 70% of their production and 90% of processing.

The 17 elements, which include scandium, promethium and yttrium, are used to make everything from smartphones, semiconductors, and EV batteries, to F-35 fighter jets, drones, wind turbines, radar systems and nuclear reactors.

In a time of increased geopolitical tensions, governments around the world are increasingly concerned about the vulnerability of rare earth supply chains.

After President Joe Biden’s administration announced its most recent restrictions on the sale of advanced chips and machinery to the nation, China banned exports of gallium, germanium, and antimony from the US last month.

Given that the US has additional sources of gallium and germanium, the move was widely considered symbolic.

After declaring rare earths to be property of the state in October and outlawing the export of tools for extracting and separating the materials late last year, Beijing’s use of them as a tool for geopolitical advantage escalated.

In response to a dispute over the maritime border between the parties, the Chinese government’s decision to briefly ban the exports of these minerals to Japan was also brought up.

With Trump promising to impose a number of new trade restrictions on China, which range from a 10% tariff on Chinese goods over Beijing’s failure to halt fentanyl exports to a 60% tariff for unfair trade practices, Beijing may also have to impose additional restrictions on rare earths.

Trump’s tariffs could increase the cost of the minerals, even if the Chinese government didn’t retaliate by imposing export bans.

“Looking ahead 12–18 months, the global geopolitical landscape is rife with wildcards that could in an instant materially impact the outlook for supply chains and the economies they serve”, Ryan Castilloux, a rare earths expert at Canada-based research and advisory firm Adamas Intelligence, told Al Jazeera.

Washington is particularly concerned about rare earths such as neodymium, praseodymium, dysprosium, and terbium, Castilloux said, which are used to make powerful neodymium magnets – also known as NdFeB magnets.

Due to the lack of an alternative source of minerals for the US and its allies to develop, Castilloux said, projects to produce the minerals are being pursued elsewhere, including three US states and Estonia, rare earth magnets, which are multiple times stronger than standard magnets.

Washington has made the establishment of a “sustainable mine-to-magnet supply chain” a top priority.

The work being done to build a pipeline that can meet all US defense requirements by 2027, according to Danielle Miller, acting deputy assistant secretary of defense for industrial base resilience, in March, was “on track.”

Despite plentiful reserves of rare earths in numerous countries, from Angola and Australia to Brazil, Canada and South Africa, expanding the supply chain beyond China is a challenging undertaking.

According to Neha Mukherjee, a senior analyst for critical minerals at Benchmark Mineral Intelligence, China has been able to maintain its dominance of the industry due to its economies of scale, government subsidies, and accumulation of massive stockpiles that have allowed it to compete against rivals at “irrationally low prices.”

Rare earths are produced in small quantities as a result of the mining of other minerals, such as iron ore. Due to this, the 17 minerals’ quantities and consequently prices of various rare earths can vary significantly.

Mukherjee claimed that China is determined to maintain stable rare earth prices in order to support its domestic electric vehicle (EV) industry, even if doing so would devastate the mining industry.

Operating rare earth mines and processing facilities is traditionally a difficult proposition for many investors due to China’s near-monopoly and unbeatable prices.

“They’re discouraging anyone from becoming a competitor. It just doesn’t make viable economics to develop a mine when you can buy the semi-processed materials at a competitive rate”, Mike Walden, senior director of TechCet, a consulting firm specialising in electronics supply chains, told Al Jazeera.

The timeline is also long, taking 10-20 years from exploration to construction, Walden added.

The Mountain Pass Mine in California’s Mojave Desert, which was first discovered in the 1870s, was reopened by MP Materials in 2018 and marked a turning point for US efforts to secure rare earth supplies.

Since then, the business has set up a Texas magnet factory.

Other rare earth-related facilities outside China include a mine in Yellowknife, Canada, a magnet recycler in the US state of Texas, and a rare earth magnet factory in the US state of South Carolina, with more projects in development across North America.

The US Department of Defense and the Department of Energy have awarded rare earth companies more than $ 440 million since 2022, along with additional tax credits provided by the Inflation Reduction Act.

If China stopped its exports of rare earths, such projects might help the US, Walden warned. However, the nation may still struggle to become completely self-sufficient, according to Walden.

There are operational facilities in North America, the king of this is said. Does it have to be sufficient to meet all the demand in North America? That is not the answer. Does it satisfy North America’s strategic demand? The answer to that appears to be yes”, he said, referring to Washington’s priority areas such as defence and energy.

Rare earth minerals are still frequently sent there for processing even as mines have been opened or reopened outside of China, according to analysts.

The processing of heavy rare earths, a subset of rare earths that are less abundant but crucial to the production of EVs, wind turbines, and fiber optic cables, is dominated by China, which accounts for 99 percent of the country’s production of these substances.

Not just the North Atlantic is attempting to catch up, either. In January, Brazil’s first rare earth mine at Serra Verde opened for commercial production after 15 years in development.

Europe has rare earth processing facilities in France, Estonia, and Germany, but has yet to open any mines despite holding massive rare earth deposits in Sweden, Finland, Norway and Spain.

The government is investing hundreds of millions of dollars into expanding these facilities, which include significant mining and processing facilities.

According to Mukherjee of Benchmark Mineral Intelligence, these initiatives are still insufficient to lessen China’s dependence.

“There’s a dire need for a circular economy. There’s a dire need for recycling facilities. There should be a lot of funding directed in that direction because there is a dire need for US-developed processed midstream and upstream facilities,” she said.

Some of the reservations, especially in Europe, are related to the environmental costs associated with the separation and removal of radioactive materials, such as uranium and thorium.

Mining and processing produce large quantities of waste rock and can unleash residual concentrations of rare earths, radionuclides, heavy metals, and acids into the surrounding air, soil and groundwater, according to a 2021 Canadian study.

In Malaysia in 2019, Lynas Rare Earths, Australia’s largest rare earth processing company outside of China, was the target of significant protests due to the toxic waste that their there produces.

To meet the higher environmental standards demanded by many governments, according to analysts, some of these concerns could be addressed with new technology and automation, but this would require both money and time.

The industry could, ironically, get a further boost if Beijing were to block its exports, said Adamas Intelligence’s Castilloux.

According to him, “the last time China restricted rare earth exports, it caused years of demand destruction as many end-users looked to reduce their consumption or turn to alternatives in the years to come” .

“A restriction on magnet exports, even if short-lived, would likely hypercharge government investments into alternative supply chains at home and abroad”.

There is a lot of uncertainty about how Trump might approach the rare earth industry now that he is only a few days away from re-emerging in the White House.

Due to the US’s dependence on a “foreign adversary” to acquire rare earths, he issued an executive order declaring them to be a national emergency during his first term in office.

Trump has also voiced opposition to important funding initiatives like the Inflation Reduction Act and the Bipartisan Infrastructure Law, which are widely anticipated to reduce environmental laws that prevent the establishment and operation of mines.

Despite their significant impact on the economy, some analysts worry that Trump might impose tariffs on imported minerals like rare earths or ask the secretary of commerce to launch a Section 232 investigation into the risks to national security as he did with aluminium in 2018.

In the meantime, the industry is preparing for a bumpy road ahead, said Walden, and stockpiling resources accordingly.

Source: Aljazeera