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Notes -
China just chose the nuclear option:
TLDR:
China’s Ministry of Commerce just created an extra-territorial export-control net around rare earths and anything made with Chinese rare-earth technology. The bar is set extremely low, so this will ripple through EVs, wind, electronics, and defense supply chains worldwide.
(Assuming that this isn't a ploy designed to be a bargaining chip in order to get Trump to overturn export restrictions on advanced chips).
Now, while rare earths are very much not rare (though they do come from the earth, mostly), 90% of the actual processing happens in China, even if many deposits are elsewhere. Why is that the case? Well, rare-earth mining is not the most eco-friendly of industrial processes, and everyone else prefers it happen outside their backyards.
Just about every consumer and commercial electronic item is wrapped up in this. China dominates processing and magnet making, so the 0.1% trigger will catch a very large share of motors, drives, sensors, HDDs, speakers, drones, missiles, EVs, and wind-turbine components that contain NdFeB or SmCo magnets.
Assuming that a pleasant agreement isn't reached by Trump and Xi, this is going to do numbers on the trout population, and the economy. I don't even have to specify which economy, it's that global. It'll take years to onshore or friend-shore processing, even if deposits could ramp up to meet the demand. Really, I can't stress the chaos this will cause if the Chinese truly exercise their discretion, so we're going to have to strap in and see. Maybe nothing ever happens, maybe it does.
From your link:
Interestingly enough, I think that chip production does not require tons of rare earth elements. Even if the REE prices increased by a factor of 100, I am not sure if the chips themselves would be much more expensive. Of course, for ceramic capacitors the story is different, and a lot of other tech in data centers uses REE as well.
I think that the US (and it's loose allies, like Taiwan or the Netherlands) leading in chip feature size is them being ahead in a race which is relevant (at least if you believe that AI will not simply fizzle out, and care about who builds the paperclip maximizer).
By contrast, I am not sure that having cheaper REE extraction tech (which China likely has) is much of a game-changer. The price of Neodymium is a few hundred dollars per kilogram. As you need about 1kg for an EV, changing the price to 1000$/kg would increase the price of EVs slightly. For headphones, the relative price hike is probably even smaller.
That being said, investing in US REE refining is probably not a solid business decision. Sure, while China blocks exports your product is competitive, but as soon as they put their stockpiles on the market, you will no longer sell anything.
I think that the best thing you can do as a nation if a competitor controls a market of strategic importance is to (a) have a strategic reserve and (b) pay companies to produce the product at prices far above what the market would pay in moderate quantities, so that once an embargo happens you have some tech which you can scale up. (Arguably, (b) is also the strategy most countries use for military hardware. In three decades, Europe produced 609 Eurofighters. By contrast, in the six years of WW2, 800 thousand airplanes were produced by all combatants. The point of paying astronomical sums for a few Eurofighters is not that they will be very useful, but that if one ever finds oneself in the situation of wanting to spend a decent fraction of the GDP on fighter planes, one can ramp up the production in a few years rather than spending decades developing new planes.)
As a negotiation strategy with Trump, I think China's approach is decent, and as an European I wish them wholeheartedly success in standing up to Trump's protectionism.
Rare earth refining is a regulatory issue on heavy metal contamination for groundwater and waste disposal, which is itself critical to even perform the refining in the first place due to the circular recycling of outputs to generate usable high purity rare earths. You can't just Abundance permitwaive your way to rare earth mastery, you need a whole ecosystem of internal processes to even get something useful to begin with. Rare earths are a definitional misnomer because the elements are everywhere, but what IS rare is the critical processing mass necessary to even get something usable for modern high end technology.
I think what is highly underappreciated is how differentiated rare earth streams actually are. A single refiner can't actually just take in any raw material and convert it to intermediate rare earths, it requires significant chemical injection at many stages of the industrial separation process before it can be refined for intermediate stage. Rare earths is actually a humongously heterogenous process, so institutional knowledge is not 1-1 transferrable across different types of rare earths. Thats not to include all the corrosion effects that happen at transportation stages between facilities which require networked facilities with clear logistics between them. Chinese investments in clean tech and workers safety isn't because they valued human life, its because the usable material at the end of the process is useless if Wangs wang is inside the smelter. This is why you can't do either western permitwaiving or third world bodywasting to get a REE facility spun up at all, let alone quickly or economically viably.
What makes Chinas REE export ban so troubling is that China isn't actually losing out that much economically from it - as OP stated, REE isn't actually that expensive on a unit cost basis. However for receiving so little direct pain this causes huge downstream problems for other manufacturers elsewhere. This is frankly a repeat of the recycling debacle which ended the economic viability of shipping recyclable materials to China for processing, except the economic effects are more directly felt.
Stockpiling for rare earths is also a dead end. End output metals like neodynium etc are oxygen and moisture sensitive, so stockpiling is normally in terms of intermediate products... which still need refiners after that. WW2 saw fighter engines produced by the thousand, but honestly the more relevant example is WW1, where phosphate import restrictions forced Germany to develop the Haber process to continue arms manufacturing. I'm sure there are smart dicks at DARPA who are trying to find materials that can overcome REE or other foreign dependencies, but if it turns out chips and magnets really are only manufacturable in certain locations and reshoring is impossible then honestly the world can turn really ugly really fast.
This is my fear and suspicion too. People blaming the current market selloff (serious instant panic from some, it looked like) on Trump's new tariff are missing the main problem in all this.
It's got WW3 potential, and I guess the US would have to act fast, before the lack of REE using products would really start to bite. I'm just not sure how far China are willing to go. Do they have the stomach for war right now? I do know they're pretty serious about the "don't lose face" business, so they're unlikely to just back down without serious concessions.
Much of the REE debate is centered on critical dependencies that have turned out to be more difficult to replace or domestically produce than previously anticipated. The big issue I repeat is that rare earth dependency is not actually that sophisticated a tool for China to have deployed because most of their demand ends up being internal and the dollar value of said exports is minimal, so their more potent tools for trade war aren't even felt by governments yet. If you think REE is bad wait till lipo battery, semiconductor precursor and active pharmaceutical restrictions kick in. Too much intermediate materials on unfinished and finished states are reliant on China and the logistical hyper efficiency there is the leveraged advantage, which doesn't disappear just because USA isnt buying it anymore.
Current technological bottlenecks for the USA are bad but the flywheel effect of domestic AI clusters paired with mature industrial ecosystems could be even more critical in tilting a permanent advantage to China. You can build a gigafactory and a data cluster in USA, but if you dont have the supporting ecosystem of toolmakers and logistics ERP in place then you're losing out geometrically if not exonentially with every development cycle because stacking advantages are contingent on a kature ecosystem not new toys.
Very good points, but the small absolute volumes of REEs required means that effective transshipping will be very hard to stamp out unless all exports anywhere are curtailed, which would draw the ire of most of the regional trading partners that the CCP actually wants to continue to keep onside. The Chinese century is inevitable because western countries will descend into civil chaos due to mass immigration and for no other (major) reason.
I agree in concept since thats just an obvious operational reality like how china got H100s through alternative sources, but ultimately it still means its a critical bottleneck that was neither defended against nor avoided in advance.
I think its fair to say that this forum accepts the disadvantages of immigration as prima facie but the cultural overhang of the 2010s is casting a shadow too long and comprehensive to be avoided. I sincerely think the Chinese century will be worse for the world, mainly because the global efficiency subsidy of the pax americana has benefitted many smaller nations that would have fought unnecessary kinetic conflicts without uncle sams threat Implication. China is more likely to revert to a neo-Ming semi tributary system to focus on its internal population and if the rest of the world burns in unnecessary conflict what impact could it have on the heavenly kingdom.
The Chinese certainly have naturally isolationist tendencies but I think even they know that in the era of engineered global pandemics, nuclear weapons (whose proliferation is an inevitable consequence of the end of Pax Americana) and A(G)I, they will have no choice but to be involved, especially given their location at the edge of ongoing potential conflict zones between India and Pakistan, the Koreas etc.
The British and Dutch also started with purely mercantile aspirations, but the trouble with that is that eventually tribe #2 decides it wants to destroy tribe #1, and all your valuable ports and factories and mines are in tribe #1’s territory, so before you know it you’re a colonial power.
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