Are we on the brink of a new resource war? Over the past few weeks, China has gone on the offensive against Japan and other manufacturing economies. Its weapon? Rare earths – essential elements used in the production of electronic goods and environmentally friendly technologies such as wind turbines.
Are we on the brink of a new resource war? Over the past few weeks, China has gone on the offensive against Japan and other manufacturing economies. Its weapon? Rare earths – essential elements used in the production of electronic goods and environmentally friendly technologies such as wind turbines.
As Michael Auslin points out in the World Street Journal, such disputes have a long history.
“The United States cut off oil and critical resources to Imperial Japan in 1941, resulting in the decision to attack Pearl Harbor and plunging the Pacific into full-fledged war,” he writes.
“More recently, Vladimir Putin’s Russia halted the flow of oil to Ukraine in 2006 and 2009 to blackmail his smaller neighbor in a financial dispute.”
Last December, I tramped the frozen steppe of Inner Mongolia, sneaking into rare earth processing facilities to report on the environmental damage wreaked by the extraction of these elements- you can watch my full report below.
I interviewed Chinese officials determined that any foreign company which needed rare earths should manufacture in Baotou, a dingy, polluted, industrial outpost they’re developing as the ‘rare earths capital of the world.’
Now the Chinese have made their move. They’ve reduced rare earth export quotas by so much that the Japanese, Americans and Germans are worried their industries will run short. Prices for some elements have gone up as much as seven-fold.
Japan is worst affected, and some believe it’s political retaliation – last month Japan detained a Chinese trawler captain whose boat collided with Japanese patrol ships near disputed islands in the East China Sea.
More than a decade ago, the Chinese government made a decision to develop rare earth extraction, cutting environmental corners and driving down the price. The US, Japanese and Euroepans, with their laissez-faire capitalist system, did nothing. One by one, rare earth mines outside China closed. Now China controls 95 per cent of global supply.
What’s the moral of the tale? China’s unique mixture of capitalist drive and communist planning enables the government to be strategic, while the rest of the world lets things slide. China has only 30% of the world’s rare earth deposits, but potential sites in Australia, the US, Vietnam, Greenland and elsewhere will take several years to begn production.
In the meantime, the Chinese will take maximum advantage, curtailing exports and forcing Japanese and other companies to manufacture in Baotou.