A large focus of the trade dispute between China and the United States has been rare earth minerals (“REMs”), a group of molecules increasingly important to the world economy. First discovered in 1803, REMs are now central in many technological applications, from computers and phones to automobiles and defense. Before the 1990’s the United States was the world’s primary producer of REMs. The US effectively abandoned its production over the past few decades and is now a large importer of REMs, having imported $137 million worth in 2017 and $160 million in 2018. [1] Today, China holds a near global monopoly, producing 85% of REMs in 2018. This monolithic production capacity has for all intents and purposes weaponized China’s mining economy in the eyes of the rest of the world. When China attempted to put quotas on REMs in 2015, the world reacted with prejudice, filing complaints with the World Trade Organization (WTO) on the grounds that China was violating its free trade commitments by restricting access to its REMs. China quickly rescinded its proposed quota, but it was clear from this quota threat, and a 2008 REM shortage, that China had become the center of the high-tech world by becoming the world’s only notable REM supplier. Under constant supply constraint, a tariff as small as 10% tariff could have been dangerous. Many wondered whether China could strangle the US economy by holding REMs hostage. The answer was, and still is, “no”… with some caveats.


“Rare earth mineral” is a misnomer. REMs are neither rare nor metals. The prefix “rare” was improperly applied because many concluded that their late scientific discovery was best explained by rarity. In reality REMs are quite common, and some exist in larger quantities than copper or other common building materials. What does distinguish REMs from other mined materials are two vital facts. First, REMs are incredibly disparate and generally not found in discrete “veins”. Instead, REMs are intermingled with other materials. Second, REMs are difficult and expensive to mine safely. One could cut REM mining costs but doing so would cause environmental disaster. It is this safety cost that compelled the US to move away from mining REMs and import them instead. Predictably, China’s push for REM mining dominance caused so much harm in China that the government started to intervene in the 2010s (notably with that 2015 quote threat) but not before the Yangtze River had turned a sickly orange and vast tracks of agricultural land had been poisoned. Even an authoritarian government could no longer subsidize the cost of mining with a human cost.


American companies have begun to take advantage of the inevitable change coming to global REM supply. For the first time in over a decade, a REM mine is operating in the US. Although its cost of mining REMs is more expensive than those of its Chinese counterparts, this mine is becoming competitive thanks to shrinking Chinese supply, less competitive global pricing (due to tariffs), and rising production costs in the wake of new Chinese environmental regulations. This is a great development: US companies who use REMs in their products and applications should not be beholden to a single state supplier. Much works still needs to be done. US mining has a lot of ramping up to do in order to make up for the capacity it ceded in the 1990s. And while some mining capacity has returned, processing has not. China has 500% the processing capacity of the rest of the world. Safe US processing may be up to two years away. In the meantime, US-mined REMs must be sent to China to be processed into a useful state and then exported back to the US. There is ample opportunity in REMs for US companies, particularly those in the materials and energy sectors. The best companies could leverage technology to produce REMs more efficiently, less expensively, with less environmental impact, and ultimately more profitably.

[1] “U.S. dependence on China’s rare earth: Trade war vulnerability”. Business News.  June 27, 2019.  Reuters.