Chinese Rare Earth Embargo Spreads


Last month, the New York Times reported that the Chinese government clamped down on its exports of rare earth metals, which are used in the manufacture of all kinds of electronics, to Japan. Now, it appears that a similar thing is happening with Western countries like the United States, the Times reports, though Chinese officials deny it.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues.

But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle. "The embargo is expanding" beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions.

As we said last time, the mechanics of any rare earth metal embargo is important to manufacturers and suppliers, but hard to pin down. What's important, policy-wise, is that we could have a domestic rare earth metal industry in the United States, but we have refused to support it in the belief that the market would always deliver what we needed from low-cost Chinese suppliers.

That works as long as you can muscle any other country into sending you its raw materials for cheap and on your terms. We can't do that to the Chinese any longer, and their ideas about how markets should work and the role of political intervention in them are as weird and idiosyncratic as our own.

The good news is that there is a long-term solution. Several pieces of legislation are before Congress to help restart American production of rare earth metals. We had a mine in Mountain Pass, California (see above), and we could have gotten it back up and running at any time. Unfortunately, you can't just flip a switch with these things. So in the short-term, we're kind of stuck. We'll work out some kind of compromise.

That doesn't mean we shouldn't get that legislation passed, though. Industrial policy is slower than the cable or blog news cycle. You make decisions with long-term consequences that put you in a better or worse positions years down the line. The Chinese understand this. Do we?

Update 1:27 pm: Atlantic correspondent Damien Ma and I had a little exchange about rare earths and I just wanted to share a short snippet of his thoughts and refer you to his piece on the issue: "My concern is that there are many folks across interest groups who dearly want to believe that this "sanction" narrative is true, not so much to promote US industrial policy (which I think is a good idea), but to just punish China as the solution. That's the real risk to me of [this] narrative."