Expert projections indicate that between now and 2050, the demand for rare earths in the world will increase sevenfold. China, with its dominant position in the extraction and processing of these materials, is using that power for strategic purposes. There are more and more examples. Beijing could paralyze global production of these technological goods if it decided to stop exporting them. “China has a fabulous weapon of deterrence with rare earths,” says Juan Manuel Chomón, author of the book The era of rare earths (Tecnos, 2023).
These materials are crucial for energy reconversion. They are necessary for the operation of many equipment that generates clean energy, for electric cars, for a thousand household items and for the military industry.
Chomón, an international analyst who has lived in Asia, Africa and different countries in the European Union, has been warning for some time that the West must stop depending on China when it comes to rare earths. The happy second half of the 20th century is already behind us, although to understand what is happening today we must go in search of the antecedents. Technological growth will no longer be generated at the expense of third countries.
“Between 1950 and 1970, Europe tripled its GDP and the United States doubled it and it was because the price of a barrel of oil remained continuous and stable,” explains Chomón. That is not going to happen with rare earths. Decades after that expansion phase, and after the oil crisis, Western countries, with greater intensity from the 90s of the last century, began to externalize costs. It was also called offshoring. The production of certain goods, including rare earths, was delegated to countries that had cheap labor and were not especially protective of the environment.
China was one of those destinations. She is now practically the owner of rare earths. It controls 70% of the extraction of materials and 90% of the overall processing. “China has a fabulous deterrent weapon with rare earths,” insists Chomón.
The West has to be self-sufficient in this area, but that change of model will require sacrifices, right?
-Critical metals, especially the 17 rare earths, extracted and processed in the West, will have a much more expensive price, but it is a necessary price that will have to be paid in order not to depend on China. The energy transition greatly requires the use of rare earths (electric car motors or wind turbines, for example). Until now, great technological development had been carried out at low cost. From now on, especially if the trade war with China intensifies, it will no longer be so cheap or the waiting times will be very long if Western countries continue to depend on the Asian giant.
In this context, do states have to become entrepreneurs?
-State interventionism is going to be inevitable, but it will have to be done hand in hand with the companies so that the investments are profitable. It will be necessary to offer tax advantages, direct aid, subsidies and approve legislation to accompany this change in the productive model.
It will be the way to pay for the increased costs. As Chomón explains, “large companies are governed by return on investment and delivering large dividends to their shareholders; their guide is not government objectives.”
At that point lies one of the key elements of the new situation. Both the United States and the European Union draw up forecasts and guidelines on how this change should be carried out, but some analysts believe that, although there is still time, it is behind schedule. “States should be investing massively,” says the author of The Age of Rare Earths.
Without the use of the most advanced and respectful technology, the extraction and processing of rare earths is polluting and conflicts with the approaches of conservation groups. New mining, driven by the revaluation of certain materials, such as copper, for example, among others, has even led to the desire to reopen deposits that were abandoned decades ago because they were no longer profitable. Combining environmental protection with the need to break dependence on China is one of those concrete challenges for states.
China is already asserting its dominant position in the world of rare earths to have strategic influence in the world. It has stopped, for example, selling these materials to certain companies that then sell weapons to Taiwan. And it could go much further in this area, says Chomón: “If China completely cut off the flow of rare earths to Taiwan, it would not be able to manufacture chips and its all-powerful semiconductor industry would be paralyzed… How long would it take Taiwan to negotiate with China… or the US to take action on the matter?”
Elaborating on this issue, Beijing is already putting pressure on the world. It has prohibited the export of technology that allows the operation of rare earth treatment industries outside China and has also vetoed the export of three rare metals (gallium, germanium and graphite). It does not want competition and seems to have detected that the West is reacting, even if very lazily.
At this time, the paradox occurs that the United States extracts rare earths from its soil, but sells them to China, which has, as has already been pointed out, a virtual monopoly on global treatment. It is the great global processor and it seems that it wants to continue being that way.
While the United States does have rare earth mines, Europe does not have one. However, as Chomón points out, “the European Union has a treatment and processing plant in Estonia, with Canadian capital.” Canada is a mining power that is even trying to exploit new and even old deposits in Spain.
The outlook is uncertain.
-In the future, the democratization of resources must be sought. How many rare metals can be available for each inhabitant of the world. Without a global pact, this will be very difficult. We will have to find a new Leviathan; a UN clothed with new and robust powers if we want to carry out a fair and inclusive energy transition.
