Praseodymium, Gadolinium, Erbium: you may not have heard of them before, but chances are you’ve used them recently. All three are examples of rare earths, the 17 elements occupying the middle of the Periodic Table.  Rare earth elements- which, in actuality, are as globally ubiquitous as many other metals- are a critical component of both current and future technologies, helping to create products from cell phones to fiber-optic cables to electric cars.

These elemental tongue-twisters, once only the provenance of scientists and technology manufacturers, have become the object of much attention and speculation from policymakers in the past few weeks, courtesy of China. Although the PRC only has 35% of the world’s rare earth reserves, it has cleverly maneuvered its way into controlling 95% of global supply for the elements, thanks to heavy investment in the industry and a willingness to incur massive levels of environmental pollution while mining them. In the past few months, China has strategically wielded its monopoly as a diplomatic weapon, halting shipments to Japan during the two countries’ nasty territorial dispute over the Senkaku/Diaoyu islands. Now reports say that China is using the same strategy against the U.S. in retaliation for the United States Trade Representative (USTR) accepting a petition alleging that China is subsidizing green energy investment in violation of WTO practices.  All in all, it appears that China is beginning to engage in tit-for-tat diplomacy that raises serious questions about its intentions and its ability to behave like the superpower it strives to be.

Not that China has admitted to halting shipments. When questioned, Chinese government representatives have strenuously denied any official ban on exports of rare earths to Japan, and have also insisted that shipments to the U.S. have not been stopped. However, in Japan at least, every single company importing the elements has experienced delays of some sort or problems with paperwork, etc.  Japan uses one fifth of the global supply for rare earths, and, without fresh imports from China, could use up its stockpile of the materials in 5 to 6 months, with devastating consequences for industry. Whether this will happen in the U.S. remains to be seen. If it does, however, it will undoubtedly have a serious impact. While there are plans to ramp up production elsewhere in the world, including in the U.S., we are still several years away from freeing the industry from China’s iron grasp.

Obviously, the situation begs the question of how we could have let this happen, especially as the U.S. previously produced rare earths domestically and boasts reserves of about 13 million metric tons (out of a global total of 99 million). When viewed from an economist’s perspective, the answer is obvious- China did it better, it did it cheaper, and it didn’t have to worry about those pesky environmental standards the EPA is always going on about. Strategically, the answer is less clear. For decades, it has been obvious both how important and necessary rare earths are to U.S. technology and defense- rare earths, for example, are used in missile guidance systems.  It has also, for those paying attention, been fairly obvious that China was working hard to corner the industry- in 1992, Deng Xiaoping compared China’s relationship with rare earth to that of the Middle East and oil. Regardless, whatever the reason we didn’t realize China was amassing total control of the rare earth industry, the point is now moot.  The world has gotten the message, and in a few years China may or may not be glaring at mines in Kazakhstan and ruing the day they dramatically reminded the international community that they were monopolizing a key global industry.

But while the American media works itself into a frenzy about how the U.S. will get its rare-earth fix, Asia wonks are less interested in the rare earths themselves and more in how China is using them: specifically, if China’s current behavior is an aberration or an indication of things to come. Wen Jiabo would have you believe that “China is not using rare earths as a bargaining chip,” and that export cuts have nothing to do with diplomacy and everything to do with domestic considerations- specifically a mix of factors including a 2006 decision to consolidate rare earth mining companies, diminishing reserves, increasing consumption at home, concerns about environmental damage, and a desire to exercise tighter control over the industry in general. It is true that the Chinese government announced it would cut exports by 40% in July, well before the incident with Japan, and that China has been gradually decreasing exports by 5-10% a year since 2006, policies that bring up their own questions about the country’s cutthroat economic policies. However, while the Japan incident may have coincided with a general draw-down, it is difficult to believe that the halting of rare earth shipments is a case of correlation instead of causation.

So what does it say about China that the country is responding to diplomatic problems by cutting off vital supplies? Nothing good. At best, China has just rather publicly undermined its case to be taken seriously be the international community. It’s hard to respect China as a major international power when it behaves in a manner so, well, tetchy and childish. At worst, China has just moved one step closer to confirming all the allegations made by its most adamant critics: that it can’t be trusted, that its rise will seriously disrupt the world order, and that it is a military threat to the U.S.  Especially when considered with China’s other actions over the past year on key issues like climate and currency, the signal China seems to be sending the West is stark: don’t expect us to play nice.

Ironically enough, policies like these may end up hurting China the most in the long run. Every time China lashes out, it reinforces the tendency of other countries to hedge against it, often driving those countries back towards the waiting arms of the U.S., as recently demonstrated by the case of Southeast Asian and Chinese claims to the South China Sea.  It also makes it harder for Chinese allies who are viable members of the international community- countries other than, say, Iran and North Korea- to defend Chinese policy and actions in international forums like the WTO or UN. In short, it seems that any benefits China gleans from uncooperative behavior are far outweighed by the negatives.

It will remain to be seen whether China backs down on rare earths, or continues to interfere with shipments. While the extent of the impact halting exports has on global industry cannot yet be determined, the impact it has had on global perceptions of Chinese intentions is clear: China is not yet mature enough to be a respected power-player in the international community.

Related posts:

1. The Need for US Leadership as China Continues to Exert its Influence in the South and East China Seas
2. Chinese Naval Build-Up and Policy Response