From: Washington Examiner,
One of the more ridiculous stories floating around concerning President Trump’s incipient trade war with China is that the enemy could win such a combat in just one move — by restricting their exports of rare earth metals. This won’t work, and they won't try it either because they already did: only 8 years ago, and they lost, quite badly.
The suggestion popped up at the Week in a piece by Jeff Spross: “But if things do spiral into all-out trade war, it's worth noting China has a nuclear option. I'm referring to rare earth metals.” The contention is that since China produces a lot of the world’s rare earth metals — even it's less than many people think — and rare earths are necessary to build many of the new and exciting technologies, then if they ban the sale of rare earth metals, they win a trade war.
This won’t work. Back in 2010 China noticed the near-monopoly they had. They then tried to exercise that market power and they failed dismally. Two mines outside China opened up nearly immediately (a couple of years in mining is nearly immediately) and the problem was over. Not only that, but it backfired entirely: rare earth metals are now cheaper than they were before China’s attempt.
This is not just a current observation of mine. I worked in the industry for many years. I even predicted, as the tactic was being tried in 2010, that it would fail. I even got the reason right: despite the name, rare earths aren’t that rare — it’s easy enough to find other sources if we really want to. The panic was entirely over by 2014. I also got the solution right: “If Beijing wants to raise its prices and start using supplies as geopolitical bargaining chips so what? The rest of the world will simply roll up its sleeves and ramp up production, and the monopoly will be broken.”
Which is what we’ll do again if the same tactic is tried. It’s even what the aim of tariffs themselves are — to substitute away from foreign production to domestic. Their banning our use of their stuff would have exactly the same effect as our putting import taxes on their stuff. We’d just go off and do it at home.
Now it is true that one of the Call of Duty games had world war erupting as a result of China cutting off U.S. access to rare earth metals. But, you know, video game plot points and all that.
Now it is true that varied military types worry about that reliance upon Chinese supplies. I’ve had more than one DoD contract which specified that supplies to build the Navy’s ships (yes, a possible use of one rare earth metal) can come from anywhere other than China — amusingly, given current preoccupations, Russia was fine, China was not. It’s also true that a goodly part of the posturing comes from U.S. mining companies who would love to have a decent piece of subsidy on national security grounds.
It is possible to resolve this reliance on foreign materials for national defense, without, giving up the use of rare earths, nor spending billions on subsidizing new mines. The difficult thing with rare earths is not mining them, they’re just not rare. There are tens of thousands of tons of them, each year, in the wastes of what we already mine but then throw away. It’s not even difficult to extract them from these waste streams — I’m only one of many who have proven that with direct and hands-on research.
What is difficult is to separate them one from the other. There are, potentially at least, new ways of doing this. At least one method could work but at a cost as yet unknown. For a budget of somewhere between eight and nine figures, one or more of these methods could be nailed down. I or any one of a couple of hundred people out there could organize it. It’s simply not a difficult problem even as it’s detailed and more than a touch obscure.
So, why isn’t it being done? Because it doesn’t need to be. Just as last time China tried to throw its rare earth weight around and failed, if they do so again they’ll fail just because that’s how markets work.
One piece of advice then. Perhaps we should be getting our plans for trade wars from reality, possibly past experience, rather than letting the debate become infected with vaguely plausible plot points from video games?