The Dirt On Rare Earth

Bertel Schmitt
by Bertel Schmitt
the dirt on rare earth

From the New York Times to TTAC, the news is racing around the globe that China put an “embargo” on dirt. Well, it’s rare dirt, also known as Rare Earth. Why should we care about that? As the New York Times lectured us a month ago, the stuff is vital to “rangefinders on the Army’s tanks, sonar systems aboard Navy vessels and the control vanes on the Air Force’s smart bombs.” Whoa, we are a car site! Ok, rare earths “are also used in small steering control motors in conventional gasoline-powered cars as well as in motors that help propel hybrid cars like the Toyota Prius,” says the New York Times, bringing us back on topic. And what is the fuss about?

If the New York Times is to be believed, “China mines 95 percent of the world’s rare earth elements.” After allegedly diddling with rare earth shipments to Japan (it later turned out that China pretty much diddled with all shipments on anything to Japan, while Japan diddled with the captain of one of their trawlers. China went by the customs book for a while to get their point across), China “has now quietly halted some shipments of those materials to the United States and Europe,” said the NYT yesterday.

The NYT made dire predictions when Japan was allegedly singled out: “The export halt is likely to prompt particular alarm in Japan, which has few natural resources and has long worried about its dependence on imports. The United States was the main supplier of oil to Japan in the 1930s, and the imposition of an American oil embargo on Japan in 1941, in an effort to curb Japanese military expansionism, has been cited by some historians as one of the reasons that Japan subsequently attacked Pearl Harbor.” Hadn’t we always thought it was a sneak attack, out of the blue? Well, there is some truth to this: Trade wars and embargoes often are the precursor of shooting wars. Just this time, Japan in unlikely to attack Quingdao.

There is one item which the Times, and all the other papers that crib from the article forgot to tell us:

China should have stopped all Rare Earth shipments to anywhere in the world more than a month ago. Coincidentally, before they diddled with exports supposedly because of a fishing trawler. China has a quota for rare earth exports. In 2010, the quota is 30,300 tonnes. Chinese statistics indicate that by the end of August, exports reached 28,500 tonnes, leaving about 2,000 tonnes. China should have said “that’s it, no more rare earth, come back next year.”

Quotas, be it for import or for export, are quite common in the business. The Department of Homeland Security has a handy website, titled “Are My Goods Subject to Quota?” China has to contend with a long list of quotas in the textile industry alone. If you want to order Chinese t-shirts, order early in the year. And it is no surprise that in the last quarter of the year, textile exports from places like Mongolia or Myanmar suddenly spike. World trade is a maze (or a maize) of quotas.

Yesterday, the NYT admitted that “despite their name, most rare earths are not particularly rare. But most of the industry has moved to mainland China over the last two decades because of lower costs and steeply rising demand there as clean energy industries have expanded rapidly.”

That the Chinese have a stranglehold on rare earth is not because they are the only ones who are are sitting on it. It’s due to laziness and lack of money. Even the NYT has to admit:

Until spring, it seemed that China’s stranglehold on production of rare earths might weaken in the next three years — two Australian mines are opening with combined production equal to a quarter of global output.

But both companies developing mines — Lynas Corporation and smaller rival, Arafura Resources — lost their financing last winter because of the global financial crisis. Buyers deserted Lynas’s planned bond issue and Arafura’s initial public offering.

Mining companies wholly owned by the Chinese government swooped in last spring with the cash needed to finish the construction of both companies’ mines and ore processing factories.

As long as China was doing the dirty work (and it is dirty to mine rare earth) at a low price, everybody was happy. At the same time, everybody dumped on China for being ruthless with the environment. When China started using words like “depletable resources and sustainable development,” Pearl Harbor was evoked.

Anyway, this year’s quota is exhausted, and China, if it abides by their own laws, must not ship an ounce of the rare dirt abroad. Japan knows about this. They usually stockpile several months worth of the stuff, and they have their order in for the beginning of the year. Japanese stockpiles “can last for anywhere from a few months to a few years” says the Wall Street Journal.

In the U.S.? How does the DoD react to a rare earth gap that imperils the arsenal of freedom? “The Department of Defense is completing a study to identify potential national security risks of rare-earth dependency.” Too bad there are no quotas on stupidity.

Will China tighten rare earth output while Washington is completing its study? From Xinhua to People’s Daily, China swears that “the latest media reports about its plan to reduce quotas for rare earth exports by 30 percent in 2011 are “false” and “groundless.”

An embargo? “China will continue to supply rare earth to the world,” the Ministry of Commerce said in a statement to Xinhua. They left out how much.

Lastly, what about Europe that has been hit by a rare earth embargo according to the New York Times? Bloomberg reports that “the European Union said it is unable to confirm reports that China is blocking exports of rare earths to the 27-nation bloc.” The EU “cannot confirm claims made by European industry officials in media reports of China blocking rare-earth shipments to the EU,” John Clancy, a spokesman for the European Commission, said.

Is China just following their own laws and regulations? Of course not. China has been at the receiving end of threats and “recommendations” for a long time. We have been following an escalating trade war they did not start. China knows about the buttons they can push, and they start pushing them, because they are sick of getting pushed around. China is a huge economy, and the U.S. owes them some $900 billion. You can easily threaten someone who’s in debt and who needs IMF help. It is most unwise to bully someone who is rolling in money.

Be it as it may, as long as electric cars aren’t taking over the world, rare earth has zero impact on the automotive industry. It looks more and more that rare earth is a pile of dirt, dug up by the New York Times.

PS. Shouldn’t this be a matter for the United Nations? They recommend recycling.

Join the conversation
5 of 23 comments
  • Bertel Schmitt Bertel Schmitt on Oct 21, 2010

    Wholesale comments:

    1.) Xinhua is owned by the Chinese government. People’s Daily is owned by the CCP. They are known in the trade as “semi-official” sources. They can be quoted when one wants to describe the (current) position of the Chinese government. I wouldn’t use them as a source to describe the position of a foreign government or company.

    2.) Pearl Harbor: The NYT evoked Pearl Harbor. I think it’s tasteless, and it smacks of Hearst vintage “You provide the pictures, and I'll provide the war.” I’m in daily contact with Japan, and nobody in Japan was worried about the country going to its knees because of the (not so) rare dirt. They have enough in stock.

    3.) Customs: As noted in the article, rare earth shipments weren’t the only shipments that were held up for a week or two. Pretty much all shipments to and from Japan received extra scrutiny, and everybody complained. This is a tried and true method in any trade spat. Actually, the Europeans used to be the experts. Suddenly, rules are enforced that had always been on the books, everything bogs down, but it’s not an "embargo" or an "import restriction." It’s a nuisance, and an insidious and effective trick: The consignee often has taken possession (if it’s F.O.B. export port) and now it’s stuck in customs. Charges for chartered bulk ships or containers mount. With import quotas, it can be even more insidious: You import something to your country, you paid for it, it’s been on the water for 4 weeks, and customs in your country suddenly tells you “sorry, quota exhausted, it won’t come in.” Now you have to ship it elsewhere at your cost and try to get your money back. Can’t even complain, because them’s the rules. Anyway, coming back to China and Japan, (all stuff) was stuck for around 10 days, then materials began to flow again. My (Japanese) wife designs (Japanese) handbags, and I have them made in China for her. Bags and materials were affected as well

    4.) Export and import quotas: Are set by governments. As for export quotas, there even is an acronym fro it, “VER”, as in “voluntary export restraint.” One of the most famous in our circles: The auto VER by Japan in the 80s. Wasn’t quite “voluntary,” and we all know how it backfired. Basically, if we don’t want the stuff, an export quota is highly desirable. If we want the stuff, it’s an outrage. The U.S. maintains a long list ( Commerce Control List) of stuff the U.S. doesn’t want to export at all, or only in a highly controlled environment. This is often forgotten

    5.) Right after we arm the average Chinese and see what happens…” This is exactly what the Chinese are afraid of. Here is a country that has a history of being invaded for thousands of years. The same country (AFAIK) invaded nobody. They also don’t run around trying to export their ideology. Due to thousands of years of bad experience, they are sensitive about their borders and their people being armed by outside parties. Threaten their borders or their internal security, and they get very uptight. McArthur and the Russians learned that lesson, and that was when China was much weaker than now. Please revisit that lesson with an open mind before rattling sabers.

    6.) Free trade ending all wars: No need to go back to 1914. Kindly look at the EU. Here are countries that had been at each others throats throughout history. Now they have a common currency, common rules. Can't even mass armies at their borders, because nobody knows anymore where the borders are. It's a club everybody wants to join. Nothing will ever end all wars. But trade is the best prevention. As long as you buy and sell, you don't want to kill your buyer or supplier.

    • See 2 previous
    • L'avventura L'avventura on Oct 21, 2010

      "Rogue superpower" isn't an 'intellectual property'. And terminology isn't stolen they are coined, China as a 'rogue superpower' is a matter of opinion, and Krugman is not claiming exclusivity to the term nor the idea. BTW Foreign Policy has a counter-point to Krugman's column: Either way, Krugman is easily one of the most influential economists in the world even as he tends to ruffle a lot of feathers. His NYTimes column is read by economists and non-economists alike. It carries weight with policy makers (even in China). Which is why its important. Both articles agree that China's reaction was pointless and detrimental to itself, especially now, given all of all of China's many foreign policy problems; Liu Xiaobo, US currency manipulator status, global competitive devaluation, China Tariff Act, UN Darfur bullets report, and now trawler-incident and RRE embargos. China needs allies, and ASEAN nations are stepping up to become an alternative power to China in Asia; their labor is cheaper, their nationalistic policies are more fragmented and less-aggressive, and mostly importantly are preparing FTA agreements with developed nations (no tax or tariffs). Japan's sudden love of Thailand is no coincidence, many expected cars to be imported from China into Japan before Thailand. Foreign Policy actually has an even better article on the subject titled "Lie of the Tiger" comparing Western protectionist policies against Japan during the 80s and comparing the West's response to China (and how they may fail):

  • Porschespeed Porschespeed on Oct 22, 2010
    ) Right after we arm the average Chinese and see what happens…” This is exactly what the Chinese are afraid of. Here is a country that has a history of being invaded for thousands of years. The same country (AFAIK) invaded nobody. They also don’t run around trying to export their ideology. Due to thousands of years of bad experience, they are sensitive about their borders and their people being armed by outside parties. Threaten their borders or their internal security, and they get very uptight. McArthur and the Russians learned that lesson, and that was when China was much weaker than now. Please revisit that lesson with an open mind before rattling sabers. Wow, you must be used to dealing with incredibly ignorant/stupid/retarded/Foxwatching people. The Chinese have invaded everyone near them for centuries. From the Sung's invasion of Takashima Island in the 13th century to the 17th century of the Manchu Qing invasions of Korea, to the 19th century VietNam invasions to the present day invasions of Russia. Really? Do you think we are that effen ignorant of history? Really?
  • Inside Looking Out The next 4Runner will be BEV.
  • The Oracle This is a proper Italian red sauce turd.
  • Carson D This isn't a notice of a wait time for 4Runner fans. This is a deadline for the opportunity to buy one new before they're gone. Whatever comes next, there is no possible way that it will be as good at doing 4Runner things as what is available today.
  • Bkojote There's a lot "just right" with the current 4Runner, and having spent time in more contemporary equivalents for road trips, I completely understand why they sell a ton of these.Here's some topics that aren't super common among 4runner owners - excessive carbon buildup in the engine after 40,000 miles (Audi/VW), bent valves (Bronco) , failed oil coolers (Jeep), cracked engine blocks (Jeep), dead vehicles from OTA updates (Chevy Colorado), being stranded due to opening the door too many times (Defender), malfunctioning engine sensors (Defender, VW), dead batteries due to electrical system malfunctions (Jeep), unusable defoggers (Jeep), waiting for seat heaters to boot up (Subaru), randomly catching fire (Kia/Hyundai), crappy build quality (Ford, Tesla).The interior feels solid and rattle free, and everything feels substantial in the way a Jeep Grand Cherokee or Kia Telluride does not. 14 year run means accessories are plentiful and well sorted. The control inputs from the radio to heated seats to climate control work better than 99% of the cars you can buy new at this point and are dead simple and ergonomically satisfying. Even dynamically (I drove a model with the KDSS system to be fair) it is a surprisingly composed vehicle on mountain roads- it's far more civilized than a Bronco or Wrangler, and hell, it was far more pleasant than the past two peastant-grade Benz crapmobiles I've been in.So I get it- car journalist rags whine about how overly complicated and tech-heavy modern vehicles are while their substance is cost cut, but here's the literal definition of 'don't fix it if it aint broken.' . It's a trusty Ford Econoline in a world of craptastic Ram ProMasters.
  • Frank Sounds like they dont want to debut it at the same time as the new Land Cruiser, which is probably smart. The new 'runner is ready to go I am told, so there's a reason for this delay.