By on October 20, 2010

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.

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23 Comments on “The Dirt On Rare Earth...”


  • avatar
    cardeveloper

    Smoot Hawley II

    • 0 avatar
      nonce

      In California a single mine was operating a mine just 3 years ago that meets 20% of world demand.
       
      http://www.foreignpolicy.com/articles/2010/09/29/you-dont-bring-a-praseodymium-knife-to-a-gunfight?page=full
       
      Really, China has a short-term monopoly, but other countries already started ramping up their production as soon as they saw China willing to be dicks.  This issue will be completely forgotten in 5 years.
       

  • avatar
    Disaster

    Before it was shut down for environmental and economic reasons, California’s rare earth mines were the largest producers and still have the capability to produce all the mineral we need.  Canada also has resources, as does Australia, like mentioned.  If the supply goes down, and cost goes up, you will see these resources tapped again, just like we see oil being pumped from shale.

    http://en.wikipedia.org/wiki/File:Rare-earths.gif

    • 0 avatar
      CamaroKid

      Yup, the Truth about rare earth, its not all that rare.

    • 0 avatar
      vww12

      «it was shut down for environmental and economic reasons, California’s»
      The chinese embargo  is actually great news!

      Time to reopen those mines in the U.S.! Time to grant exemptions to the National Park, Wildlife Sanctuary, etc., and other excessive regulations which have put so many out of work and which have forced so much of the U.S. mining, smelting, and refining industries overseas.

      The U.S. has plenty of pretty much everything. All we need is to dig it out.

  • avatar
    philadlj

    I’m not concerned even if EV production skyrockets. Just as an Icarus-like OPEC was taken down a notch when Western countries initiated new exploration and drilling in Alaska, the North Sea, and other previously untapped regions, China’s days of dominion over rare earth will only last until such a time as underutilized rare earth resources in the Free World are tapped to stabilize the market. If securing rare earth from China becomes too difficult or tedious, we’ll simply have to return to producing our own.

  • avatar
    John Horner

    We can always count on Bertel for a rousing defense of Chinese policy.
     

  • avatar
    Zackman

    Conspiracy Theorists will have a field day with this.

    About Pearl Harbor: My parents suspected all along that it wasn’t a true, out-of-the-blue “sneak attack”. but brought on by halting oil supplies and other political nastiness such as while being “neutral”, the U.S. was propping up Britain and supplying everyone else’s brother (the allies) with war materiel.

    It’s what goes on behind the scenes that we don’t see what runs this world and we’re all pawns in a great chess-game. Unfortunately, we’re the victims and must suffer for it in many ways. Ultimately, nobody wins. After all, many still say Hitler had some good ideas, and Stalin is famous for stating the fact: “Quality over quantity is good, but quantity has a quality of its own”!

    All this does relate to the auto industry as it affects what we drive, our very mobility and the cost of such mobility.

    There, I worked automobiles into this, thinly as it was!

    • 0 avatar
      BDB

      The oil embargo against Japan (and the aluminum one was well) was tied to Japanese actions in East Asia. The US would be have been happy to end the embargo if they withdrew from any Chinese territory south of Manchuria and give up trying to conquer East Asia. They chose to go to war with the US instead. Not only did they carry out a sneak attack, but sent a “peace” envoy to Washington to “negotiate” while the planes were on the way to Honolulu!

      That said, the US military expected that Japan was going to attack, but that it would be in Spring 1942 and somewhere much closer to Japan like Manila. The timing and location of the attack was the shock to the government more than the act itself. Nobody expected it to be somewhere as far from Japan as Hawaii.

  • avatar
    Mike66Chryslers

    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.
     
    You can thank neodymium magnets for the significant size and weight reduction of automotive starters in the past 30 years.  Since every automotive ICE needs a starter, that’s hardly zero impact.  They’re probably used in power window motors and various other places in modern cars too.  Magnetic suspension in some high-end cars also uses them.

  • avatar
    Steven02

    On Pearl Harbor…
    Why stop at the oil embargo?  Why not talk more about Japan’s war machine and what it was doing.  The US was right to do the oil embargo.
    The attack on Pearl Harbor was a sneak attack.  To say it wasn’t because of an oil embargo is wrong.

  • avatar
    L'avventura

    We should avoid using Xinhua to support arguments.  That’s a Chinese government propaganda site and is ill used in advocacy.  I’m usually pro-Bertel, but this article I will disagree with.
     
    First off, the quota wasn’t reached ‘coincidentally’ during the China-Japan fisherman scuffle.  China held those RRE’s at port, it was never a quota issue, as those RRE were paid for and being shipped out.  RRE’s were blocked from going to Japan (and only Japan) at that time.  Since the scuffle subsided RRE are flowing again to Japan; showing the blockade was intentional and not a quota issue.
     
    Secondly, the reason China has a dominance in RRE is not because its a ‘dirty job’, its because they have made it unprofitable to operate a RRE mine elsewhere.  Look at the China-Molycorp story.  Its an interesting one, everything from China selling RRE below what it costs to mine them, and mysterious endangered turtle carcasses appearing within Molycorp mine grounds (forcing a shut down).  As mentioned, there are half a dozen RRE mines being planned right now.
     
    Like I said in the previous story, China knows that RRE mines are planned to come online in the next few years in America, Europe, and Africa. Their leverage on RRE is quickly disappearing, and China wants products that use RRE to be centralized in China, from everything from motors, batteries, to even defense equipment. China wants those technologies.
     
    China is racing against Japan, S. Korea, and the US on being the major producer of those technologies:http://www.foreignpolicy.com/articles/2010/10/11/the_great_battery_race

    • 0 avatar
      BDB

      ” That’s a Chinese government propaganda site and is ill used in advocacy. ”

      You mean Bertel Schmitt of all people is using Chinese state media in his reporting? Gee, I’ shocked! SHOCKED, I tell you! Whatever shall we do?

  • avatar
    sean362880

    Isn’t the quota itself an unfair restriction on international trade?  China’s limiting exports in order to give domestic producers a competitive advantage.  And China cut the 2010 quota by 40% over 2009 levels.
    http://www.techmetalsresearch.com/2010/09/hike-in-rare-earth-prices-as-china-quotas-bite/

  • avatar
    BDB

    “Hadn’t we always thought it was a sneak attack, out of the blue?”

    Not unless “we” never made it past the 8th grade.

    Speaking of which, the last time free traders said free trade would end all wars was in the early 20th Century. In 1914, Germany’ biggest trading partner was Great Britain. Do I need to remind anyone on here how that worked out?
    I
    ‘ll say this–I *knew* Bertel would somehow make it look like there was really no dispute between the Chinese and Japanese (can you say “cognitive dissonance”?), and somehow segue the whole incident into yank-bashing instead. He didn’t disappoint!

  • avatar
    porschespeed

    You silly, silly, boys.
     
    All that happens in China is well and good and just. Despite every fact to the contrary, ChiComms follow all the rules for international trade, just like the rest of us.  Except when they don’t (everyday) and then it’s still all just dandy. IP Law? A joke in ChiCommLand. Human rights? An even bigger joke, and why the labour is so cheap.
     
    True, it was the greed of a few in the US that made China something other than a third-world crap hole that it should have remained. Yes, a few in the West caused this mess. We do need to pull a Frenchie on them. Right after we arm the average Chinese and see what happens…
     
     
     
     

  • avatar

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    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.

    • 0 avatar
      L'avventura

      Bertel, you are mixing two separate but related issues into one.  First is, China using economic weapons and their dominance in RREs to resolve political disputes, the second is export quotas.
       
      Japan’s RRE ban was not, repeat NOT, a quota issue.  By your own admission they were blocking exports of goods to Japan (even your wife’s handbags), that is the exact definition of an “embargo”.  Illegal under the WTO, and what is the topic at hand.
       
      The concern is that China will use its monopoly in RRE’s to block crucial natural resource if they have political disputes with other countries instead of relying on diplomatic means.  This is why China embargoing exports to Japan during the East China Sea spat was international news, they showed that they are willing to use economic weapons at the slightest provocations even when they have little to gain.  This is why Nobel-prize winning economist, Krugman, is now calling China a “rogue superpower” because of those spats.
       
      The second issue is quotas; people dealing with RREs are well aware of them.  They don’t load up boats and prepare to ship them out only to realize, ‘gee wizz, we hit the quota’ at customs.  The US, EU, Japan RRE issues right now are about China blocking, or slowing, the shipment of RRE’s within quota due to a series of political disputes (ahead of the G20 in Seoul).
       
      The lowering of RRE quota next year is a separate but related issue to the current embargo.  China knows that the window of opportunity to exploit the leverage they have with RREs are quickly closing.  And RRE are ideal natural resource to be shipped out of the country, since only a little is needed for even a large component, by making it artificially difficult to export they can force foreign plants to build products that require RRE’s within the country before alternative sources of RRE come online.
       
      The flaw of China’s tactic is that they exposed their hand with what was an inconsequential spat with Japan, and have gotten the attention of policy makers around the world. It would have been wiser to keep their cards closer to their chest, and have quietly consolidated power.
       
      Finally, the Chinese position on RRE are well known, and is mentioned on the NYTimes.  When you are essentially just regurgitating China’s state media stance it’s best not to cite them in an argument.

    • 0 avatar

      Mr Krugman shows a despicable disregard for intellectual property. He stole “Rogue Superpower.”

    • 0 avatar
      L'avventura

      “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:
      http://walt.foreignpolicy.com/posts/2010/10/20/whos_the_rogue_superpower
       
      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):
      http://www.foreignpolicy.com/articles/2010/10/11/lie_of_the_tiger

  • avatar
    porschespeed

    ) “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?

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