By Paul Homewood
With the US chips down, Beijing is hitting back.
That’s one way of looking at news that, almost two years after the Trump administration began restricting supplies of advanced silicon chips to its rival superpower, China is considering export controls of the rare earth metals vital to two industries of global strategic importance – defence and renewable energy.
The metals are only needed in tiny quantities by comparison to other commodities – according to the US geological survey, the value of the rare earths America imported last year was just $110m (£79m). The problem is how important they are and who they are being imported from.
China controls 80pc of US supplies, with Estonia, Japan and Malaysia making up most of the rest. And though America does dig up some rare earth ores locally, it actually has to ship them to China, whose tolerance for the incredibly polluting process of refinement means it has an iron grip on the supply chain.
None of which makes for happy security chiefs at the Pentagon or the CIA, given that ballistic missiles and drones as well as fighter jets, including the fabulously expensive F-35, rely on rare earths.
Nor is it comfortable reading for those betting big on renewable energy, like the Biden administration, with its $2 trillion plan, or the UK, which is currently developing an offshore wind farm on the Dogger Bank reliant on the world’s biggest turbine – GE’s Haliade-X, which can power a house for two days with a single rotation of its blade and stands 260m tall – two-and-a-half times the size of Big Ben.
An almighty own goal
Such turbines also depend on the rare earths – tonnes of them in the giant magnets that sit atop each vast machine.
Such formidable magnetism makes rare earths central to all electric motors too. Ever driven an electric car and been impressed by the kick of its acceleration, despite the weight of its battery pack? That’s delivered by rare earth magnets, which are many multiples more powerful, by weight, than traditional counterparts.
The threatened export ban, then, sounds like an almighty own goal for the West, if an entirely foreseeable one following the US exploiting China’s own strategic weakness in the production of semiconductors.
After all, as Guillaume Pitron, author of the recent book The Rare Metals War, points out, no sooner had the Huawei ban been imposed in 2019 that Chinese Premier Xi Jinping was photographed on a tour of JL Mag RareEarth, a rare-earths magnet producer.
“The message was crystal clear,” notes Pitron. “Should the trade conflict between the two world powers continue to escalate, Beijing could retaliate by suspending rare-earth exports to its rival.” Just in case anyone was still in any doubt, the state press agency New China News Agency added at the time: “By waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength.”
It’s not just China’s actions. The West has been staggeringly complicit in its own position of weakness – ignoring warnings and flogging off rare earth companies to Chinese buyers.
Incompetence and yo-yo pricing
The case of the F-35 is instructive. US defence firms are banned, under a 1973 law, from sourcing speciality metals abroad. But in 2012, Lockheed Martin, maker of the F-35, realised that magnets used in the aircraft’s radar were actually supplied by Chengdu Magnetic Material Science and Technology.
The Pentagon demanded Lockheed find a solution. But it couldn’t, even for magnets worth just a few dollars, and which some view as inherently untrustworthy, potentially even Trojan horses, in a programme worth hundreds of billions. So the Pentagon was forced to sign a supply waiver for Chengdu and the F-35.
Of course, such incompetence has been exacerbated by China’s longstanding yo-yo pricing and supply policy on rare earths, allowing it by turns to undercut Western producers then, once they are out of business, deploy its monopoly as a weapon.
All of which has put it in a significant position of strength. But for how long? It is one thing to hold a trump card, another to play it. (And for all their significance, rare earths are just one “tech” trump, with AI, chips, compute power, space and satellites among several others).
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February 18, 2021 at 11:57AM