If there is a moment of origin for the China shock that has hit the United States, it is events around rare earths in the late summer and early autumn of 2010. That August, China reduced its export quotas for the rest of the year. The following month, it stopped selling rare earths to Japan after the Japanese Coastal Guard detained the captain of a Chinese fishing trawler that had struck one of its vessels in the waters around the territorially-disputed Senkaku Islands. Within four days of losing access to metals on which the country’s electronics and car industries depended, Japan backed down. But China retained the embargo for another five weeks. By November, rare earth prices had soared, and they would not return to their pre-crisis level for months.

Since China accounted for more than 90% of global production in 2010, nothing could be the same again for consumers of the 17 rare-earth elements. In 2011, a US House of Representatives sub-committee held hearings on the national security implications of China’s monopoly. In 2012, the US, Japan, and the EU launched a case against Beijing’s restrictions at the World Trade Organization. After losing in Geneva, China agreed to dismantle the quota regime, but Beijing would no longer be trusted as a reliable long-term trading partner.

Yet, even as China’s share of global production has fallen to around 70%, its power as a rare earth exporter has loomed more seismically over the world economy for the past few months than ever before. On 4 April, China announced new license requirements for exporting seven specific rare earths and associated magnets to all countries in response to Trump hiking tariffs on Chinese goods to 54% earlier that week. One of these metals, samarium, is exclusively produced and processed in China, and it is essential for, among other military weapons, the Pentagon’s F-35 fighter jets.

The result was an immediate slump in imports. At the start of May, America’s auto-industry representatives wrote to four Trump administration officials, warning of imminent disruption to the sector. Within days, the President had reversed course, albeit dressing up the agreement in Geneva as a “historic trade win”. When that truce failed, Trump’s officials blamed China for not delivering on the rare earth measures. The economic pressure China was placing on the US and European economies became highly visible. In early June, Ford revealed that it had halted production at several factories the previous month because of a shortage of rare earth magnets. Meanwhile, the European Commissioner for Trade and Economic Security, Maroš Šefčovič, complained the EU car industry faced an “alarming situation”. In boasting about a second agreement desperately struck in London on 11 June, Trump emphasised that this time China would supply rare earths “up front”. Still, supply remained tight, requiring the administration to seek a third agreement within little over a month, with uncertainty throughout over samarium imports, even as the situation eased for car makers.

On the surface, China’s rare earth leverage seems the result of Beijing’s careful exploitation of geological good fortune. China possesses nearly half of the world’s known rare-earth deposits. As the former Chinese leader Deng Xiaoping once quipped, “the Middle East has oil and China has rare earths”.

But China’s pre-eminence is at least as much the story of an earlier US presumption that Washington could safely avoid environmentally toxic mining at home by importing these metals, often found with uranium, from across the Pacific. Before the early Nineties, most of the world supply of rare earths was extracted by a US company, Molycorp, from Mountain Pass in California. Rare earth magnets unveil a similar story of complacent US outsourcing. In 2002, Magnequench, the last surviving US producer, was sold to a Chinese company and the plant in Indiana was closed four years later. Politically, the vulnerability of this bet on a Chimerican resource trade did not go unnoticed. When Hillary Clinton ran for the Democratic nomination in 2008, she castigated the Bush administration for the fact “we now have to buy magnets for our bombs from China”. But the politicians who rhetorically scored points from offshoring offered no serious plan of action for reshoring production.

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Gavin Haynes is a journalist and former editor-at-large at Vice.

@gavhaynes

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