Does China Have a Rare Earth Weapon?

It’s been four years since China cut sales of rare earth elements (REEs) to Japan during a naval standoff between the two powers.  Panic spread to markets and governments as people tried to figure out whether China had acquired a new and powerful source of economic and geopolitical leverage.

In a study published by CFR this week, Eugene Gholz examines the rare earths landscape and comes to a surprising conclusion: China has far less leverage than many believe. “If ever China were looking for natural resources that its political leaders could use to extract high profits and geopolitical leverage,” he writes, “rare earths appeared a near-perfect candidate.”

“But even with such apparently favorable circumstances, market power and political leverage proved fleeting and difficult to exploit. China’s advantages in the rare earths market were already slipping away as early as 2010 due to normal market behavior – particularly increases in non-Chinese production and processing capacity, as well as innovations that have helped to reduce demand for some of the most crucial REEs.”

Gholz, who is a professor at UT-Austin and advised the Department of Defense on rare earths as a member of the Department’s staff, dives into market dynamics, technological shifts, and the politics of enforcing embargoes and using them to achieve international goals. You can download the report here – and please do post any reactions in the comments.