Research Paper by Prof. Giancarlo Elia Valori
Abstract: Rare earth elements are critical resources with significant implications for global geopolitics and economic strategies, influencing national security, technological advancements, and international relations. Their scarcity and concentrated production raise concerns over supply chain dependencies and geopolitical tensions.
Geopolitics encompasses the political and military dynamics between nations influenced by geographical, cultural, and historical elements. Recently, the geopolitical landscape has shifted from the U.S. – dominated unipolarity to a multipolar world, characterized by intense competition among major powers. The U.S. National Security Strategy addresses this global rivalry, particularly regarding emerging powers, emphasizing the containment of adversaries and control of critical resources.
With a concentrated supply of rare earth elements (REEs), predominantly produced in China, the U. S. views this dependency as a security threat to its clean energy ambitions and advanced manufacturing. Consequently, it is collaborating with allies to decouple its supply chain from China, leading to heightened political tensions over rare earth trade. Amidst the U.S. – China decoupling, the deployment of major legislative acts by the U.S. government aims to restructure the rare earth supply chain while promoting clean energy technologies.
The geopolitical competition is increasingly directed toward controlling vital industrial supply chains, with the transition to clean energy representing a strategic priority. The Inflation Reduction Act and other significant bills outline the U.S. strategy to bolster its domestic clean energy industry and electric vehicle market through substantial subsidies and market protections. Such legislative measures signal an escalation in geopolitical competition over rare earths and clean energy resources, reshaping international trade dynamics and fostering new global economic challenges.
In response to geopolitical competition, China adopts a confrontational export strategy, balancing global resources and disrupting Western industrial chains. Increased rare earth imports and overseas processing investments mitigate risks amidst U.S. controls. This environment prompts multinational firms to reassess investments, emphasizing a gradual cooling of relations with developed nations.
The United States and its allies are advancing the “desinization” of industrial supply chains, significantly influencing China’s exports, employment, and technology transfer. Japan’s pivotal role as the largest importer of rare earths and a key U.S. alliance partner highlights its efforts to secure industrial chain stability amid resource scarcity.
Following the 2010 Senkaku Islands incident, Japan initiated a strategy to diversify its supply chain in response to Chinese restrictions on rare earths. Japan’s investments in global mineral resources and collaboration with the U.S. underscore a mutual commitment to resource security and economic interests amid evolving geopolitical challenges.
Japan’s semiconductor dispute with the U. S. in the late 20th century led to significant industrial shifts, with Japan transferring vital industrial chains to South Korea and Taiwan. Despite the tensions, the Japan-U.S. alliance remains politically intact. Learning from past experiences, Japan has recognized the importance of the industrial supply chain in grand power competition, especially against China’s rise.
As an ally, Japan collaborates with the U.S. to form a technological alliance, aiming to curb China’s high-tech advancements through various measures, including substantial investments and partnerships in technology and clean energy. However, Japan’s reliance on rare earth imports complicates its efforts in sectors like electric vehicles, where it aims for a complete transition to clean energy by 2035.
Moreover, U.S. policies, influenced by “America First,” present challenges, compelling Japanese automakers to adapt and invest further in the U. S. market to compete effectively while navigating strategic resource policies. Japan’s role thus reflects complex interdependencies in the U.S. -China competition landscape.
As of 2023, the United States has shifted its rare earth supply chain strategy by directly exporting rare earths from California’s Mountain Pass mine to Japan’s Sumitomo Corporation, thereby bypassing China. This marks a significant change in the historical processing dynamics of rare earths in Japan, challenging China’s dominance in smelting and separation.
Japan’s collaboration with the U.S. aims to reduce reliance on Chinese imports while facing geopolitical pressures. The strategic control exercised by Japanese firms through patent restrictions imposed barriers on Chinese rare earth companies, hampering their production capabilities and market competitiveness. Legal actions, such as the case against Hitachi regarding patent restrictions, highlight Japan’s stringent control over essential rare earth technologies. Additionally, Japanese companies significantly influence China’s access to international markets by imposing high licensing fees that constrain competition. In the broader context of geopolitical contests, the U. S. and its allies leverage industrial interdependencies to isolate China’s resource sectors.
China’s substantial rare earth production contrasts with its limited capacity for high-end magnetic materials due to Japanese patent barriers. To navigate these challenges, China must adapt its strategies, focusing on innovation, sustainable development, and legal frameworks to protect intellectual property. As the global supply chain undergoes transformation, collaboration with allied countries and enhanced resource management will be crucial for China’s strategic resource security and its role in the clean energy market.
Read the Full-Text (63 pages) of the Research Paper:
WGI -Rare Earths’ Global Geopolitical and Economic Importance
Author: Giancarlo Elia Valori – Honorable de l’Académie des Sciences de l’Institut de France, Honorary Professor at the Peking University.