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OM in the News: China and its Rare Earths

January 7, 2015

rare earthsChina is home to most of the world’s deposits and almost all processing of the 17 minerals classed as rare earths — elements with uses ranging from iPhones to instrument panels to lasers. China’s 2011 quotas on rare earths exports– a shock to electronics manufacturers across the globe– have just been replaced with a resources tax, reports The Financial Times (Jan. 5, 2015). This eliminates its policy that caused friction with its trading partners and heightened awareness of their importance as strategic assets. The US  recently won a challenge against the quotas at the World Trade Organization.

In some respects, China’s quota policy had been a success. Implemented at a time when its rare earths were exported cheaply and processed primarily in Japan, the price differential created by the quotas inspired many Japanese companies to move their plants to Inner Mongolia, one of the centers of rare earths mining in China.

are earth2But other goals of the quotas have not been successful: there has been little let-up in the environmental damage caused by rare earths mining and processing, and the pace at which they are mined has slackened little. The run-up in prices as quotas tightened also spurred funding for rare earths mining outside China, which had previously been unprofitable. The volatility in prices after China tightened quotas, has also led manufacturers to find other materials for applications, including magnets. That has alleviated some of the strategic concerns of China’s trading partners, which centered around the minerals’ importance to defense and high-tech industries.

Classroom discussion questions:
1. Why are rare earths so important in manufacturing?
2. When China disrupted supply lines in 2011, what did manufacturers do to adjust to shortages?

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