China’s rare earth strategy and India’s future

Antonio Gramsci and Robert Cox have extensively discussed the concept of hegemony, particularly how states wield it through various means, including economic strategies. They argue that hegemony goes beyond mere dominance, encompassing an arrangement of power where the dominant state shapes norms and institutions in a way that its interests are seen as universal interests. However, sometimes some hegemonic states tend to dictate terms to others. Trade, as a tool, plays a crucial role in this dynamic. Powerful countries often use trade relationships to cement their hegemony, leveraging their control over vital resources as a means of influence. For instance, imposing export bans on critical resources can be a strategic move to assert dominance and control over global supply chains, thereby reinforcing a state’s hegemonic position. This theory is vividly illustrated by the recent actions of China’s Ministry of Commerce. On 21 December 2023, the ministry announced a ban on the export of technologies critical for extracting and separating rare earth elements, along with certain rare earth magnets. This decision follows Beijing’s earlier restrictions on gallium and germanium exports—two elements crucial in semiconductor manufacturing. China holds a significant command over the global supply chain for transforming rare earth ores into high-powered permanent magnets. It controls an impressive 85 per cent of the processing capabilities and a staggering 92 per cent of the total production of these magnets. Further, China holds the largest reserves of rare earths globally, with its stockpiles accounting for over 36 per cent of the world’s total. In a move to consolidate its dominance, China’s State Council merged three state firms to form the China Rare Earth Group. This has been viewed as a significant step in bolstering the country’s production dominance. Historically, Beijing has utilised its dominance in the rare earth sector as a means of political influence, employing its control over these critical resources as leverage in international politics. Over the past 30 years, Beijing has established and maintained strong control over the global supply chain for rare earth elements. This dominance is so extensive that almost all rare earth materials, irrespective of their mining location worldwide, are sent to China for processing and refinement. This step is crucial before these materials can be integrated into various technologies. China’s control over this process means it plays a pivotal role in the production of a wide range of high-tech and strategic products. By being the primary hub for refinement, China not only influences the availability and pricing of these materials but also holds a significant strategic advantage in the global technology sector. As the foremost processor of rare earths, this decision cements China’s dominance, allowing it to dictate market terms soon. This will also prove to be a negotiating tool as China and EU are currently in a tussle over the flooding of Chinese EVs in the EU. This action is not merely an economic move but forms part of a broader geopolitical strategy. It aligns with China’s national security interests and serves to fortify its control over critical minerals. The ban could enable China to forge new alliances and counter US influence, simultaneously impeding US efforts to rejuvenate its rare earth sector. This ban should also be seen considering the ongoing trade tensions with the US. This move, however, will make the decoupling from China in the rare earth sector difficult. In reaction to China’s export bans on rare earth metals, Western nations, notably the US and European countries, are ramping up efforts to develop independent rare earth processing capabilities. The Biden administration has taken actions to boost the supply chain for rare earths to reduce dependence on China. These measures include a significant contract from the US Department of Defence to process heavy rare earth elements at a California production site, marking the first facility of its kind in the US. However, this journey faces substantial hurdles due to the technical complexities and environmental issues associated with rare earth processing. The ban is poised to impact “heavy” rare earths the most, crucial for advanced applications like electric vehicle motors and medical devices, where China nearly monopolises refining. Despite progress in separating “light” rare earths, such as neodymium and praseodymium, Western countries remain susceptible to geopolitical disruptions. Japan has had some success in diversifying away from China following a trade dispute in 2010. Japan, along with the EU and the U.S., brought the dispute to the WTO, which ruled against China. Beijing subsequently dropped its export controls but implemented production quotas that continued to limit supply. Japan’s strategy involved new partnerships, joint ventures, and rare earth processing plants across Asia, the Americas, and Australia. From 2008 to 2018, Japan reduced its rare earth imports from China from 91.3 per cent to 58 per cent. This decoupling has obviously triggered the export ban, in order to ensure that the reliance ion China doesn’t get reduced further. Beyond China’s stronghold on rare earth elements, the data from the United States Geological Survey reveals other countries with substantial reserves, notably the United States, Australia, Brazil, India, and Vietnam, each holding significant potential in altering the global rare earth dynamics. For technologically advanced nations like the US, India, and Japan, forging partnerships with these resource-rich countries is crucial. By doing so, they can reduce the global dependency on a single supplier and encourage a more diversified, secure supply chain. The collaboration would be particularly beneficial in advancing rare earth separation and processing technology, areas where these nations can leverage their advanced research and development capabilities. Recently, there has been a proposal to work with African countries with reserves of rare earth elements. Despite, Africa hosting significant reserves of rare earth minerals, nations like the Democratic Republic of Congo and Zimbabwe face challenges that hinder extensive global investment due to their histories of corruption, mismanagement, and economic volatility. These issues create a high level of political risk, deterring the swift influx of capital necessary for the rapid establishment of new mining operations. Consequently, these countries may not realise their full potential in contributing to global critical mineral production. Western companies often hesitate to invest in regions with such pronounced political uncertainties, contrasting with Chinese firms that, backed by strong state support, are more inclined to take on these risks. India, with its substantial reserves and growing technological sector, is an ideal candidate to become a new hub for rare earth processing, potentially altering the global landscape of rare earth production. However, the transition from a China-centric supply chain to a more balanced and secure one is fraught with challenges. The experience with China’s dominance has understandably led many nations to adopt a more inward-looking approach, especially when it comes to safeguarding cutting-edge technologies. This protective stance, while beneficial for national security, could hinder the global cooperation necessary for establishing alternative processing hubs. Therefore, while the potential for a more diversified rare earth industry is significant, realising it requires overcoming substantial economic, political, and technological hurdles. It calls for a delicate balance between national interests and global cooperation, ensuring that the future of rare earths is not only secure but also sustainable and inclusive. The author is Officer on Special Duty, Research, Economic Advisory Council to the Prime Minister. Tweets @adityasinha004. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost_’s views._ Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook ,  Twitter  and  Instagram .