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Reducing the United States’ risks of dependency on China in the rare earth market

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  • Lee, Yurim
  • Dacass, Tennecia

Abstract

Rare earth elements (REE) are crucial in supporting multiple industries with new technologies. Thus the U.S.’ demand for rare earth oxide (REO) is on the rise. Yet, most of the REO supply comes from China, which exposes the U.S. to supply risks similar to that observed by the export quota imposed by China in 2010–2011. This paper uses supply and demand models to evaluate the effects of the U.S. government's proposed strategies to reduce supply risks associated with potential export restrictions from China. We show that there are multiple policies available to mitigate the impact of China's dominance in the market by attenuating the price increases and supply shortfalls, with the size of the changes depending on the price elasticity of demand and supply for REOs. In addition, there are varying degrees of welfare gains from each proposal. Specifically, reducing domestic demand for newly-extracted REEs through substitution (such as recycling or finding alternatives to REEs in production) provides the largest welfare gains. The next best welfare-improving proposal is discovering new domestic supplies of REOs, followed by plans to gain access to foreign REO sources.

Suggested Citation

  • Lee, Yurim & Dacass, Tennecia, 2022. "Reducing the United States’ risks of dependency on China in the rare earth market," Resources Policy, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:jrpoli:v:77:y:2022:i:c:s0301420722001507
    DOI: 10.1016/j.resourpol.2022.102702
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    References listed on IDEAS

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    1. Mancheri, Nabeel A., 2015. "World trade in rare earths, Chinese export restrictions, and implications," Resources Policy, Elsevier, vol. 46(P2), pages 262-271.
    2. Shuai, Jing & Peng, Xinjie & Zhao, Yujia & Wang, Yilan & Xu, Wei & Cheng, Jinhua & Lu, Yang & Wang, Jingjin, 2022. "A dynamic evaluation on the international competitiveness of China's rare earth products: An industrial chain and tech-innovation perspective," Resources Policy, Elsevier, vol. 75(C).
    3. Brown, Maxwell & Eggert, Roderick, 2018. "Simulating producer responses to selected chinese rare earth policies," Resources Policy, Elsevier, vol. 55(C), pages 31-48.
    4. Golev, Artem & Scott, Margaretha & Erskine, Peter D. & Ali, Saleem H. & Ballantyne, Grant R., 2014. "Rare earths supply chains: Current status, constraints and opportunities," Resources Policy, Elsevier, vol. 41(C), pages 52-59.
    5. Schlinkert, Dominik & van den Boogaart, Karl Gerald, 2015. "The development of the market for rare earth elements: Insights from economic theory," Resources Policy, Elsevier, vol. 46(P2), pages 272-280.
    6. Yuzhou Shen & Ruthann Moomy & Roderick G. Eggert, 2020. "China’s public policies toward rare earths, 1975–2018," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 33(1), pages 127-151, July.
    7. Eugene Gholz & Llewelyn Hughes, 2021. "Market structure and economic sanctions: the 2010 rare earth elements episode as a pathway case of market adjustment," Review of International Political Economy, Taylor & Francis Journals, vol. 28(3), pages 611-634, May.
    8. Schmid, Marc, 2019. "Mitigating supply risks through involvement in rare earth projects: Japan's strategies and what the US can learn," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    9. Pavel, Claudiu C. & Lacal-Arántegui, Roberto & Marmier, Alain & Schüler, Doris & Tzimas, Evangelos & Buchert, Matthias & Jenseit, Wolfgang & Blagoeva, Darina, 2017. "Substitution strategies for reducing the use of rare earths in wind turbines," Resources Policy, Elsevier, vol. 52(C), pages 349-357.
    10. Marc Schmid, 2019. "Rare Earths in the Trade Dispute Between the US and China: A Déjà Vu," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 54(6), pages 378-384, November.
    11. Packey, Daniel J. & Kingsnorth, Dudley, 2016. "The impact of unregulated ionic clay rare earth mining in China," Resources Policy, Elsevier, vol. 48(C), pages 112-116.
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    Cited by:

    1. Guo, Qing & You, Wenlan, 2023. "A comprehensive evaluation of the international competitiveness of strategic minerals in China, Australia, Russia and India: The case of rare earths," Resources Policy, Elsevier, vol. 85(PA).
    2. Thibeault, Al & Ryder, Michael & Tomomewo, Olusegun & Mann, Michael, 2023. "A review of competitive advantage theory applied to the global rare earth industry transition," Resources Policy, Elsevier, vol. 85(PA).

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    More about this item

    Keywords

    Rare earth elements; Export restriction; Supply risk; Trade policy;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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