Civilization often depends on the supply of relatively scarce commodities. The European demand for sugar obtainable primarily from West Indian colonial possessions helped trigger a series of vast wars in the eighteenth century. These struggles for control of commodities eventually sucked the American colonies into Revolution against a mother country determined to closely restrict access to these products. Recently, the desire to control the supply of the raw materials necessary to the manufacture of rare earth magnets has seemed to evoke those forgotten wars of bygone mercantilist empires.
Rare earth elements are used in the production of a number of important high-tech products, but are chiefly known for their ability to produce magnets of very high field strength. This in turn allows smaller electric motors to do the job of the larger units of the past, or else to perform greater work with the same sized motor. Since miniaturization is the hallmark of our current industrial civilization, access to these raw materials is an important underpinning of a high-tech manufacturing economy.
Yet the availability of commercially-exploitable deposits is centered on only a few regions of the planet. The United States and China have the largest potential known ore reserves. Recent changes in labor costs and environmental law essentially rendered American reserves unexploitable at an acceptable market price and allowed China to capture more than 90 percent of the world market as its primary competitors withered.
With a virtual monopoly on the raw materials necessary to the manufacture of rare earth magnets, China moved to encourage the internalization of production inside its home territory by introducing a gradually-escalating series of export tariffs and quotas. Foreign manufacturers were welcome to build plants inside China but faced increasing limitations on their ability to obtain the materials necessary to fuel their overseas facilities. Economically, this was a pure mercantilist play to achieve a dominant industrial position through political action.
Unfortunately for China, their efforts at cornering a crucial market raised the price of the commodity to the point where foreign deposits which were not exploitable at the previous low price became commercially very profitable at the new, Chinese-created, monopoly price. A huge rush is on to reopen old facilities and bring new ore bodies onto the market. While it will be several years before any appreciable volume of ore flows out of these new mines, the monopoly position envisaged by China is likely to be very short-lived at best.
Furthermore, the critical importance of rare earth magnets to modern military guidance and control systems has led to the introduction of crash programs to develop non-rare earth alternatives. Rather than resting content with a very large share of a worldwide market, Chinese economic policy has managed to damage its own future prospects by force-feeding development of alternative sources of supply, as well as goading research into new technologies that might render rare earth magnets essentially obsolete. The historical lesson remains in place. Mercantilist desires to achieve monopoly positions seldom achieve the intended results.
