Abstract

In today’s global economy, nations such as China consider control over resources such as rare earths, cobalt, and lithium are essential for securing industrial competitiveness and geopolitical leverage. However, this essay posits a nuanced perspective, contending that while China’s control over these resources undoubtedly enhances its position in the short term, in the long term, the complex, globalized supply chain and rapid technological innovations of the 21st century will ultimately render these resources as less pivotal factors in determining a nation’s industrial competitiveness. 

The Significance of Rare Earths in China’s Industrial Strategy

China has strategically dominated the rare earth supply chains for decades. Rare earth elements, indispensable for technologies spanning from communications to defense, are mined extensively in China, particularly in regions such as Baotou. As Klinger describes in her book Rare Earth Frontiers, these materials define modern industrial capabilities, making China’s policies highly consequential (Klinger, 2017). The Biden Administration Report on US Manufacturing echoes this sentiment portraying their access as vital to national security. The report states that “critical minerals and materials” are the “building blocks of the products we use everyday” and are “essential to manufacturing everything from airplanes to defense equipment (The White House, 2021).”

As the demand for technologies like electric vehicles (EVs) and renewable energy systems grows, so too does the demand for lithium, cobalt, and graphite–all critical components of these technologies (The White House, 2021). China has enacted policies not only to control mining but also to bolster its influence in processing and refinement stages, ensuring a robust role in global supply chains (Seth, 2024).

China’s Rare Earth Monopoly and Global Reactions

Intensifying the competition over rare earths, cobalt, and lithium is the rare earth crisis of 2010 and increasing concerns regarding supply chain resilience. By 2010, China had established dominance, producing over 97% of the global supply of rare earth elements. More than a decade earlier, China’s central government had initiated measures to restrict rare earth production in response to environmental crises in mining regions, leading to a decline in rare earth exports starting in 2008. As a result of China’s production control policies, rare earth prices increased dramatically between 2008 and 2011, significantly impacting downstream industries reliant on these elements (Klinger, 2017). In late 2010, China’s military briefly halted a routine shipment of rare earth elements to Japan, a move widely interpreted as a demonstration of China’s geoeconomic influence. This sudden disruption, albeit temporary, was a “rude awakening” that exposed the world’s dependence on China for rare earth supplies. The crisis fostered a misconception of the “scarcity” of resources and fueled a desire to control natural resources, driving renewed global interest in mineral prospecting and extraction (Klinger, 2017). 

In recent years, China has further consolidated its control, implementing stricter export quotas and environmental regulations. This move not only limits other countries’ access to rare earths but also serves as a reminder of China’s power in the global supply chain–a stance reinforced by state-backed firms’ investments in regions like Bolivia’s lithium-rich Salar de Uyuni and the cobalt mines in the Democratic Republic of Congo (Kraus, 2021) (Searcy, Forsythe, and Lipton, 2021). 

Challenges to the Notion of Resource Control for Industrial Competitiveness

However, China’s emphasis on control over the source of natural resources, I believe, risks leading the international community into developing a narrow and one-sided belief on industrial competitiveness. Given the increasingly complex and decentralized nature of global supply chains, a nation does not necessarily require direct control over resources such as rare earths, cobalt, or lithium to remain industrially competitive. For example, in the semiconductor industry, extraction of raw materials such as gallium and germanium, although currently led by China, represents just one of the many steps in the multi-step production process (Business Executives for National Security, 2024). A number of other nations are able to compete within the industry by excelling in other aspects of chip production. For instance, US companies such as Intel, Xilinx, Nvidia, and Texas Instruments are at the forefront of logic and analog semiconductor design (The White House, 2021). Taiwan-based companies dominate the contract foundry market, which focuses solely on chip manufacturing, holding a 73% share of the global foundry business (The White House, 2021). Meanwhile, in semiconductor manufacturing equipment, Applied Materials (US-based), ASML (Netherlands-based), and Tokyo Electron (Japan-based) have emerged as dominant players (Vars et al., 2021). Similarly, the supply chain of electric vehicles also involves a series of interconnected stages from the sourcing of raw materials, to the production of batteries, to the assembly of the actual vehicles (International Energy Agency, 2022). While control over the extraction of resources such as rare earths, lithium, and cobalt can certainly aid a nation’s competitiveness, it is just one of the many steps in these complex, globalized technology industries. Indeed, there are other important high-value components of the supply chain nations can specialize in to become “industrially competitive.”

Innovation as a Path to Independence from Rare Earths

Furthermore, long-term industrial competitiveness may increasingly depend on innovation rather than raw material control. Countries with strong R&D capabilities are actively exploring substitutes for rare earths and critical minerals. For example, China’s own Contemporary Amperex Technology Co. (CATL) has spearheaded the development of innovative chemical compositions in sodium-ion batteries, which offer increased efficiency and can be manufactured without relying on resources such as lithium and cobalt  (Wang, 2023). Moreover, the US government supports alternative technologies that depend on critical minerals, particularly for EV and energy storage applications. The White House’s 2021 report explicitly advocates for such technological shifts, emphasizing investments in materials science as a key to a sustainable and resilient industrial base (The White House, 2021). 

Policy Implications for the US and Global Competitors 

China’s rare earth policies underscore the strategic importance of supply chain security, but overemphasis on raw material control may be a limited approach in the face of an evolving global economy. The United States and its allies might benefit from continuing to diversify supply chains and invest in research that reduces reliance on specific minerals, especially those for which China dominates supply. Enhancing capabilities in areas such as high-tech manufacturing, design, and alternative energy technologies can mitigate vulnerabilities tied to China’s rare earth policies. By focusing on innovation and strengthening international partnerships, nations can build resilient industries without exclusive control over natural resources. 

In conclusion, while China’s policies have highlighted the geopolitical importance of rare earths, the complexities for global supply chains and rapid scientific advancements may reduce these materials’ significance over time. The pursuit of industrial competitiveness through resource control alone may prove insufficient; instead a balanced strategy combining control, innovation, and collaboration will likely define success in an increasingly interconnected global economy.