The Turbot War of 1995 saw Canada seize a Spanish fishing vessel the Canadians claim was over-fishing waters just outside Canada’s Exclusive Economic Zone. Over a span of several weeks, battle lines were drawn along Anglo-American and European Continental lines as the British and Irish sided with Canada in the international conflict against, it seemed, every other country in the European Union.
At that time, the natural resource under contention was fish. Now at issue between China and Japan are deposits of oil and other natural resources in an island chain the Chinese call the Diaoyu Islands and the Japanese call the Senkaku. At stake for the moment is Japan’s access to rare earth metals it uses in its celebrated electronics and motors. Also held hostage is world’s ability to develop clean and renewable energy technologies to ensure the survival of entire societies.
The Chinese leadership’s backroom wink to customs agents and state-run refineries to hold up shipments of rare elements to Japan lifted the dispute from a mere diplomatic wrangle to that of trade war. In more sensitive times the move may have been construed as an act of war; indeed, it was America’s embargo of oil to Japan in 1941 that catalyzed the Japanese attack on Pearl Harbor. Rare metals, though, are the key to the consumer electronics and wind power industries entire societies rely on to keep their economies growing and their citizens employed.
Western lack of foresight into how strategic the rare earth elements were to industry growth allowed mines in Australia and America to be closed as the Chinese emphasized market share over profitability. Now, China controls 90% of the rare earths market. One element in particular, neodymium, is key to the the sustainability of the wind power industry. Neodymium is a rare earth element which, when combined in an alloy with iron and boron, forms the strongest known type of permanent magnet. Neodymium has become ubiquitous in hard drives, computers and now green technology hybrid vehicles. The vehicles use these magnets in their servomotors. Wind turbines use the magnets in their generators.
Though China has never before threatened economic blackmail of other countries’ interests, its embargo on rare earth elements has served as a wake-up call to countries and multinationals that depend on the materials for their livelihoods. Now, with US Congressional gears cranking into action, America will certainly accelerate its plans to reopen mines it had moth-balled in light of cheap Chinese rare earth metals. Further, multinationals will be much more cautious about entrenching themselves in Chinese domestic markets in which they too may one day be held to blackmail unless they follow central government proclamations. Certainly, the international drive toward alternative energy will rachet up innovation in the search for new materials and technologies that will reduce dependence on ores a single country – for now – all but controls. Just weeks before the recent spat, the Japanese firm Hitachi announced it had developed its own alternative to motors that use magnets dependent on neodymium. It created a motor that uses ferric oxide magnets with magnetic fields that deliver the same performance as a rare-earth magnet, and uses 10% less power.
Though China may for now have made a great catch through its monopoly on rare earth metals, it risks being the one in the years to come holding an empty net: other countries, forced to innovate on to new technologies and materials, will have bigger fish to fry.
Bill Dodson is Director of Strategic Analysis for TrendsAsia Ltd, based in Shanghai. TrendsAsia specializes in market research in the clean and renewable energies sector in China. The company’s blog chinaenergysector.com publishes daily news, commentary and podcasts about developments in the sector. Bill is the author of China Inside Out: 10 Irreversible Trends Re-shaping China and its Relationship with the World (John Wiley, 2010). He can be reached at email@example.com.