China strong-armed Japan over rare earths. It's a lesson for the US.

Mint

2 days ago

TOKYO—The U.S. found out this year that China could use its chokehold on rare-earth minerals as a coercive tool when Beijing imposed export controls. For Japan, it was déjà vu: It had been the victim 15 years earlier.
Tokyo vowed in 2010 to be ready for next time and over the years put hundreds of millions of dollars into Australian supplies.
Yet as of last year, it was still relying on China for some 70% of its imports of rare earths, which are widely used in electronics, cars and weapons, according to the government-owned Japan Organization for Metals and Energy Security. When China restricted rare-earth exports in April, some of Japan's automakers again got hit.
Japan's experience drives home lessons for the U.S., where the Pentagon recently agreed to take a stake in Las Vegas-based MP Materials so it can mine and refine rare earths on American soil.
Tokyo found that partially reducing dependence still leaves Beijing with plenty of leverage. At the same time, complete independence costs billions of dollars, not millions. After the crisis passed and China resumed exports to Japan, the urgency to diversify supplies waned.
That points to the danger of complacency in the U.S. After it was hit by Chinese rare-earth export controls earlier this year, the U.S. recently got Beijing to reopen the spigot as part of a trade deal.
If costs don't matter, cutting reliance on China might be feasible, but businesses can't swallow high costs, said Kazuto Suzuki, a professor at the University of Tokyo's Graduate School of Public Policy.
People in Japan 'understood that there was a vulnerability, but everyone still relied on China because the conclusion was that there weren't other options," Suzuki said.
Four decades ago, a Japanese scientist named Masato Sagawa invented the most powerful type of permanent magnets containing a rare-earth element called neodymium. The breakthrough underlies the magnets widely used today.
By early this century, it was China, not Japan, that had come to dominate supplies of the 17 rare-earth elements as well as the refining of the metals and manufacture of magnets containing them. In 2009, 85% of Japan's rare-earth imports came from China.
Beijing realized it had a diplomatic tool and used it in 2010, when a Chinese trawler collided with Japanese patrol vessels near islands controlled by Japan and claimed by China. Japan detained the captain and crew, sparking a diplomatic clash. Japanese users of rare earths reported severe delivery disruptions, although Beijing denied doing anything.
The captain was released under Chinese pressure, and tensions eased after a few months. But Japan sought alternative suppliers.
'We're going to pursue a variety of risk hedges," said Japan's foreign minister at the time. 'It isn't good to lean too much on one country."
Tokyo's biggest initiative from that era was a deal with Australia's Lynas Rare Earths that, in hindsight, helped somewhat but didn't go nearly far enough or contribute quickly enough to undercut China's dominance.
The government body now called the Japan Organization for Metals and Energy Security, or Jogmec, as well as trading company Sojitz provided Lynas a $225 million loan to secure rare earths for Japan.
The Lynas project didn't help Japan with securing a subset of rare-earth elements known as heavy rare earths, which are generally less common than the light ones. The heavy elements include dysprosium and terbium, which are commonly used alongside neodymium, a light rare-earth element, in strong permanent magnets.
The rare-earth elements tend to be intermingled. Miners are reluctant to invest in specialized equipment for processing the relatively small quantities of heavy rare earths that they extract alongside the light elements.
Meanwhile, in the field of rare-earth magnets that Japan had once led, it actually deepened its dependence on China after the 2010 showdown.
Japan's biggest companies formed partnerships with Chinese magnet makers in the 2010s, reasoning that they could protect themselves from political blackmail if they had friends in China with secure supplies. Among the deals was a joint venture formed in 2013 by Tokyo-based TDK with China's state-backed Rising Nonferrous Metals Share.
The Japanese companies had production know-how that made them attractive partners at the time in China. Afterward, China's dominance grew. In 2013, Japan's share in the global neodymium-magnet market was at 23% while China held about three-quarters. By 2021, Japan's share fell to 15% while China's rose to about 84%, according to government figures based on data from research firm Fuji Keizai.
It took more than a decade for Japan to do something about the gap in its policy. In 2023, the Japanese government body, Jogmec, and Sojitz invested an additional 200 million Australian dollars, equivalent to around $130 million today, in Lynas. The company recently started to produce dysprosium and terbium, up to 65% of which is headed to Japan under the deal.
Separately, Jogmec and energy firm Iwatani said in March they would invest 110 million euros, equivalent to $129 million, in a subsidiary of France's Carester to support a project that could supply a fifth of Japan's demand for dysprosium and terbium.
Japan now says it wants to beef up production of neodymium magnets, develop magnets using smaller amounts of rare earths and step up recycling.