Early August’s Taiwan Strait crisis brought attention once more to the issue of potential economic sanctions from the West should China intensify its aggressive pressure on Taiwan. Despite recent provocations, it seems that Beijing and Washington are still hesitant to wage a military fight over Taiwan for the time being. Punitive economic measures seem to be the most apparent response in the event that China escalates its military participation further, especially in light of the unexpected harshness of Western sanctions following Russia’s invasion of Ukraine.
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In reality, Washington’s attention seems to be shifting more and more toward the question of whether and how it might lessen its reliance on China in its supply chain. The United States has long targeted Chinese technology owing to its concerns over the potential militancy of 5G networks, in addition to the continuing trade battle between the two. The Biden administration recently announced measures that suggest a growing push to decrease U.S. vulnerability to Chinese import disruptions, particularly on rare earth elements, and expanded its restrictive measures on Chinese businesses (such as adding new firms to the Entity List). This is a sign that this sentiment is now spreading into other sectors (REEs).
China’s Dominance in REE
REEs, including neodymium, yttrium, and terbium, are essential components that are frequently used in electric vehicles, wind turbines, and cellphones. About 80% of rare earth production is currently under Chinese control.
The main source of rare earths was the U.S. Mountain Pass Mine fifty years ago. However, worries about the environmental costs of disposing of radioactive waste connected to REE manufacturing drove a large portion of production to China, where businesses benefited from low environmental restrictions. Beijing has also concentrated on growing the rare earth sector since the 1950s, with Baotou serving as a model of Sino-Soviet collaboration as it processes resources from the Obo mine.
For the sixth year in a row, China’s rare earth mining quota output increased earlier in August by a sizable 25%. That shouldn’t come as a shock. The demand for REEs is growing as the world’s attention shifts to EVs and other businesses that depend on them. However, the U.S. debate on supply chain decoupling is increasingly focused on the West’s reliance on China’s REEs. This has been demonstrated not only by recent legislative initiatives (the new CHIPS and Science Act and the Inflation Reduction Act), but also by Dateline Resources’ plans to conduct drill testing at Colosseum Mine, close to Mountain Pass Mine (the only REE operating mine in the United States), and by government plans to address the U.S.’s weakness in the midstream processing of REEs by opening a new facility.
The REE Sector has been militarised
The West’s capacity to develop independent solutions to support its own military industry, much alone impose economic penalties on Beijing, is gravely hampered by China’s continued domination of the REE sector. Although China has long been the primary source of REE exports to the Western industrial complex, security issues only started to arise in 2010 when China stopped deliveries of REE materials to Japan due to continuing political problems. However, not much has changed since then about China’s REE monopoly. On the contrary, Beijing has tightened its control over the industry even more by boosting its involvement in significant mining projects across Africa.
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However, in light of recent tense situations involving Taiwan, this appears to be shifting. This is most certainly caused by the reliance on Chinese REEs by the Western military industry, which undoubtedly keeps Pentagon personnel up at night. Due to the necessity of REEs for the production of fighter planes, submarines, and cruise missiles, Chinese actions to restrict REEs exports might have a significant impact on Western military supply chains. Since there is currently no alternative to feed military apparatuses, North American producers of critical minerals estimate that, in the event of a conflict, China could cut off the U.S.’s supply of these minerals, depleting the country’s stock of minerals required for its defence apparatus in less than 90 days.