How China’s rare earth dominance spurs US and its allies to diversify supply chain of critical minerals

United States is taking a harder line in effort to end ‘undue dependence’ on essential resources from China, including solar panels and rare earth minerals

But the erosion of China’s market share, while likely inevitable, is expected to take a long time even as geopolitical tensions with West remain strained

Reading Time:4 minutes

A machine mines for rare earth minerals in the Bayan Obo mining district of Inner Mongolia. Photo: Reuters

Published: 2:00am, 21 Jul 2022Updated: 9:12am, 21 Jul 2022

As China strives to hang onto its pole position in the rare earth sector, deteriorating relations with Western countries may speed up their diversification efforts, but analysts say it may be difficult to break free of the stranglehold that China has on the supply chain for critical minerals.

This week, US Treasury Secretary Janet Yellen said that the United States wants to end its “undue dependence” on rare earths, solar panels and other key goods from China, to prevent Beijing from wielding such resources as a trade weapon by cutting off supplies, as it has done to other countries.

“We cannot allow countries like China to use their market position in key raw materials, technologies or products to disrupt our economy or exercise unwanted geopolitical leverage,” Yellen said on Wednesday, adding that the US will work with allies through “friend-shoring” to strengthen economic and supply-chain resilience.

Analysts said that there is a growing trend of the US and its allies to cut dependence on China, especially in rare earths, which are used to make components in a wide range of products, including smartphones, electric vehicles and precision-guided weapons.

“Western allies are the main driving force in decoupling from China, rather than China looking to detach from the West,” said David Merriman, research director in rare earths at consultancy Wood Mackenzie.