The world recently saw the clash of United States of America and China for economic or technological superiority. As per some estimates, the US economy has a valuation of 20.4 trillion dollars and China, its largest trading partner stands at about 14 trillion dollars. Some experts have predicted that the Chinese economy is likely to overtake the US economy soon. Consequently, in order to retain its dominance, a trade war has been initiated between these two titans. This economic war will not only disrupt status quo between these two nations but will also have a far reaching impact on all minor economies including that of India.

USA has imposed import duty sanctions and the Chinese have retaliated by applying restrictions on its Rare Earth Elements (REE) exports and imposed counter duties on US goods. China today dominates in the supply of REE materials in the world.Of course both these nations will hurt each other economically but it will produce opportunities for other economies like India to come up with alternatives that will improve its position on the global supply chain of RRE.

In the words of Dr. Paramjit Singh Jaiswal, rare earth elements are defined as those substances that are found in minor quantities, hence, they require extensive extraction processes which may be hazardous but are definitely costly. REE include 17 different minerals. 15 of them fall in the category of Lanthanides, Yittrium and Scandium groups including the Indium element which is an essential trace material used in all LCD screens to produce blue colour. Lithium too is a REE which was discovered in 1817 by the Swedish Chemist Johan August Arfwedson. It is estimated that China holds about 70% of the total worldwide reserves of this element. Chile holds the next major global deposit of lithium.

Uses of RRE

Rare earth elements are used in minor quantities in LCD screens, mobile phones, sundry visualizer technologies, high quality magnets (used in MRI) batteries, energy efficient lighting, catalysts in refineries, auto catalytic converters, glass polishing, ceramics, refrigerators, armament, internet of things based sensors and a wide range of air conditioners. Hence, it can be seen that a bit of rare earth elements, touch everyone’s life, be it a consumer or an industrialist.

Lithium is used in making lightweight batteries which are very essential for aviation and in satellites. Given the high cost of launching a satellite into orbit, the maximum voltage provided in space, for the least cost per gram of battery mass launched into the space, lithium rechargeable batteries are considered as the most cost effective option. Hence, where aerospace related costs, size, volume and performance longevity become paramount consideration; lithium is considered as the best choice over other types of batteries.

As the automobile industry is moving from oil based propulsion systems to electric systems, the requirement of lithium batteries has increased tremendously and India is likely to see a quantum jump in the form of electric cars and scooters in the coming decades. Consequently, the lithium requirement is going to rise up in India too, leave alone the world.

Lithium is also used in making ceramics, glass, as a catalyst for aluminum smelting, making synthetic rubber, plastics, pharmaceuticals etc. It is also used in air conditioning, making lubricants, greases and dehumidification systems. Hence, its applications are large but is used in smaller quantities.

REE – The Economic Weapon

Rare earth elements are found in relatively small quantities. Their extraction process is highly technical and is very hazardous both for environment and for the people working on it. These elements are not extracted in the developed world. China has tolerant laws. Hence it developed adequate infrastructure to extract these elements. Thus China has used its REE reserves or availability, as a lever to contest global trade tussles. China is expanding its REE extraction footprint in Australia and Africa in order to source and control more of the rare earths to augment its monopoly.

USA has stringent regulatory laws on environmental pollution and workman protection. Consequently, it stopped rare earth elements extraction from the Mountain Pass Mines at California some time ago.

It can be recounted that, more than a decade ago, when the US had imposed sanctions on China; the latter had retaliated by the imposition of restrictions on the export of its REE resources. This disrupted the global supply and demand equilibrium of the REE.

Most of the American electronic hardware production has been outsourced to China. The disturbance of the REE supply by the Chinese has disrupted the production of companies like Apple too, as its hardware is manufactured in China.

Since most hi-tech equipment production was taking place in Chinese controlled areas; the latter were in a position to govern and dictate the quantum of rare earth elements available on the Chinese soil for production of American high tech equipment. This REE resource availability gave the Chinese a position of leverage to dictate their terms.

Some researchers have also postulated that the real cause of the trade war between America and China is the preponderance of the Chinese in 5G related technologies. It is a known fact that 5G is a much superior technology than the conventional compression and signal transmission infrastructure available today. As a result, China has the ability to suitably integrate and support the Chinese built hardware which will ride on the 5G technologies. The trade specialists feel that, now, the Chinese would be in a position to push through their hardware which would be designed in conformance and compatibility with the 5G spectrum technological capabilities.

Some researchers argue that the US has increased the import duty from 10% to 25% on Chinese imports to retain the competitiveness of American technology products. China has retaliated back by raising its import duties by similar value on imports from USA apart from imposing REE supply restrictions. However, whatever be the reasons, the implication is that the supply of rare earth elements into the global market have been restricted by the Chinese and this affects all nations globally.

A similar REE based economic blockade had been imposed by China earlier too. Hence, it becomes essential to revisit the sequence of events that happened in the last REE blockade to understand the impact of this present restriction or supply disruption of REE.

The last time when the Chinese had resorted to a similar embargo on the extraction, refinement and availability of the rare earth elements, all the major economies of the world resolved to diversify their source of rare earths materials. Some of the steps initiated included the exploration of Russia and South Africa for rare earths which boosted up the supply of the beleaguered rare earths availability on a global level. In addition, liberal funding was also provided to Australia to source for and develop the extraction process of rare earth elements. This venture had matured successfully and it has reduced the overall share of the Chinese in the global supply of REE. Today, we may find that the Australian supply of REE will reduce the Chinese REE based coercion to some extent. The US has also expanded its REE extraction footprint across the South American continent. To overcome the shortage of REE, the US government has re-opened the Mountain Pass mines in California which had been shut down earlier, for extraction of rare earth raw materials.

Consequently, the dominant share of the Chinese rare earth elements supply, has reduced as a percentage of global supply once these alternate sources of rare earth materials were discovered and developed across the globe. Hence, the Chinese hegemony of controlling the rare earth elements availability as a coercion lever, has been dented due the proliferation of rare earth element sources across the globe.

The Counter

Based upon these empirical observations; it can be predicted that the present rare earth elements exports embargo by the Chinese will enable the emergence of new rare earth element supply bases that will further erode the Chinese efficacy of their rare earth disruption threats. The other aspects of this coercive game changer will be that, it will force the rare earth element consumption agencies to source rare earth elements from Afghanistan and Central Asia that were hitherto unexplored.

The second aspect is that, the world is going to improve its REE extraction process, so as, to even recover the minor or trace leftovers of the REE from the sludge and slurry produced from the extraction process of rare earth elements of the yesteryears. The extracting companies will try to squeeze the maximum bang for the buck by recycling this waste.

Thirdly, the process of rare earth element extraction will be further improved so as to extract the maximum possible rare earth elements from the rich ores having these deposits. Fourthly, the world it will also start looking for alternatives to rare earth elements. If possible the world will try and synthesizer are earth elements through nanotechnologies and nano-materials in labs or in factories to reduce their vulnerability to the arm twisting tactics by the Chinese rare earth elements lobby or policy.

Lastly, the recycling of electronics items that had rare earth elements impregnated in them, will become the norm in order to augment the supply of rare earth elements, irrespective of the costs that may be incurred to bolster REE supply. This will ensure that the third world countries like India are going to benefit the most out of this trade war.

Trade War a Boon for India

India already has got a thriving ship breaking and electronic salvage industry. We have adequate laws of workforce protection, anti-pollution dumping, hazardous waste handling and disposal of electronic waste but still India has a dismal health, safety and environment record. This is due to the tardy implementation of these provisions on ground by the corrupt inspectors and the casual investigation attitude of the enquiry agencies apart from the poor judicial process in India. Consequently, a cocktail of these viles will enable the electronic salvage industry to thrive in India both legally and illegally.

India has already become a dump yard of global electronic(e) waste. A case to point is the extraction of the Indium element which is found in minor quantities in all LCD displays including those of the commonly used smartphones. As per Dr. Paramjit Singh Jaiswal the noted chemist, Indium is used for the generation of blue colour or blue tone in LCD screens. It is usually sandwiched between glass panels that form the screen of a LCD. The Indium remains intact in the screen even after the useful life of an LCD is over. The salvage teams recover these minor quantities by first finely grinding the glass into a powder. This powder is then subjected to chemical processes to extract the Indium elements. Yes, this extraction is a hazardous process but it is quite likely to be started in India due to the above mentioned reasons.

The cheap Indian labour and the poor implementation of laws will start organized and unorganized sector salvage economies for rare earth elements in the rural areas of the country.

Somebody can rightly say that the price of the recycled rare earths recovered from electronic waste being dumped in India will be more than the production cost of new rare earth elements. However, the point to note is that, usually electronics items are phased out after using them for five to ten years. Hence, during those five years the base cost of rare earth elements would have gone up. As a result, it is quite probable that the selling price of the recovered and recycled rare earths will still be competitive compared to the present day price of fresh, rare earth elements extracted by the mining companies. This will be important in view of the artificial scarcity which is being created in terms of the supply embargo on export of rare earth elements by the Chinese government. Consequently, the global demand and supply curves of rare earth elements, will provide a demand pull based favorable support for the REE recycle economy in India.