Rare Earth

China's Rare Earth Minerals Mercantilism Totally Fails: I Told You So Six Years Ago

Wall Street Journal has nice op-ed on China's rare earth bust.

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BaileyRareEarthsPhoto
Ronald Bailey

Back in 2010, Chinese central planners believed that they had the world over a barrel because their country was the source of 95 percent of various rare earth minerals used in many modern technologies. The Chinese government imposed limits on the amounts that could be exported with the goal of forcing Western technology companies to move their manufacturing operations to the Middle Kingdom.

As I argued in my column, "Rare Earth Ruckus," back in 2010, this Chinese mercantlist ploy would backfire as entrepreneurs opened rare earth mining operations in nice stable countries like Australia, Malaysia, and Canada. In addition, innovators would develop technologies that did not depend upon the minerals that China was trying to cartelize. Of course, some American politicians panicked and introduced legislation offering federal loan guarantees to companies to develop rare earth supplies in the United States (as though higher prices wouldn't incentivize that). I concluded:

In the end, new supplies and innovation will ensure that the future of the world's high tech economy will not depend upon the whims of the mercantilist mandarins who steer Chinese industrial and trade policy.

And so it has come to pass. A nice Wall Street Journal op-ed, "China's Rare-Earths Bust," confirms my prediction. For example, the op-ed notes that Honda is introducing a hybrid car engine that does not depend upon magnets made using rare earth minerals and which is 10 percent cheaper and 8 percent lighter. From the op-ed:

Beijing's mercantilist gambit had predictable effects—predictable, at least, for anyone familiar with the work of Julian Simon. The economist taught that fears over natural-resource scarcity often underestimate the flexibility of markets and the ingenuity of the human brain, which Simon called the ultimate resource. Those who warned about "peak oil" were blindsided by fracking, and rare-earth doomsayers failed to foresee how Beijing's supply squeeze would spur overseas investment in new supplies and substitutes.

RareEarthsPrices
VanEck Vectors Rare Earths ETF Stock Prices

Just last year, I participated in a Cato Unbound debate on this issue with economist Dambisa Moyo, author of Winner Take All: China and Global Race for Resources. I don't know where she learned her economics, but it's clear that Moyo simply doesn't know what she is talking about. As I argued:

Moyo would do well to advise China's leaders to stop their economically ignorant pursuit of resource nationalism. … The Party leaders evidently are still in thrall to the failed ideology of economic central planning and the ultimate results of those policies will not be pretty.

That's still true.

H/T David Ridgely.

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  1. It must be really gratifying to be able to write I-told-you-so articles. I would spend more time dancing on the backs of my vanquished opponents. It appears this Simon character might be on to something. Where else could this sort of thing be applied?

    1. I was coming here to write the same thing. How wonderful to make a prediction, and have it verified, so you can then trumpet the results to all your detractors. Good work, Mr. Bailey.

      Paul Ehrlich should try it sometime.

      1. “…Paul Ehrlich should try it sometime.”

        Oh, believe me, he’s tried. And tried. And tried. and….

        1. Compare the mention of the bet on their two Wikipedia pages

  2. Ron Bailey comes in from the top ropes, with a withering ‘nanny-nanny-boo-boo’ to his Chinese opponent!

    1. If you don’t toot your own horn, someone else will use it as a spittoon.

  3. The comments on the earlier article are… something. Classic Hit’n’Run – featuring such favorites as Tony, shreek (if anything, even loopier and less medicated than he is now), and a pre-trollin’ Tulpa!

    1. That was a good one… MiNG was missing to class the joint up.

      /I sure miss the unregistered posting

      //Fuck Mary.

    2. Haha, holy shit, you guys actually believed Chinese government GDP figures back then, that’s adorable.

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    1. Please tell me where McLaren P1’s are cheap enough that even proletariat scum making measly $18k/month can afford one.

      1. Hot Wheels.

  5. Awesome article, Bailey. Finally something with which all the factions can hopefully agree. Artificially maintained monopolies fail, if not backed by force.

  6. Once again it must be said, Reason, and all of us here, are very lucky to have Ron Bailey as our resident science journalist, he’s amongst the best there is.

    Also, Julian Simon, wherever you are thank you for leaving this world a better place than you found it. You wisdom is sorely missed.

  7. So you’re telling me the Chinese government will now flood the world with rare earths to make it economically unfeasible to use any other supply or technology and THEN when we’re all addicted again they’ll restrict it more? Because it’s sure to work the second time!

    1. Look at how well it worked in the oil industry!

  8. I Googled it and couldn’t find a good source for this…

    China has/had 95% of the rare earths in the world. Okay, but I assume rare earths aren’t created equal. Does China’s 95% consist of not-so-rare earths while the 5% that the rest of the world is the REALLY good stuff?

    1. When you “has’ do you mean “produces”?

      1. Yes… don’t review my comments generally on these things before I post them so errors and/or complete nonsense are commonplace.

        1. No worries. Just wanted to answer the right question. Sometimes people mean “has reserves of” or “has proven reserves of”.

    2. If i recall correctly rare earths are not actually that rare, but historically, extracting them involved doing really awful things to the environment. The Chinese government doesn’t give a shit about the environment, so they were pretty much the only country still digging up rare earths for a long time. Presumably, the Chinese near-monopoly has made it worthwhile for other countries to develop more environmentally friendly methods of extraction, which are now coming online.

      1. I think we have some pretty major deposits here, but they’ve been pretty much locked away by the EPA.

  9. Dambisa Moyo, author of Winner Take All: China and Global Race for Resources. I don’t know where she learned her economics, but it’s clear that Moyo simply doesn’t know what she is talking about.

    She’s Zambian (American educated – Ivy League). So she’s probably a commie sympathizer.

  10. “Moyo would do well to advise China’s leaders to stop their economically ignorant pursuit of resource nationalism.”

    Resource nationalism isn’t the solution to conflicting claims in the South China Sea, either.

    A Royal Dutch Shell solution would solve that problem very quickly, where the British and the Dutch sat down and said, “We can fight over this forever, or we can exploit these resources jointly to the benefit of us both”.

    The biggest obstacle to doing that in the South China Sea is China’s fear of an independent operator that isn’t under the government’s direct control. If resource nationalism isn’t the solution, then they don’t want a solution.

    1. China wants to be close enough to Malacca and Sunda Straits in Indonesia to have a physical say about US Navy some potential antagonist closing navigation and basically setting China’s economy to ‘Off.’

  11. These people are like broken clocks: they keep waiting for the moment the time is right to say, “See? I told you so! Humanity is screwed! SCREWED!”, as if that will make up for all the times they were wrong.

    And they keep waiting and waiting and waiting….

    And you’re just an ignorant hick if you don’t accept their authority on the matter until you’ve researched the matter thoroughly yourself in your spare time.

    1. Oh, don’t you worry. Progs will figure out how to demonize the technology that obviated this particular ploy. It’s made by sweat shop labor or it makes some species of fish cry and we just can’t tell because those fish are underwater. Don’t you understand how we’re raping Gaea with every passing capitalist moment?

    2. They wouldn’t be making such stupid assertions if they understood how markets work. You know, they’re pretty good at dealing with scarcity. The Chinese trying to control international markets is like trying to divert a river with a chain link fence.

      1. It’s much like the allied forces thinking they’d gotten Germany into a checkmate by blockading sodium nitrate, which Germany had little of and was considered essential to the production of explosives.

        German chemists came up with what is now known as the Haber-Bosch process, making it possible to produce ammonium nitrate reliably and without embargoed resources.

        Fortunately, the wheels of progress didn’t just point to death that go around. It was a revolution for agricultural production, as most ammonium nitrate fertilizer is produced by the process. In fact, a large amount of the nitrogen in your body came from a chemical plant employing the process or a variant of it.

  12. Central planners failed at economics again? Color me surprised!

    1. I’m sure the Massachusetts police and National Guard (do they have a state defense force?) dutifully destroyed all of theirs, first.

    2. The directive specifically outlines two tests to determine what constitutes a “copy” or “duplicate” of a prohibited weapon. If a gun’s operating system is essentially the same as that of a banned weapon, or if the gun has components that are interchangeable with those of a banned weapon, it’s a “copy” or “duplicate,” and it is illegal.

      Both are bad but the latter clause is a bitch, IMO. I assume ammunition counts. So, when it says ‘interchangeable with those of a banned weapon’ does that mean my 1911 is out because the rounds fit in a Thompson .45 or is ‘banned weapon’ only referring to more recent scary guns/calibers?

      1. It would be kind of odd to call ammunition a component of a firearm.

        1. You’re right, ammo might be a bit extreme but you don’t think ‘components’ is deliberately vague? I’d consider the barrel to be a component but I don’t see how a gun accepting the barrel off an AR-15 makes it a copy or duplicate and, effectively, the law would just be making any rifle chambered in the same caliber a ‘copy’.

  13. Good job, O’Bailey.

  14. S,your saying there was a chink in the Chinese plan?

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  16. You haven’t shown that the policy failed. At best you showed that it didn’t provide a permanent advantage.

    The policy may have provided great advantage over a number of years. It may provide some Advantage still.

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