China’s rare earths aren’t as rare as you think

The commentary that ensued revealed profound anxieties about alleged Western vulnerabilities. The New York Post accused the Chinese of “kneecapping US industry." The BBC declared that the communist nation had dealt “a major blow to the US," while the Economist warned that China’s control of rare earths was a “weapon that could hurt America."

These commentators have a point. According to the International Energy Agency, China produces about 61% of rare-earth minerals, and it processes 92%. The anguished reaction from the American press, however, revealed a measure of obliviousness. The reality is that America has been here before.

Fifteen years ago, following a dispute with Tokyo over contested waters, China imposed a rare-earth embargo on Japan, while cutting its rare-earth export quotas to the rest of the world by 40%. Beijing’s actions rang alarm bells across the industrialized world. Prices of the rare-earth metals spiked, with cerium soaring from $4.15 a kilogram in January 2010 to $150.55 in July 2011. American defense analysts warned that Beijing was exploiting a strategic vulnerability. U.S. manufacturers scrambled for alternatives to the minerals, which play a crucial role in everything from wind turbines to precision-guided missiles.

The panic seemed justified. At the time China controlled 93% of global rare-earth production and more than 99% of the most valuable heavy rare earths. Congress convened a hearing on China’s rare earths monopoly, with Rep. Don Manzullo (R., Ill.) saying that Beijing’s action “threatens tens of thousands of American jobs."

The narrative was compelling: An authoritarian power was wielding its mineral wealth as a geopolitical weapon, putting a resource-hungry West at its mercy. Yet few people remember this supposed strategic calamity today.

Market mechanisms undermined China’s attempt at resource leverage. In the early 2010s, supply growth outside China accelerated. Projects already in development by Molycorp in California and Lynas in Australia ramped up, adding tens of thousands of metric tons of production capacity. By 2014 China’s market share of rare earths had fallen from more than 90% to about 70%.

China’s export quotas also proved surprisingly porous. Producers exploited loopholes by shipping minimally processed alloys exempt from restrictions, while an estimated 15% to 30% of production was smuggled through neighboring countries. Beijing’s inability to police thousands of small miners fatally undercut its embargo.

Manufacturers displayed remarkable adaptability. Refineries temporarily substituted alternative catalysts, and magnet producers optimized alloys to use less rare-earth material, some even switching entirely to new technologies. This “demand destruction" blunted the crisis’ effect even before new supplies could fully come online. Prices that had spiked in 2011 quickly retreated to pre-crisis levels.

The 2010 episode revealed fundamental constraints on attempts to use raw materials as geopolitical weapons. While China retains significant market share, the U.S. defense industry has reduced its reliance on rare earths to a minimum (the equivalent of less than 0.1% of global demand), and weapons programs maintain inventories to buffer temporary supply disruptions.

Despite their name, rare earths are quite abundant. Cerium is the 25th most common element on Earth. At 68 parts per million of Earth’s crust by weight, it is more abundant than copper. Rare earths are “rare" because of geochemical dispersion. They tend to remain evenly mixed rather than found in their pure form. They also pose extraction challenges, since they are usually bound up in a handful of mineral hosts that often contain radioactive thorium or uranium. That is what makes rare-earth deposits relatively scarce.

That can sometimes translate into environmental challenges when it comes to teasing out the needed elements. But such concerns must at times give way to national-security considerations. Similarly, free trade and friendly relations with allies who produce rare earths at scale, such as Canada, should be a higher priority than unrealistic and counterproductive spats over national sovereignty and illegal border crossings.

More broadly, as the U.S. navigates new supply-chain anxieties in semiconductors, critical minerals and pharmaceutical ingredients, we should remember the rare-earth crisis that never was—a testament to the resilience of global markets and human innovation in the face of attempted economic coercion.

Mr. Tupy is founder and editor of Human​Progress.org and a senior fellow at the Cato Institute’s Center for Global Liberty and Prosperity.