Could a Rare Earths Shortage Hurt the U.S. Cleantech Sector?

Rare earths are in the headlines again. After it was announced earlier this year that the United States would, after a failure to reach a trade agreement with China, raise tariffs, followed by the news that the Chinese tech giant Huawei would face sanctions, there are growing worries that China will retaliate by restricting exports of rare earth elements, putting the entire U.S. tech industry at risk.

“The United States should not be depending on China and other foreign nations for our supply of rare earth elements,” said Senators Joe Manchin (D-WV) in a press statement. “We utilize rare earth elements in the production of everything from our cell phones and televisions to strategic weapons systems.”

Limited in quantity, rare earths have a wide reach

Rare earths encompass seventeen elements found near the bottom of the periodic table, which exist on earth in tiny quantities but are crucially important for making electronics function. Chances are your smartphone, computer or tablet has a trace amount of some rare earth minerals in it, without which it probably wouldn’t work nearly as well. China has, for years, been the predominant source of rare earths for technology companies around the world.

An export ban or limitations are problematic for several reasons, but one industry that could especially suffer is the burgeoning cleantech industry. Electric vehicles, lithium batteries and wind turbines all need one or more rare earth elements to properly function. Moreover, any shortage could be particularly harmful for an industry that, despite years of record growth, is still in its infancy and not necessarily prepared to face a drastic shortfall of a necessary supply chain input.

Echoes of what tariffs did to the U.S. solar industry

Moreover, the trade war has already had a detrimental impact on clean energy. Back in early 2018, the Trump administration took the stunning move to put a 30 percent tariff on imported solar energy cells and panels. It was a move aimed squarely at China, the largest producer, though many also believe Trump’s long-held disdain for the environment and climate science likely played a role as well.

“Tariffs... will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs,” said Abigail Ross Hopper, President and CEO of the Solar Energy Industries Association, the national trade association for the U.S. solar industry which, tellingly, opposed Trump’s move, in a press statement.

They were right. The result – billions of dollars’ worth of U.S. solar projects were shelved, according to Reuters, due to the higher cost of imported solar panels and the limited quantity of domestic alternatives. Moreover, it hasn’t helped American producers as well, as a report released by EnergySage Solar Marketplace Intel earlier this year found that the share of domestically produced panels actually fell in the first year after the tariffs were put in place.

Are there rare earths options other than China?

So far, the technology industry as a whole has been mostly silent on the potential impact if rare earths become caught up in a U.S.-China trade war. Part of the reason is that the world has been preparing for this. Back in 2010, China and neighboring Japan were seeing rising tensions due to the arrest of a Chinese trawler captain near islands that both nations claim as their own territory. China did then what it threatens to do today – shut the flow of rare earths to Japan for a short time, temporarily hurting the country’s high-tech industry.

Since then, there has been a global push to diversify rare earths production so that entire industries cannot be held hostage by the whims of a single country. New mines have opened in Russia, Mongolia, and even in the U.S. Malaysia is now host to the world’s only rare earth processing facility outside of China, and there are plans to build more in the coming years.

This means that even if the worst-case scenario – a full stop in Chinese rare-earth exports to the U.S. – occurs, it won’t destroy the market for rare earths. Still, it could result in short term challenges for cleantech. Considering that we’re seeing a record heat wave in India, and worrying news that ice sheets are melting faster than predicted, any hold up in bringing clean energy and other technologies to scale could be costly in the long run.

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