Tim Worstall
China has just shot its rare earths industry stone dead. Yes, yes, I know, everyone is convinced of the opposite — they have us over the barrel and they are not preparing to use any lube this time. But my view is the correct one and not just because it’s mine. That intense rogering China is trying to give to the Western industrial world is precisely why that hold they have will be broken — why their rare earths industry is in for a whole world of pain.
The key concept here is one of contestable monopoly. Having a monopoly — say, 80 per cent of global rare earth production, 90 per cent of processing and 100 per cent of some business lines — is lovely and one can take great joy in observing that dominance. But the moment you use that position to try to pressure the customers, others will arise to contest that dominance. That is what “contestable monopoly” means. That by happenstance, hard work, deliberate design even, you are the dominant supplier and well done you. But the only reason that dominance continues is that it is not worth anyone’s while to contest it — give ‘em a reason and they will.
This is where China is with rare earths. They produce what the world wants to eat at prices everyone is willing to pay and have done so for many decades. Excellent — now they want to exert that power. At which point we’ll all contest that position and it’s we who will win.
One reason for certainty in this is that I said this back in 2010, the last time China tried this. By 2014 people were agreeing I had been correct. That non-China world opened a couple of rare earth mines and prices fell back below the starting point. Contestable monopolies will be contested if you try to exercise that market power. This is why we should not worry — at least not overmuch — about contestable monopolies.
Is it more complex this time? Sure it is — we now need to rebuild the entire production chain. But this can be done. Obviously it can be done. Rare earth magnets, the thing being squealed about most, were an American invention after all. Magnaquench was a GM subsidiary sold to Chinese interests, who then — quite literally — packaged up the factories and shipped ’em home. If the US could make them once then the US can make them again — yes, even though China now has a couple of decades more learning by doing under the belt. Easy-peasy might not be the correct description, but it is definitely possible.
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