The trade war between the United States and China appears to have cooled, at least for the time being. The recent meeting between US President Donald Trump and Chinese President Xi Jinping in South Korea marked a significant turning point. China's announcement weeks ago of export controls on rare earth metals has sparked familiar concerns in the US, Europe, and elsewhere about supply chain vulnerabilities, technological dependencies, and geopolitical risks. The seeds of this crisis were sown decades ago when the production and processing of rare earth metals shifted to China due to low costs and minimal environmental regulations. By outsourcing the environmental burden of rare earth production for cheap materials, foreign buyers created a structural dependency that has since become fraught with economic and geopolitical risks. Many countries benefited from lower prices while building their high-tech military and now 'green' industries on an extremely unstable foundation. To address these geopolitical risks and diversify rare earth supply chains, the United States and Australia signed a new $8.5 billion agreement last October after several months of negotiations. Commenting on the deal, Trump stated, "In about a year, we will have such an abundance of basic and rare earth metals that we won't know what to do with them," noting that "their value will be two dollars." These estimates are far from realistic, as it will take years, possibly even a decade, to ensure adequate supplies. In fact, instead of becoming cheaper, rare earth metals are becoming more expensive as countries seek to diversify supply chains. Building new mines, refining facilities, and processing plants in regions like Australia, the US, and Europe comes with much higher costs, stricter environmental regulations, and more expensive labor and energy. Rare earth mining projects that were previously uneconomical due to low prices are now attracting interest, but they heavily rely on government support, guaranteed purchase contracts, or defense-related demand. The result is rising, not falling, prices, meaning that while diversification adds security and flexibility, it does not reduce costs. There are already clear signs of rising prices and a willingness to pay high costs to secure supplies. For example, in July, the US Department of Defense took an unprecedented step by signing a 10-year purchase agreement with the American company "Materials Technologies," guaranteeing a minimum price of $110 per kilogram for neodymium-praseodymium oxide, a key material for manufacturing magnets. The processing of rare earth metals often produces radioactive and hazardous waste as a byproduct of enrichment processes. Rare earth metals are found in a wide range of secondary materials and wastes, as well as in coal combustion ash, such as fly ash. A study conducted by researchers at the University of Texas, the first comprehensive national assessment, indicates that US coal ash contains up to 11 million tons of available rare earth elements, nearly eight times the country's domestic reserves. New contracts for mining and processing rare earth metals must explicitly include commitments to environmental compliance and sustainability. This price was nearly double the Chinese market price at the time, which was around $60 per kilogram. Trump's projected future price of two dollars would also pose a significant problem for both investors and governments funding new multi-billion dollar mining projects, making it impossible for investors to recoup the necessary investments to develop and operate new mining and refining projects, thereby effectively undermining the financial viability of any non-Chinese supply chain. In 2023, the Japanese government, through the organization Japan Metals and Energy Security, acquired a 65% stake in Australia's production capacity. It invested approximately $131 million in the company "Lynas Rare Earths" to support projects to increase production. This secondary resource could represent about $8.4 billion worth of rare earth metals. China's rare earth mining and processing industry served global markets, with three-quarters of its production earmarked for export. The agreement gives Japan priority supply rights until 2038. The Japan Metals and Energy Security organization played a pivotal role after China imposed its rare earth export restrictions in 2010, helping to finance "Lynas Rare Earths" in Australia and Malaysia. This move helped Japan diversify its rare earth supplies away from China, but it came at a higher cost. As governments and industrial buyers become increasingly willing to pay a premium, future rare earth prices must account for the cost of reliable, transparent, and environmentally responsible production. Until now, the true costs of environmental pollution and health impacts have been borne locally rather than priced into rare earth materials or products. Strict environmental and labor standards in OECD countries have created an environmental cost gap that has been a major deterrent to Western investment in rare earth supply chains over the past decade. China's rare earth mining and processing industry primarily served global markets until recent export restrictions, with up to three-quarters of its production designated for export. In 2015, researchers estimated the annual environmental cost associated with these exports at $5.4 billion, reflecting the massive pollution and environmental damage borne locally by China in places like Bayan Obo, a mining region 150 km north of Baotou in Inner Mongolia, or Jiangxi province, an industrial center for smelting ionic rare earth elements. Environmental Burden Recognizing the environmental burden from the rare earth industry, China has tightened environmental regulations in recent years and also shifted some highly polluting mining and processing operations to war-torn Myanmar, leading to severe environmental and water resource impacts there. If buyers are looking for the cheapest rare earth metals, Myanmar has become the optimal destination to obtain them at the expense of human rights, environmental protection, and regional stability. Efforts to diversify production and re-export will inevitably mean accepting some environmental impacts domestically, but this must be done according to the highest standards of environmental and safety performance, which are essential to minimize harm. However, these standards will lead to higher operating costs, confirming that a flexible and responsible rare earth supply chain comes at a higher cost but is necessary.
