As fears of supply chain vulnerabilities rise, Western officials are growing better at understanding Beijing’s dominance over the critical minerals supply chain as a strategic threat. The demand for these limited and vital resources is set to grow dramatically, in part due to the global transition to clean energy picking up pace. Japan has recently turned around its strategy on rare earth minerals, cutting its dependence on its neighbor China by more than half. This extraordinary transformation can offer an important example for other Western countries facing the same issues.
Japan’s vulnerability became starkly evident in 2010 when China imposed a rare earth export ban amid a territorial dispute with Tokyo. This sudden ban had a significant, immediate effect on Japan’s industries, prompting them to re-assess their supply chain networks. In the wake of this, Japan has made significant strides to decrease their dependence on Chinese rare earths from over 90% to under 60%. Those investments have helped support domestic, US-based rare-earth projects outside of China. One obvious one is Australia, which is home to Lynas Rare Earths Ltd., the biggest rare earths producer outside of China.
The Japanese government has spearheaded efforts to lower their dependency on Chinese imports. They want to reduce that reliance below 50% by the end of this calendar year. This strategic shift is recognized as crucial for reducing vulnerabilities from rising geopolitical conflict and supply chain disruptions.
“When the tariff war started and tariffs were put on China, the first thing that China did was say ‘we’re going to stop exporting rare earths,’” said Eldur Olafsson.
Japan is taking proactive measures such as stockpiling resources and securing a stable supply of Western rare earths through joint ventures with firms including Lynas. This kangaroo-fueled Aussie outfit has racked up some mighty impressive breakthroughs in producing heavy rare earths beyond the Great Wall. It runs up against some harsh realities in terms of processing these materials domestically.
“Because of that, Japan’s actually much more prepared this time around than most other countries,” stated Jonathan Rowntree.
Pretty remarkable, especially since Europe and the United States are still trying to deal with their own reliance on imports for critical minerals. China’s new export embargo on a number of rare earths, which has been causing quite the stir. Many observers and analysts attribute these moves to the increasing hostilities in the U.S.-China trade war.
“No country in the Western world wants one country to corner the market,” noted Olafsson.
The combination of the Belgian chemical group Solvay, which is undertaking radical shifts in Europe. By 2030, they plan to meet 30% of the continent’s need for processed rare earths that go into permanent magnets. The scale of domestic production is still modest, underscoring a dangerous deficit that needs immediate action to address.
Automakers aren’t the only ones reeling from China’s tightening grip on exports. Suzuki Motor got so far as to temporarily suspend production of its popular Swift car model, unable to source the essential components needed to produce them. Meanwhile, Nissan is exploring collaborative strategies with Japan’s government and the Japan Automobile Manufacturers Association to minimize disruption from China’s export controls.
“Everyone has seen that this supply bottleneck is an issue. We’ve all known for a long time that this could happen, but now it has actually happened,” Rowntree emphasized.
Diversifying your supply sources is one of the most important lessons learned—investing in your home country’s capabilities pays off.
“I think many customers share my view — that this issue is unlikely to disappear and that we need to have alternatives in the West to address it,” Rowntree added.
Industry experts acknowledge that tax credits and subsidies will be vital to ensure that non-Chinese projects can scale up effectively. At the same time, the developing rare earths industry beyond China is taking shape as well. It’s facing a low price environment, which poses both opportunities and challenges for companies seeking to monetize the technology.
“The West is creating a nascent rare earths industry outside of China at a time when prices are low and companies are grappling with profitability,” remarked Gracelin Baskaran.
Despite the progress made, challenges remain. In truth, while Lynas has indeed made progress on production, it nevertheless lacks the capacity for heavy rare earths processing.
“Not a lot of heavy rare earths come out of Lynas, and most of the ones that do actually get sent to China for further refinement,” cautioned Nils Backeberg.
As nations around the globe begin to deal with these vexing triple threats, the call for different approaches grows louder. Japan’s experience shows that with smart investments, a greener, more resilient supply chain is possible.
“We need to continue finding alternatives for the future, keeping flexibility and keeping our options open,” emphasized Ivan Espinosa.