German Economics Minister Rainer Brüderle told industrial and financial heads in Berlin on Tuesday that Chinese restrictions on rare-earth metal exports have started to weigh on the German economy.
"Germany is dependent on imports for most industrial materials," Brüderle said. "That impacts us currently in regard to many metals and energy supplies. But it also impacts us in rare earths that are essential for high-tech industries." The Economics Minister spoke at a conference organized by the Federation of German Industries (BDI), which included representatives from the European Union, the World Trade Organization and the World Bank.
Most of the current world supply of rare-earth metals is mined in China, which says its export quotas for the year have almost been met. The resources are indispensable in high technology, where they are essential to the operation of hybrid vehicles, high-performance magnets and computer hard drives. Some 95 percent of metals such as lanthanum and neodymium are mined in the People's Republic, giving Beijing a virtual monopoly on these resources. The Chinese have no intention of exporting these materials without demanding substantially higher export tariffs. China reportedly even wants to prohibit export of some rare-earth metals completely by 2015, prompting observers in Japan to describe the valuable resources as a "21st-century economic weapon."
"Raw materials have become a geopolitical issue," said BDI chief Hans-Peter Keitel, who called for more political help with supply problems. "We don't want a trade war," he said.
Other German industrial heads claimed China was using its raw materials advantage to position itself politically. "Rare-earth exports from China could fall even further, even by 30 percent next year," said Ulrich Grillo, head of a chemical firm called Grillo-Werke, according to the New York Times . "So what the Chinese are telling us, directly or indirectly, is that if we want access to their rare-earth material metals, we should invest in China."
Western companies, for now, would rather not share trade and technological secrets with the Chinese. "China needs our know-how and machines," Grillo said, "but we need protection for our technology. We don't want these problems to turn into China-bashing."
American and European participants at the conference did wonder whether Chinese quotas violated international trade rules. The consensus, according to the New York Times, was that trade agreements weren't specific enough to pressure China on its tightening exports.
China's monopoly on rare-earth minerals has spooked Western interests for some time, but not everyone agrees that Beijing is trying to provoke a trade war. "It's not a new policy," an analyst at the China-based Guosen Securities Co., Peng Bo, told Bloomberg last week. "China, as a supplier of 97 percent of the rare-earth demand, feels a need to control both production and exports and doesn't want to sell at dirt-cheap prices."
Chinese Premier Wen Jiabao told European business leaders in Brussels on Oct. 6 that his government was "not using rare earths as a bargaining chip," according to the official People's Daily newspaper. He said it was "necessary to exercise management and control over the rare-earth industry, but there won't be any embargo."
The supply shortages have spurred new mining projects in Australia, California, Vietnam and eastern Europe, according to The Economist. Gary Litman, vice president for Europe and Eurasia at the US Chamber of Commerce, argued at the Berlin conference on Tuesday that America and the EU should join forces to solve the problem. "The US has the resources and together with our EU partners, we can produce anything we want," he said.
Brüderle seemed to agree, saying "we have more clout when we work together on the international stage," according to the Berlin daily Der Tagesspiegel. He said Western governments should "agree on rules at the WTO that will ensure a minimum of competition on world raw-materials markets."
But Brüderle, a member of the business-friendly Free Democrats (FDP), also stressed that the problem should be solved by markets, rather than through politics. "Business needs to rely on itself to ensure a supply of raw materials, now and in the future," he said.
Recycling could be the most important domestic source of these metals, he added. "We need to utilize the valuable potential of our own residual waste," he said. "We need more intelligence on (recycling)."