The United States and China seem to have reached an agreement on export controls on rare earth elements. This is not surprising as it was clear that neither country wanted to escalate matters and all this rhetoric was primarily aimed to be a bargaining tactic. Though no papers have been signed as yet, the US President has given this agreement a score of 12 on a scale of 1 to 10. The talks between the two countries not only covered tariffs and rare earths but also seem to include import of American soyabeans by China.
Though this current clash is with respect to rare earths, it is the export of critical minerals too which has been in the news for some time now. Incidentally, rare earths and critical minerals are two different nomenclatures and should not be confused with each other. Critical minerals are identified by individual countries depending upon what they perceive to be imperative for their growth and how easily it can be obtained, be it through domestic production or imports. So the list of critical minerals will vary across countries. India, incidentally, has identified 30 critical minerals, whereas the US has identified 50, Japan has identified 31, the UK has identified 18, and so on.
In contrast, rare earths are specific elements which find space in the periodic table and there are 17 such rare earth elements. Rare earths have certain characteristics due to which they are used in the manufacture of alloys. In practically all cases, rare earths are a subset of the identified critical minerals. This is true in the case of India as well since the 30 identified critical minerals mentions one item as rare earth (as a generic term) though they have not been mentioned individually.
China has meticulously worked over the last three decades to reach this level of dominance when it comes to critical minerals/rare earths. It had the foresight to see its importance and had engaged in mining of these minerals at the cost of their environment. Today, China has 70 per cent of the rare earth supply and controls almost 90 per cent of its processing. Mining and processing of critical minerals is energy intensive, and thus high on carbon footprint. China’s quest for critical minerals has caused environmental degradation in the form of contaminated water and soil especially in areas like inner Mongolia. In contrast, the US sent its critical minerals for processing to China in order to curb its own carbon footprint and also because of cheap labour in China — a policy which it probably regrets today.
In order to contain China, the US took a lead in the formation of the Minerals Strategic Partnership (MSP) in 2022. India too is a part of it. The MSP has 14 countries in its fold which includes Australia, Canada, Sweden and Norway which have deposits of critical minerals and also countries like Japan and South Korea which have access to processing technology. The objective of the MSP is to try and broaden the supply base and move it away from China to the extent possible, a policy also known as “friend shoring”. Whether the MSP is going to be effective or not is debatable as it doesn’t seem to have under its fold some major stakeholders like Democratic Republic of Congo (DRC) which controls 75 per cent of world’s cobalt, or Indonesia which has 35 per cent of nickel or Chile which has 30 per cent of copper.
How India will be able to help in the MSP is also not clear as it imports all its critical minerals as on date. Further, India does not have access to the technology used in the processing of critical minerals. It, however, does have some deposits of rare earth elements along the coast though they are not being mined today as it is not economically viable and technology too, is not accessible.
So what will be the effect of all this upheaval as far as India is concerned? In all likelihood, it may not affect India much as its imports of rare earths is minimal as on date, but growing. As of now, India is completely dependent on imports for most of the critical minerals, though we are trying to broad base our supply chain and have signed agreements with Australia and Argentina to jointly explore for lithium and cobalt. The problem is that availability of the minerals is not enough. One needs to process it and manufacture the final product which also means access to technology.
What we are looking at is a gestation period of about 15 years or more. India, incidentally, has allowed the private sector to participate in exploration/mining of critical minerals/rare earths and has auctioned 20 blocks. But the response has been poor.
One of the main reasons is that the deposits of many critical minerals (if not all) and rare earths are so small that it does not make economic sense unless it is bundled with something which has large deposits beneath the earth’s surface. India’s national critical minerals mission (2025) is still in its infancy; only time will tell how effective it will be.
India is a fringe player and will continue to be so in the foreseeable future. It will be dependent on the kindness of other countries to source its supply of critical minerals and also rare earths.
The writer is Senior Visiting Fellow, ICRIER and former member (Economic & Commercial), CEA. Views are personal
