Beijing bowed to the World Trade Organization Monday and abolished export quotas on rare earths, those elements at the foot of the periodical table that are critical to many high-tech products. But with Chinese officials promising to restrict exports by other means, this won’t be the last time Beijing will have to learn a lesson in basic economics.
As recently as 2010 China produced 95% of the world’s rare earths, partly because it has rich deposits and partly because it’s willing to tolerate the pollution that is a byproduct of mining the stuff. That same year Beijing tightened export quotas by 40% in an attempt to coerce technology companies to transfer production, and hence intellectual property, to its shores. It also briefly cut off shipments to Japan in retaliation for a territorial dispute.
But the power play backfired. After a brief spike, global prices for neodymium, dysprosium and other rare-earth elements fell to normal levels. Mining companies expanded operations in other countries. Recyclers stepped up the recovery of rare earths from discarded products. Technological innovation allowed manufacturers to find substitutes for the minerals. Chinese smugglers exported the minerals illegally.
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