China produces 97% of the global supply of rare earth metals, elements that are used in nearly every electronics component and many other advanced technologies. There has been whispering for a couple of years that they would be cutting exports on most rare earths starting this year and all rare earths by 2012 due to their domestic manufacturing demand. This will leave Taiwan, Japan and other technology manufacturers out in the cold, as well as ensure that China benefits the most from “the green revolution” since the metals are pivotal in advanced photovoltaics (solar), magnets needed for turbines (wind) and batteries.

The rumors have become reality as China announced cuts of 72% in order to “protect the environment.” Japan and the United States are warning that they will file a WTO complaint; a near certainty considering that it is estimated it will take at least 10 years to bring new sources of rare earth production online. This move will cripple the ability for domestic production of electronics and most renewables, and is even considered a national security threat due to military shortfalls. Getting caught flat footed on this is an immense embarrassment and direct result of having no industrial policy over the last decade; a clear instance in which “the market” produced a negative outcome. Not only does it threaten the existing economy but it makes most of the promises of a “new green economy” a pipe dream for at least a decade. All of this was completely foreseeable and should have been counteracted with government policy years ago.

However, this collective failure may prove critical to my personal success. After I first read about the issue last year I decided to start development on the design of a solar power based system that was not dependent on rare earth metals, anticipating that the crunch would provide a huge boon. That decision led to a collaboration with several colleagues from Case Western Reserve University and the fruit of our labors has yielded a design that we project will be cost competitive with the grid and has several aspects that are superior to any PV system. Of course PV is the “hot” item right now so it’s proven difficult to get any support for a system on paper; thus we have submitted an SBIR grant to construct a prototype and formalize the design parameters. In the grant we explicitly mentioned the ability to create the system from existing domestic supplies and our desired manufacturing strategy of domestic production to maximize job creation in the United States.

In addition we have submitted an entry into the GE challenge explaining our system’s ability to provide stability to the electrical grid that PV and wind are incapable of, while also being immune to rare earth supply disruption. The entry for our idea is here and I explained a little in this past post.

The timing of this announcement is perfect for our group as it’s under review by both the NSF and GE [hopefully they’ll notice the announcement] but I’m saddened and concerned about what it means to the world at large. Between this and China’s growing trade surplus, the probability of a full trade war is increasing by the day; a war that the US will be at a severe disadvantage in due to the dilapidated state of our domestically sourced industrial base.

Update: Here is a link that gives more context. Note: “The range of applications in which they are currently used is extraordinarily wide, from the ordinary (automotive catalysts, petroleum cracking catalysts, lighter flints, glass and ceramic pigments, polishing compounds) to the highly specialized (miniature nuclear batteries, superconductors, lasers repeaters and powerful miniature magnets).”