In the dystopia imagined in the video game Call of Duty: Black Ops II, the year 2025 is defined by a rampaging cult, a zombie apocalypse--and a war between the U.S. and China for control of the world's supply of rare earths, materials crucial to the production of everything from mobile phones to weapons. Early in the game, a character waves around a smart phone, lecturing on the importance of rare earths. "Who controls all of it?" he asks ominously. "China."
It's only a video game, but not long ago that scenario--minus the zombies--seemed uncomfortably close to reality. China, the world's dominant producer of rare-earth elements, announced in 2010 that it was drastically cutting its exports, triggering a global panic. Rare earths are a fundamental ingredient across much of the $1 trillion high-tech manufacturing industry. Consumer companies feared shortages of the rare-earth elements that go into computer screens and lightbulbs; U.S. weapons manufacturers worried that a supply shock would imperil production of Abrams tanks and Tomahawk cruise missiles. "The scope of this crisis is enormous, and only a concerted national effort will lead us out of this mess," warned U.S. Representative Donald Manzullo, an Illinois Republican. Paul Krugman, a Nobel Prize--winning Princeton economist and New York Times columnist, wrote that China had achieved "a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants."
It isn't turning out that way. Rare earths have come crashing back down to, well, earth. Despite China's lockdown on exports, the dreaded shortages haven't materialized. Instead of spiking, prices have fallen dramatically over the past year as the global economic recession dampened demand. With U.S. and Japanese companies finding ways to cut back on their use of rare earths, China isn't even meeting its export quota. Not exactly the stuff of video-game mayhem.
The evaporation of the rare-earth panic is a reminder that conflicts over seemingly scarce resources often have a way of resolving themselves through a combination of markets, investments and ingenuity. "What we saw in 2011 with rare-earth prices was a bubble forming in the market," says Soozhana Choi, head of commodities research for Asia at Deutsche Bank. "There's been a pretty significant drop since then. Supply growth has started affecting the market as well as efforts to reduce demand." China's economic juggernaut may sometimes appear unstoppable, but those countries that respond quickly and inventively may find just as much opportunity as anxiety.
Rare earths aren't actually rare. They're quite common in the earth's crust and take their name from the labor-intensive process of extracting them from the surrounding rock. The global market for these materials is only about $2 billion annually--roughly equal to U.S. chewing-gum sales. But they have an outsize importance. "Rare earths are enablers," says Gareth Hatch, a co-founder of Technology Metals Research, a consultancy based in Illinois. "Without a few cents' worth of neodymium, your $100 computer hard drive won't work. Without a few tens of dollars of dysprosium, your $25,000 Toyota Prius wouldn't work."