These metals are necessary for advanced products, like electronics. So, the sanctions are hitting an important industry in Japan and the impact may be relatively immediate if the companies do not have a pile of the stuff laying around and if other countries cannot replace China as a producer. Given their name, rare earth metals, I am thinking that China has a pretty significant lever here and is using it.
China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.Uh oh. People have been worried about China using access to its market as leverage (google anyone?) and its holdings of American debt, but this seems to be a very significant source of power and coercion. And the Chinese seem to have no problem embracing this power. While much of the stuff flows to Japan, the products that Japan makes that rely on this stuff are important elsewhere, like the US. So, China's coercion here will not just affect Japan but the US eventually as well. And more immediately, a US ally is being coerced.
It will not lead to a fighting war, as the stakes are still pretty low and each side has other tools to use in this dispute. The big question is: does Japan submit or retaliate? My guess is that for this dispute, Japan will soon discover a face-saving way to get out of it. That the captain of the ship will not be tried for a crime. And people will learn from this crisis what they want. The Chinese will learn that they have great power and can use it. The Japanese will re-learn the lesson of vulnerability, but will find it hard to develop substitutes. The US will find its concerns about rising China reinforced. And lobbyists in the US will push for government subsidizes to re-open old mines and de-regulate the mining of rare earth metals.
Despite the name, rare earths are actually fairly common; they are expensive and seldom mined elsewhere because the processing equipment to separate them from the ore is expensive and because rare earths almost always occur naturally in deposits mixed with radioactive thorium and uranium. Processing runs the risk of radiation leaks, — a small leak was one reason the last American mine was unable to renew its operating license and closed in 2002 — and disposing of the radioactive thorium is difficult and costly.The irony may just be that by using smart sanctions over a relatively minor issue, China may actually be doing something pretty dumb--causing others to develop alternative sources of rare earth metals and other resources that China may monopolize. Not only is this crisis drawing the US and Japan closer together, but it may end up undermining China's economic strategies. Too soon to tell, of course. But Newton may be right here--every action has an equal and opposite reaction.
Update: See Drezner's post as he wrote a book on economic sanctions. He seeks China's actions here as part of a broader backlash-producing effort that indicates that China has a shallow learning curve on how to use its power.