A new Honda engine shows the limits of Beijing’s coercion.
Honda says it has co-produced the world’s first hybrid car engine that doesn’t use heavy rare-earth metals, allowing it to cut reliance on imports from China. This innovation, to debut in Honda minivans this fall, illustrates how far we’ve come since the great rare-earths panic of 2010.
Back then, China produced 95% of global rare earths and thought it could hold markets hostage by restricting exports. So it cut export quotas by 40%, partly to push foreign buyers to move factories onshore, and then temporarily blocked shipments to Japan over a territorial dispute in the East China Sea.
Prices shot up tenfold as consumers and officials world-wide feared for supplies of 17 obscure elements they learned are used in high-tech gizmos from missiles to smartphones, wind turbines and electric cars.
But no apocalypse was nigh. Beijing’s mercantilist gambit had predictable effects—predictable, at least, for anyone familiar with the work of Julian Simon. The economist taught that fears over natural-resource scarcity often underestimate the flexibility of markets and the ingenuity of the human brain, which Simon called the ultimate resource.
Those who warned about “peak oil” were blindsided by fracking, and rare-earth doomsayers failed to foresee how Beijing’s supply squeeze would spur overseas investment in new supplies and substitutes.
For the rest of this opinion column, click here: http://www.wsj.com/articles/chinas-rare-earths-bust-1468860856