During the 18thh and 19th century, there was much competition between European powers such as Britain and the Netherlands to expand their influence and control in Southeast Asia. Apart from national pride being at stake, economic considerations were also present as European powers wanted to dominate the highly lucrative spice trade. Then, spices were very valuable commodities. What is unique about spices is that only a little amount is needed to preserve and improve the taste of food. However, with the advent of refrigeration, demand for spices decreased as new and more effective methods of food preservation were found. Consequently, spices became less important and valuable.
Currently, there are signs that a new “spice war” is in the offing. However, the possible coming conflict is not over cloves, pepper, or nutmeg. Instead, the contested commodities are rare metals such as lithium, platinum, dysprosium and terbium – spice metals, used in minute amounts but highly important in various high-tech industries. They are rare earth metals, used in batteries, fuel cells and wind turbines, literally powering a large part of the new global and greening economy, and the new protagonists in this competition are Japan and China.
Japan is at the forefront of developing hybrid technology in cars. However, the weakest link in hybrid technology is conventional nickel-hydride batteries that do not hold much charge, which limits the range of the car. On the other hand, lithium-ion batteries hold a greater amount of electrical charge as compared to conventional nickel-hydride batteries, and this quality allows hybrid cars to have a longer range on a single charge. In other words, lithium-ion batteries make hybrid cars practical.
Most of the world’s known reserves of lithium, over 90 per cent, are sited in South America, and Bolivia has the single largest reserves. Chile, Brazil and Argentina are the other major producers of this metal. With a limited and concentrated supply and increased demand for hybrid cars expected to increase exponentially in the near future, a serious shortage looms. In order to ensure a stable and continual supply of lithium, earlier last week, Japan has announced a very generous aid package to Bolivia. Japan’s objective is to ensure that its automotive industry retains its competitive advantage by securing preferential access to this rare metal. Right now, China is the world’s third largest producer of lithium, but with access to the lithium mine in Salar De Uyuni, which has the world’s largest untapped lithium reserves, Japan is now less dependent on China for lithium supplies. It remains to be seen what the Chinese reaction would be in light of this recent development and whether it would now step up its charm offensive in South America to secure its supply of lithium, rather than to draw down its own reserves.
The same could be said for platinum, which is the main component for fuel cells in electric vehicles. With the emphasis on reducing reliance on traditional petrol and diesel vehicles, electric vehicles are becoming increasingly popular, and so the global demand for platinum has also spiked. In April 2008, the spot price for platinum was around USD$700 an ounce and the spot for platinum a year later is USD $1,722. Right now, most of the Chinese demand for platinum is accounted by the jewellery market, and not the automotive industry. However, it is possible that China does not want to draw down its own lithium reserves. Instead, it may import platinum to manufacture electric cars, which would then increase demand for this precious metal and so its price would go up sharply. In this context, it would be significant to observe Chinese and Japanese overtures to South Africa, which has the world’s largest platinum producer.
In this emerging competition for spice metals, China is not always the price-taker, held hostage by the market. After all, China is the world’s largest producer of dysprosium and terbium, which are needed in the manufacturing process of permanent magnets utilised in electric and hybrid vehicles, as well as in other green technology such as wind turbines. How China manages its supply of these rare metals, such as restricting commercial access to rivals such as Japan is instructive in foreshadowing how it will conduct its bilateral relations with other states when it is in the dominant position.
The competition in resources between Japan and China is no longer limited to traditional commodities such as oil, coal and natural gas. Such competition is still present, but it is important to note that new fronts have been opened, and in geographical regions that are not geopolitically stable. Since states such as China and Japan consume a lot more resources such as oil, natural gas and coal, such commodities are therefore more visible. This emerging competition may not be that apparent to Australia because it exports much “traditional” resources such as coal and natural gas to China and other states. Nevertheless, it is necessary for Australian policymakers to be aware that a new “spice war” is already underway, and that it could lead to tension between China and Japan, which would then affect Australia as well.
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