New Senate Bill Aims to Reduce US Rare Earths Dependence on China

May 13, 2020 Updated: May 13, 2020

Sen. Ted Cruz (R-Texas) has introduced a bill aimed at shedding U.S. dependence on China for rare earth metals and critical minerals, which are vital for the production of high-tech products such as hybrid vehicles, smartphones, and missile systems.

“Our ability as a nation to manufacture defense technologies and support our military is dangerously dependent on our ability to access rare earth elements and critical minerals mined, refined, and manufactured almost exclusively in China,” said Cruz, according to a press release from his office.

China is the world’s largest producer of rare-earth metals—which includes 15 elements with atomic numbers 57 through 71 on the periodic table—accounting for over 70 percent of global annual production. In 2018, China accounted for 70.6 percent, followed by Australia and the U.S. at 11.8 and 8.8 percent, respectively.

Most of these rare earth metals, as well as other elements such as lithium, cobalt, and manganese, make up 35 critical minerals identified by the U.S. Department of Interior in May 2018 as critical to the country’s economic and national security.

In 2017, the United States imported about $150 million worth of rare earth metals from China, accounting for about 78 percent of its total rare earths imports.

Cruz’s bill, named “Onshoring Rare Earths Act of 2020” (ORE Act), would provide tax incentives for U.S. companies to extract rare earths in the United States; require the Pentagon to source rare earths and critical elements from the United States; and establish grants for pilot programs to develop these materials in the United States.

China’s dominance in the rare earth market is partially attributed to its cheap labor and lax environmental regulations, since the extraction of rare earths from ores require toxic chemicals that could lead to serious environmental pollution.

Another reason for China’s dominance is that Beijing has been providing financial support to Chinese companies in the mineral industry since at least 2005.

China’s Ministry of Finance issued a notice about a geological survey of mines in foreign countries on Oct. 31, 2005. The notice said that the ministry supported the central government’s “Go Out” policy, and that Chinese mining and exploration companies could apply for subsidies and discount government loans.

The “Go Out” policy, also known as “Go Global” policy, was conceived in the 1990s as the Chinese regime urged domestic companies to expand their business overseas. It became an official policy in 2002, when former Chinese Communist Party leader Jiang Zemin spoke of the “Go Out” strategy during a major political meeting. Since then, large-sized Chinese companies began to make investments abroad.

Lithium is a critical component for the production of batteries that power smartphones and electric vehicles. Chile, Argentina, and Australia account for 76.3 percent of lithium reserves, as of 2017, while China had about 20 percent, according to a report by oil company BP.

Foreign Policy, in a report issued in May 2019, concluded that 59 percent of the world’s lithium sources are under China’s control or influence, based on its own analysis.

“With the backing of state-owned banks, China’s industrial chemical giants—Tianqi Lithium and Ganfeng Lithium—have become the world’s third-largest producer of lithium and third-largest producer of lithium chemical compounds, respectively,” stated the Foreign Policy report.

Cruz’s bill proposes tax deductions on properties that are used for extracting rare earths and critical minerals in the United States; and deductions for individuals who purchase these materials extracted in the United States.

The grant program should be established by the secretary of defense after consulting the secretary of interior, according to the bill. Annually, a total of $50 million would be appropriated to the secretary defense to carry out the grant program from 2021 to 2024.

Cruz said in a press release that the pandemic has spotlighted the United States’ reliance on manufacturing in China. “Much like the Chinese Communist Party has threatened to cut off the U.S. from life-saving medicines made in China, the Chinese Communist Party could also cut off our access to these materials, significantly threatening U.S. national security,” he said.

He concluded: “The ORE Act will help ensure China never has that opportunity by establishing a rare earth elements and critical minerals supply chain in the U.S.”

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