US Needs Alternatives to China’s Rare Earth Monopoly

As the trade war goes on, China threatens to deprive the US of critical elements its economy and its military can’t do without

A cyclist wears a protective face mask while riding along a dusty road where dozens of factories processing rare earths, iron, and coal operate on the outskirts of Baotou city in Inner Mongolia, northwest China, on April 21, 2011. (Frederic J. Brown/AFP/Getty Images)

Many consider China’s vast portfolio of U.S. Treasuries as their not-so-secret weapon in the ongoing trade war. And it some ways, that is certainly true. China could decide to liquidate much or all of its U.S. bond holdings in response to rising tariffs and use other tactics, like currency devaluation.

But such a move would damage their economy along with America’s. The Chinese are smarter than that.

China State Media Hints at Embargo

Besides, the Chinese Communist Party (CCP) has another, more tangible ace up its sleeve. As unbelievable as it sounds, China holds a near global monopoly on the supply —or more accurately, the processing capacity—of rare earth elements (REE).

Should China decide to impose an embargo against the sale of REEs to the United States, the American economy and the U.S. military would be scrambling to replace them, at least in the short run.

That’s not overstating this situation, by the way. As Foreign Policy magazine recently observed, “Beijing could slam every corner of the American economy, from oil refineries to wind turbines to jet engines, by banning exports of crucial minerals.” The list of REE-critical products includes smartphones, special alloys, navigation systems, and much more.

China, of course, is well aware of this. In fact, China’s state-run media have been promoting an embargo, or leveraging the threat of one, in response to the U.S. tariffs on Chinese products, and specifically, against the U.S. blacklisting of Huawei, China’s biggest telecom equipment manufacturer and a leader in 5G networks. Since all media in China is controlled by the Chinese Communist Party (CCP), it’s a certainty that this message is being sent to U.S. trade negotiators directly from the CCP.

China Made This Play Before

If China does stop selling REEs to the United States, it wouldn’t be the first time they’ve played that card. In 2006, China began limiting its exports of REEs, reducing them by 40 percent until 2010. The reduction caused the prices of non-China-sourced REEs to skyrocket. China also took advantage of its market dominance and stopped selling to Japan in retribution for a maritime incident.

After the United States, along with Japan and Europe, prevailed against China in a WTO fight in 2015, China dramatically dropped its REE prices and drove the only active REE processing plant in the United States, Molycorp, into bankruptcy. At that time China produced 95 percent of the world’s rare earth metals.

How Did We Get Here?

But how has the U.S. allowed itself to be put in such bind? Wouldn’t it make sense to have secured an American or at least a friendly source of these REEs on which so much of our military preparedness and our economy are reliant? Shouldn’t that have been a priority, say, decades ago?

Actually, it was. But that changed in 1980, when rare earth mineral mining and processing came under the purview of the Nuclear Regulatory Commission and the International Atomic Energy Agency. Regulatory guidelines became increasingly restrictive, driving up costs, steadily decreasing U.S. producers’ competitiveness. By the mid-1990s, the U.S. was no longer producing RREs.

Today, China supplies 80 percent of U.S. REEs.

Rare Earth Elements Aren’t so Rare After All

Fortunately, REEs aren’t rare at all. In fact, they’re actually quite plentiful around the world, even in the United States. The 17 elements that are categorized as REEs have magnetic and conductive aspects and are typically unearthed as a result of mining operations, but most are present in only small amounts. There are few, if any, specific “rare earth mines.”

The costs and health risks of producing REEs are in the processing. For instance, since toxins and radiation are a by-product of processing REEs, many Western nations’ environmental and labor laws make processing them both costly and a health risk to miners. It has been easier much cheaper for other nations to let China produce them, since neither health codes nor environmental standards are significant factors there.

An REE Shortage Crisis?

But the costs of allowing China to gain the upper hand in the world’s supply of REEs are now becoming clear. If China does in fact restrict REE sales to the United States in the near future, it would certainly impact both the consumer product markets and the military.

The key question is, how long it would take to bridge the supply gap and find alternatives?

One mitigating factor is Australian-based Lynas, the world’s only major rare-earth producer outside of China. It has partnered with Texas-based Blue Line to establish U.S. operations by 2021. However, the United States still lacks any REE processing capacity, representing a critical and ongoing vulnerability in its military capabilities.

But the news isn’t all bad. The Mountain Pass mine in California is currently being prepared to ramp up REE processing operations by 2020. Coincidentally, Mountain Pass was previously owned by Molycorp, which had invested over $1.5 billion in the processing project, before being forced out of business by China in 2015.

The critical role that REEs play in both military and consumer products is impossible to overstate. The U.S. economy is dependent upon a steady and dependable supply. If America is to be successful in its bid to roll back China’s power and influence over the rest of the world, ensuring its own supply of strategic REE is not just an option, it’s a necessity.

James Gorrie is a writer based in Texas. He is the author of “The China Crisis.”

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.