Made in China: The Reemergence of Rare-Earths Geopolitics

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By: Michael Sauer

Rare-earth elements are a collection of seventeen versatile elements from the periodic table that have collectively launched society into modernity. Contrary to what their name suggests, these elements are relatively abundant around the globe, primarily unearthed as byproducts of industrial mining. They form the vital components in electronics, high-performance magnets, fiber optics, lasers, and even medical imaging. Their reach touches nearly all business and technological innovation, but most importantly they are the lifeblood for chief American military defense systems.

Ranging from communication technology to guidance and control systems, the United States is exceptionally reliant on the incessant supply of rare-earth elements. They’re found within a multitude of archetypal military arrangements, such as sonar, night vision systems, and radar, but their true worth pierces through to highly advanced weaponry. The military’s crown jewel of the skies, the F-35 Lightning fighter jet, was launched into a hot controversy over Chinese supplied rare-earth elements. These ingredients were utilized in the production of powerful permanent magnets, among other parts found in the fighter. Top officials feared these to be instruments for Chinese espionage activities, potentially jeopardizing the program at large. However, the F-35 program proceeded – but its operational takeoff is no guarantor for peace of mind. The United States remains import-reliant on what are categorically indispensable resources for national security. In short, this severe dependence upon China creates grave prospects for a future geopolitical calamity.

        How did we get here? From 1965 to 1980, the United States relished in the security provided by a robust domestic production of rare-earth elements. It commanded control of the entire supply chain, bolstered by research programs in both government and industry. But in the ensuing decade, U.S. dominance spectacularly collapsed. Under the direction of Deng Xiaoping, the Chinese armed themselves with the ambition and industrial capacity to undermine the United States, starting in 1986 via Program 863 – the National High Technology Research and Development Program. It spurred China into the rare-earth clash. They quickly expanded mining operations and flooded global markets with excess supply. In stunning mercantilist fashion, the Chinese government subsidized domestic output below global prices, throttling foreign competition until their premature capitulation. Foreign mining corporations relocated to China for survival, assuring the Chinese near-absolute advantage. And in 1992, Chairman Deng Xiaoping, observing the expanse of his conquest proclaimed, “The Middle East has oil. China has rare earths.”

        Equipped with newfound influence, China further augmented its hegemony over rare-earth elements by obtaining virtual monopoly-status: control of 97 percent of the world’s production. Beginning in 2010, China first weaponized rare-earth elements over a geopolitical dispute with Japan. Global supply constricted under the imposition of export quotas, causing prices worldwide to skyrocket. The United States initiated a dispute through the World Trade Organization against China – backed by the European Union and Japan – forcing them to relinquish their export quotas under the auspices of ‘environmental protection.’ From this nearly fatal turn of events, one might expect the United States to seriously reevaluate its dependency on Chinese rare-earths through the renewed focus on innovation and supplies outside China; however, this has failed to materialize.

        Now in the second half of 2018, China is once again sabotaging global supply chains. By capping domestic production of rare-earth elements to 45 thousand tonnes, a total reduction of 36 percent, they’re aiming to squeeze markets by escalating prices, while they accommodate for domestic demand alone. This flagrant rendition of 2010 suggests that China holds in contempt global rules of commerce in pursuance of spiteful nationalistic ends. Beyond these one-sided gains, China is aware of the immense leverage it has over the rest of the world. With even the thought of a well-placed threat, China can whip other states in whatever way it insists. The United States is no less dependent upon the Middle Kingdom, and this is especially distressing under heightened fears of great power competition. In response, the U.S. must rectify its relationship with rare-earths by accelerating policies to assert independence from Chinese material.

First, the United States should nationalize the Mountain Pass mine in California. The mine is the last remnant of an era long before, littered with bouts of openings and closings. In 2015, Molycorp, longtime corporate owner of Mountain Pass, withered into bankruptcy – subjecting American production to long-run uncertainty. By nationalizing Mountain Pass, the United States would reaffirm the sanctity of the supply chain and dispel the notion that a purely free market approach will save the day. Indeed, free-market thinking engineered our colossal comparative loss at the hands of sharp government interference. Understanding this basic truth will prevent a further headache and signal nonconformity to this humiliating reality.

Next, the federal government must plow more resources into industrial research and development. In consortium with industry and business, the U.S. can rebuild intellectual infrastructure and impede novel technology from leaking to strategic rivals. Channeling investment into strengthening the supply chain is an absolute necessity. Further, the partnership can research alternative inputs to replace rare-earth elements, potentially spawning new markets of their own. These critical investments can quickly wean the United States off Chinese overreliance.

Lastly, the United States should employ the full power of its global allies to diversify and modify sources of supply. Together, the tandem could come to compete against China, buttressing international markets with confidence and reestablishing the United States into the rare-earths industry. There are high hopes for extracting resources from Australia, a major U.S. ally in a critical region. Nevertheless, policymakers must be especially careful to avoid aligning with partners that are dependent upon China for procurement. This could create a negative feedback loop and negate gains from spearheading cooperation.

All said, there are a host of stratagems for the United States to implement. Time is short and the need is inflexible. Therefore, deliberate energy to reconstruct the supply chain away from China is needed. And it must happen – now.

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