By Kenneth Rapoza, CPA Industry Analyst
China threatens to withhold some key rare earths used in navigational equipment on American fighter planes. But that's not all.
For at least a decade, Washington has been aware of China’s growing dominance in mining and processing of rare earth metals. These metals might not be household names like lithium, but they are needed to make Tesla car batteries, and navigational equipment in an F-35 Lightning II.
China wants to horde them. Their Ministry of Industry and Information Technology proposed controls on the production and export of 17 rare earth minerals in China, which controls about 80 percent of global supply, Sun Yu and Demetri Sevastopulo wrote in the Financial Times on Tuesday.
Industry executives said government officials had asked them how badly companies in the US would be affected if Beijing restricted metals exports. “The government wants to know if the US may have trouble making F-35 fighter jets if China imposes an export ban,” a Chinese government adviser who asked not to be identified told the FT. Industry executives added that Beijing wanted to better understand how quickly the US could secure alternative sources of rare earths and increase its own production capacity.
In a sense, China’s threat to hold back should be enough of a shot in the arm to entice Washington to source those minerals closer to home. At the very least, they can be part of the defense supply chain.
“The writing has been on the wall for decades, and now we are seeing first-hand why we’ve been raising the alarm that China’s dominance over the rare earth and critical minerals industry is a highly volatile geopolitical concern,” USA Rare Earth CEO Pini Althaus said in a statement on Tuesday.
Should China ever go ahead and withhold supply of critical metals, it would go beyond the Chinese Communist Party’s “Made in China by 2025” and “Belt and Road” initiatives – both of which are tools for China’s continued dominance as a global manufacturer and exporter of finished goods -- and be more about weaponizing rare earth exports, as China has done before with Japan.
To counter the effort of the CCP to put a chokehold on defense and other high-tech metals, the US must continue to invest in this space.
Rare earth minerals are anticipated to be part of President Biden’s forthcoming executive order that is said to reinforce and accelerate the Defense Department’s spending on critical minerals above what was achieved in the Trump years.
USA Rare Earth is the operator of the Round Top Heavy Rare Earth and Critical Minerals Project located in Hudspeth County, Texas. Round Top contains 13 of the 35 minerals deemed “critical” by the Department of the Interior and contains critical elements required by the United States, both for national defense and industry, Althaus said in a note. They also opened a rare earth and critical minerals processing facility in Wheat Ridge, Colorado and acquired the neodymium iron boron permanent magnet manufacturing equipment formerly owned and operated in North Carolina by Hitachi Metals America in April.
Beyond navigational equipment and EV batteries, rare earth minerals are now a central to the manufacture of smartphones and even wind turbines.
This has been a long battle, with no action until Trump made China a center piece of what would ultimately merge foreign policy with economic policy.
In 2010, the Obama government and Congress were aware of the need to diversify supply chains out of China, citing their importance in green energy tech. Obama Energy Department officials testified before Congress about China’s dominant role in this supply chain and the takeaway was that the Obama administration would encourage more rare earth mining…among US trading partners. It is policies like that that have turned California’s Mountain Pass mine into a wholly owned subsidiary of Chinese metals processors. MP Materials sells all of its rare earths to China, despite selling itself as being the biggest rare earths producer in the US. It may be that, but none of its supply is staying here.
They currently rely on Shenghe Resources of Singapore to purchase all of their rare earth concentrate product on a “take-or-pay” basis and sell that product to end users in China. Mountain Pass has always been a China play, even under previous ownership.
“America must re-shore the mining of critical minerals, and not settle for only allied production,” says Michael Stumo, CPA’s CEO. “We need the jobs here and our environmental standards far exceed those of most other locations. The pandemic showed us that we cannot rely on other countries when supplies get tight.”
Moreover, if the Biden administration wants to green up the US economy, then rare earth metals plays an essential role in that supply chain. China has not acted on its ban threat, but relying on them to power our EVs and windmills, let alone navigate American fighter jets, is bad policy. As the US supply chains shrink for things like automotive due to the retirement of the internal combustion energy within the next decade, jobs will be lost. While we don’t think the average Lordstown, OH auto worker will be moving to Texas to operate a 210 ton mining truck, expanding American mining of these critical minerals will be important for numerous supply chains.
Rare earths are part of the economic security portfolio.
Over the last year, both parties have come to understand that economic security is national security.
The Biden administration, worried about American competitiveness around the globe, is going to follow in Trump’s footsteps on keeping the existing merge between foreign policy and economic policy, the WSJ’s Washington editor Gerald Seib wrote in an op-ed published on Monday.
“This line of thinking about national security already was under way in the Trump administration, but President Biden and his aides are turbocharging it,” Seib thinks. “It is one of the most important but underappreciated changes in Washington today.”