US Jeopardized by Dependence on China for Rare Earths

Matthew Robertson, The Epoch Times

WASHINGTON—The United States is dependent on China for nearly one quarter of the critical rare metals used in cell phones, laptops, and precision guided munitions, posing a risk to its national security, according to an industry group.

The report characterizes U.S. dependency on China for these crucial elements as “the elephant in the room.” The reliance was “disproportionately high,” at 22 percent of mineral imports, according to the report prepared by the American Resources Policy Network, presented at a conference on June 6.

The United States relies on China for supplies of 18 important metals and minerals for which the United States does not currently have a domestic source, adding to the “urgency” with which the United States must diversify away from China sourcing, the report says.

How did a situation evolve where the United States became so dependent for a strategic resource on China, a global competitor and potential adversary?

A few explanations emerged during the conference.

“Complacency, but irresponsibility and recklessness,” said the most outspoken participant of the day, Frank J. Gaffney Jr., the president and CEO of the Center for Security Policy, in an interview in the corridor.

He referred to the United States falling into a dependent relationship with a hostile counterpart, China, a product of “willful ignorance.” The foreign policy community has turned a blind eye to the abundance of evidence that China means the United States no good, Gaffney said.

“It’s like the tractor beam of the Death Star,” he said, referring to the difficulty in resisting the idea that China is a cooperative partner, not a potential adversary, of the United States.

The U.S. failure to act on the strategic significance of rare earth elements, a failure to perceive the China threat, and what some panelists regarded as an undue confidence that the global supply chain would self-correct, went alongside deliberate efforts on the part of the Chinese to gain dominance in the industry.

The Chinese regime’s model of state capitalism allowed it to absorb costs in the production of these metals, which take years to bring online and come with enormous capital investment requirements and environmental costs. They sold the metals cheaper than everyone else, and gradually came to gain a dominant position in the global rare earth market.

This has been taking place since the mid 1980s, overseen by a top-level task force known as the 863 Project, named after the reported founding date of March 1986.

The 863 Project has the charge of expanding China’s role in high-technology production, including for military uses. It is impossible to draw a direct, causal line from the goals of this task force with China’s subsequent dominance in rare earth metals—i.e., the question of whether there has been a long-term plot—but China’s actions appear to be “consistent” with such a strategy, according to the cautious Daniel McGroarty, President of the American Resources Policy Network and co-author of the report.

The world witnessed the potential dangers of Chinese dominance of rare earths metals in 2010 when it punished Japan by embargoing exports in the midst of a diplomatic dispute.

That was a wake up call. It was also a turning point for the United States and for the rare earth industry, as policymakers, strategists, and industrialists scrambled to figure out how to develop rare earth assets domestically. The metals are in the ground, but the barriers from turning dirt containing heavy rare earth elements—the stuff needed for high-tech applications—into high-powered magnets have so far not been overcome.

In 2002, MolyCorp, the one U.S. center of production in California for rare earth elements, shut down due to competition from China.

The timing corresponded with the increasingly important role that rare earth metals came to play in powering wind turbines, iPhones, and other technologies in the new economy.

Panelists on June 6 discussed the recondite aspects of rare earth metal production, uses, supply, and complained about the intransigence of the Department of Defense’s indomitable bureaucracy.

They wrestled with the idea of having a “virtual stockpile” negotiated through contracts with DoD suppliers, thus obviating the need for the U.S. to have an actual stockpile—a word that has since the Cold War gained unwelcome connotations in Washington.

But the fundamental issue remains. “Congress thinks that ‘we’ve got a WTO case, we’ve got a mine in California, so everything is OK,’” said Jeffery A. Green, founder and president of a consultancy that deals with the issue. But Green says things are not o.k.

As Gareth P. Hatch, founding principal of Technology Metals Research LLC explained, the real problem is not simply digging rocks out of the ground. It is that the United States still does not have the capability to produce separated heavy rare earth oxides. It relies on China for that.