This is a call to action for the United States federal government and its citizens. America’s rise to global economic predominance more than a century ago is rapidly coming to an end. The People’s Republic of China has achieved what Imperial Germany and the Soviet Union never could: economic parity with the United States. While China is strategically intent on replacing the United States as the most powerful country in the world, that parallelism has not, in fact, yet arrived. However, forecasts demonstrate that the critical moment of equivalency will inevitably come later this decade. When that moment materializes – and it will – the fundamental basis of world-power politics over the past 100-plus years will have fundamentally changed. China’s inevitable subordination of the United States will assuredly result in a paradigm shift in the global balance of economic and military power.
China’s monopoly on rare earths: the focal point of the heightened US-China trade war
What if China controlled the world’s oil supply, while actively buying oil assets across the planet? Undoubtedly, the West and its allies would be terrified, and rightfully so. Western countries would secure and bolster their domestic supplies to reduce dependence. While it is good this is not happening with oil, the same cannot be said for rare earths and critical materials. In fact, China’s monopoly over the global rare-earth supply chains is more dangerous to the United States than OPEC’s ability to single-handedly control the world’s oil prices. Like oil and natural gas, rare earths are vital to U.S. national and economic security. The unique magnetic, electric, optical, and chemical properties of rare earths have made them an integral part of modern life. The assured long-term supply of these materials and the resilience of their supply chains underpins our economic, technological, and national-defense capabilities. Rare earths are critical, non-substitutable inputs required in countless high-tech, green-energy, transportation, and defense applications, powering everything from electric vehicles to the several hundred F-35 Lightning II fighter aircraft used by the U.S. Department of Defense to defend the nation and its allies. Over the past several decades, U.S. actions (and inaction) pertaining to rare earths have resulted in a vacuum on the world stage that China has been more than happy to fill. By dominating global commercial rare-earth production, China effectively controls the United States and its allies in ways that the West does not entirely understand. In contrast, China completely understands the unique importance of rare earths – and has for decades. China knows that those who control the critical-materials supply chains will hold the balance of industrial and economic power in 21st century. The communist country has positioned rare earths as an essential component of its 100-year plan for global dominance by 2049, the centennial of China’s communist revolution.
With deteriorating relations between Washington and Beijing, the future of global supply chains is uncertain. Even as White House messages continue to raise questions about the direction of U.S. trade policy, trade-war tariffs remain in effect. As a consequence, the United States faces significant risk, due to its staggering overreliance on rare earths and other critical materials imported from China.
The U.S. government has introduced several notable and well-intentioned efforts and initiatives regarding rare earths since May 2019, including President Biden’s most recent and commendable Feb. 24, 2021, Executive Order on America’s Supply Chains, intending to address the resilience and reliability of American critical supply chains – in particular, rare earth materials – as a matter of national and economic security. President Biden acknowledged the strong bipartisan support from both senators and House members in order to protect and strengthen American competitiveness.
However, despite these positive, albeit early-stage initiatives, to date, the U.S. government has yet to crystallize a feasible, cogent strategy to address the significant national-security vulnerabilities resulting from inadequate access to rare earths. More specifically, a near-term strategy to establish a secure, complete, economic commercial-scale rare-earth elements to rare-earth oxides (REE-to-REO) supply chain, capable of producing rare-earth oxides from multiple US and US-allied commercial rare-earth concentrate suppliers. This is due, in part, to the complexities in understanding the multi-faceted, intricate and opaque nature of the rare-earths industry.
The rare-earths industry must be viewed in terms of its various supply-chain segments or nodes. Essentially, there are two main components:
1. Upstream mining; and
2. Downstream refining, metallization and magnet/component manufacturing
The upstream entails the mining and processing of rare-earth mineral ores into rare-earth concentrates (node one of the supply chain). The downstream is composed of three nodes: the refining/separation of rare-earth concentrates into commercial, high purity, finished rare-earth oxide and compounds (node two of the supply chain), rare-earth metals and magnetic material manufacturing (node three of the supply chain), and rare-earth bearing components and applications manufacturing (node four of the supply chain). Specifically, it is node two of the rare-earth downstream that requires immediate action by the U.S. government.
China has already demonstrated its willingness to use rare earths as a geopolitical weapon
In late May 2019, the official newspaper of China’s Communist Party warned that China could cut off the sale of rare earths to the United States as a counter measure in the ongoing U.S.-China trade war. The news sent shockwaves through tech and manufacturing industries that rely on rare-earth materials.
“Don’t underestimate the Chinese capacity to counter-attack. Don’t say we didn’t warn you.”
The Chinese Communist Party (May 19, 2019)
“Military equipment firms in the United States will likely have their supply of rare earths restricted.”
The Chinese Communist Party (June 17, 2019)
The above statements from the Chinese government were in response to China’s use of rare earths as bargaining leverage against the U.S. Those familiar with Chinese diplomatic language know the significant weight of the statements, specifically the rarely used Chinese phrase of “don’t say I didn’t warn you” – language China used before it went to war with India (in 1962) and Vietnam (in 1979).
On Feb. 16, 2021, the Financial Times published a feature article titled China targets rare earth export curbs to hobble US defence industry, outlining how China is exploring limiting the export of rare earths – including rare-earth minerals, oxides, metals, and alloys – that are crucial for the American defense industry and other critical, high-tech applications. It was reported that China’s government officials sought to determine how severely American and European companies (including defense contractors) would be affected if China restricted rare-earth exports during a protracted bilateral dispute, and to better understand how quickly the USA could secure alternative sources of rare earths and increase its own production capacity.
China’s ever-increasing demand for rare earths is so significant that it has consistently exceeded domestic supply over the past five years, prompting a surge of Chinese imports from miners in the USA, Australia and Myanmar, in addition to significant Chinese strategic rare-earth investments all over the world. While China’s dominance in rare-earth mining is under threat, it maintains a near monopoly in the most vital aspect of the rare-earth supply chain: the downstream refining processing capacity that turns ores into materials ready for manufacturers i.e., the purification and separation of rare-earth concentrates to produce rare-earth oxides at commercial scale. China dominates the refining of rare earths with more than 80 percent of global capacity.
Rare-earth mining is not the issue; economic, commercial-scale installed capacity to separate rare earths to produce rare-earth oxides is what the USA and its allies actually need, and is in fact the most urgent, missing component of a secure, complete U.S. REE-to-REO supply chain. Currently, 100 perccnt of the rare-earth ore mined in the USA annually is sent to China for processing, as the USA has no refining capacity of its own – yet. However, it should be noted that China’s strength in rare-earth refining has more to do with a historically higher tolerance for pollution than any technological edge.
Admittedly, China’s dominance over the rare-earth supply chain is only part of the leverage it yields over the United States; nevertheless, it is one of the most dangerous. China’s control of the rare-earth market illustrates the perilous interaction between Chinese economic aggression guided by its strategic industrial policies, coupled with vulnerabilities and gaps in America’s manufacturing and defence industrial base. The end result has been a risky trade-off between supply dependency and lower costs. We need to think differently. We need to view the U.S. rare-earth industry with the fundamental objective of being cost competitive (while maintaining the highest quality assurance, quality control, environmental standards, and CSR/ESG traceability/transparency), but not at the expense of U.S. national and economic security. America’s typical ‘lowest-cost-at-any-cost’ mentality has not always served the nation or its citizens well.
The United States and its allies are woefully deficient in what is needed immediately in order to safeguard America’s future. Again, domestic rare-earth mining is not a near-term critical issue. A rare-earth mine is just a part of a complete rare-earth supply chain. The critical problem for the U.S. and its allies is the total lack of U.S.-based installed capacity for the commercial-scale refining of rare-earth elements into rare-earth oxides. Currently, North America has no commercial capacity to refine rare earths. The complete inability of the United States to transform these rare-earth minerals into the required, highly specialized technology materials that power high-tech, green-energy and defense applications – at commercial scale – is an infinitely more critical and time-sensitive problem than developing new rare-earth mining capacity. The COVID-19 pandemic and its impact on global critical-materials supply chains only underscores the urgency of this argument. On a scale of 1 to 10 (with ten being the most critical), U.S. rare-earth commercial refining capacity should rank an 11, while the need for new domestic mining capacity should rank a 2 or 3.
Aside from the dozens of potential rare-earth resources explored and identified in the United States and U.S.-allied countries, there are multiple commercial upstream rare-earth concentrate suppliers operating outside of China, including Australia’s Lynas Rare Earths Ltd. (with a more than A$5-billion market capitalization as of Feb. 25, 2021, Lynas commenced production in 2011 and is the only rare-earth company outside of China that produces rare-earth concentrates at commercial scale in Australia for conversion into rare-earth oxides in Malaysia) and Northern Minerals Limited (commenced production in Western Australia in October 2018), among others.
Molycorp 2.0 (those who cannot remember the past are condemned to repeat it)
In June 2017, U.S.-based MP Materials (now MP Materials Corporation, post November 2020 listing on the NYSE, with a staggering $8-billion market capitalization, intraday, on Feb. 25, 2021) acquired the Mountain Pass mine in California for a mere $20.5 million. Mountain Pass was the former crown jewel of previous owner/operator Molycorp Inc.; a U.S. rare-earth producer with a market capitalization of $2.5 billion in December 2010, which filed for bankruptcy in 2015. In January 2018, MP Materials restarted mining operations at Mountain Pass, the only rare-earth mine operating in the United States and the largest unfinished rare-earth concentrate producer in the Western Hemisphere. However, 100 percent of MP Materials’ rare-earth production – generating more than $100M in annual revenue from quarrying approximately 50,000 tonnes of rare-earth mineral concentrate per annum – is sent to China for processing.
MP Materials is majority owned by financier James Litinsky’s Chicago-based hedge fund JHL Capital Group LLC and New York City-based family office QVT Financial LP (James Litinsky is chief executive officer and chairman of MP Materials; former QVT financial partner Michael Rosenthal is MP Materials’ chief operating officer); however, Chinese state-owned rare-earth producer and strategic investor Shenghe Resources Holding Co., Ltd., owns 8 percent[i] of the outstanding common shares of MP Materials Corporation (valued at nearly $650 million, as of Feb. 25, 2020), in addition to being a major shareholder in Greenland Minerals Ltd. since 2016. With a market capitalization of approximately $6 billion (as of Feb. 25, 2020), Shenghe is the second largest rare-earth company in the world, by output, and is rapidly growing with a strong focus on international markets. It should be noted that prior to going public, China owned 9.24 percent of MP Materials, according the MP Materials’ Sept. 8, 2020, response[ii] to the United States Nuclear Regulatory Commission (U.S. NRC) questions regarding the company’s Chinese ownership. However, MP disclosed that“if all of the existing FVAC [Fortress Value Acquisition Corp.: the special purpose acquisition company (SPAC) that sponsored MP Materials going public on the NYSE] public shareholders were to exercise their redemption rights, then the Shenghe entities’ collective equity interest will be towards the higher end of the 8-11 percent range.”
Chinese nuclear weapons may contain American rare earths
Perhaps of greater concern is that, until recently, the United States had a significant amount of rare-earth-bearing monazite mineral sand that had been sold to the Chinese. The rare-earth mineral sand from Georgia is produced as a by-product of the owner’s commercial operations. Normally, this company ends up with approximately 3,000 tons of monazite material per year, which it had been consistently selling to the Chinese. The owner either had to sell the monazite to the Chinese or incur significant costs to properly dispose of its monazite stockpiles, due to its radioactivity. Without question, the Chinese acquired the rare-earth-rich monazite from Georgia to extract the praseodymium and neodymium rare earths required for ultra-high-strength neodymium magnets, the most widely used rare-earth permanent magnets. The U.S. company declared that the rare-earth mineral sand sold and exported to the People’s Republic of China is for “non-nuclear end-uses,” per the company’s U.S. Nuclear Regulatory Commission’s Form 7[iii] application. If past experience has taught the United States anything about China, it is this: the Chinese will do whatever they want to do. The irony, of course, is that rare-earth material from the United States could, quite conceivably, be used in Chinese nuclear weaponry.
The solution – a secure, complete U.S. rare-earth supply chain – can be realized quickly and cost effectively
U.S. rare-earth complacency is no longer an option. COVID-19 and the worsening of the U.S.-China trade war has negatively impacted the already-stressed supply chains, reduced international cooperation, reinforced protectionist tendencies, and has opened new fronts of conflict and contestation. Additionally, the lack of a secure domestic rare-earth supply chain could jeopardize American economic recovery efforts and, potentially, contribute to a second global recession, or even depression.
The current U.S. rare-earths situation threatens national security, limits economic productivity and competitiveness, and robs Americans of opportunities for dignified work. With historically expensive start-up costs associated with rare-earth refining and production in the United States, Beijing has effectively undercut the market, precluding a domestic supply chain from forming here. If the United States does not act swiftly, it will fail to address the fundamental reality that China now wields total control over the access and prices of rare earths and can take retaliatory action against individual American entities attempting to rebuild this critical industry. China’s state-backed ability to crash the rare-earth market, at any time, takes the rare-earth problem out of the realm of ordinary market dynamics.
That said, the United States has the technical capability to rapidly build a secure, domestic, commercial rare-earth supply chain, if it chooses to do so – but time is running out. What is conspicuously absent from all of the U.S. government’s rare-earth initiatives to date is a coordinated strategy amongst downstream American rare-earth sector participants, with a sole, consolidated focus on commercial downstream refining capacity, with the following two overarching objectives:
1. In the shortest timeframe possible (in less than two years; by Q4 2023); and
2. At the lowest possible capital costs.
With U.S. government support, spearheaded by the Department of Defense (e.g., legislation to compel U.S. defense contractors to source their rare-earth materials from a complete U.S. rare-earth supply chain), a strategic alliance can be formed between specific North American companies capable of executing on a well-defined mandate to secure a complete, domestic, commercial rare-earth supply chain. Rare-earths independence for the United States can be achieved, and at a lower cost and on a more accelerated timeline than previously thought. There are new, proprietary technologies to extract and refine rare earths — with the near-term potential to achieve commercial-scale capacity — specifically, from current U.S. and U.S.-allied rare-earth sources. Aside from the immediately available domestic sources, there are multiple near-term rare-earth producers in Australia and South America. In the longer term, we have multiple robust rare-earth projects to be eventually developed into mines, when required, in the United States, Canada and other U.S.-allied countries.
We have secure domestic upstream rare-earth sources now, we have the necessary technologies required to effectively scale rare-earth downstream commercial capacity, and we have the rare-earth projects needed to secure diverse supply for the future. However, U.S. government support is required in order to effectuate and execute.
It is more important than ever that America be more strategic and less tactical as it deals with the clear-and-present danger that is China, and in particular, as it pertains to rare earths. We are at a critical juncture in recent U.S. history. The United States will remain vulnerable for as long as any aspect of the rare-earth supply chain is reliant on China. Unless and until the United States confronts its rare-earth supply-chain deficiency post haste, all the subsequent ‘good’ U.S. domestic rare-earth initiatives in the world will not matter. It will be too late.
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