Despite efforts at supply chain diversification, China still controls 80% of the world’s supply of rare earths. This presents a major challenge for America in a trade war.
Last month, the Biden administration initiated comprehensive export controls on China’s semiconductor industry. These controls are arguably the most restrictive the US has placed on a major trading partner since the US oil embargo against Japan in 1941. They also represent a significant shift in US trade policy with China. What began as a bitter trade dispute has escalated into open economic warfare fought over semiconductor technology. In anticipation of a retaliatory response from China, the Biden administration should prioritize reducing vulnerabilities in the US supply chain. Rare earths — essential to modern industry and defense systems — present a particularly acute US vulnerability as China controls 80% of the world’s supply.
Rare Earths: America’s Achilles heel?
‘Rare earths’ is a catch-all term to describe 17 elements that are needed in a wide range of industrial and defense applications including electric vehicles, wind turbines, military communications equipment, and missile guidance systems. Although the elements themselves are not uncommon in the earth’s crust, concentrated deposits of them are quite rare. Extracting and processing them is expensive and often harmful to the environment. In the 1980s, when the world’s industrial demand was a fraction of today’s, the US produced and processed over half of the world’s rare earths. In the following decades however, China invested heavily in mining and processing rare earths that were naturally abundant in its Western regions. These investments were so successful that by 2010, China was producing 93% of the world’s supply. That same year, a diplomatic row between China and Japan highlighted just how dependent the global economy had become on rare earths from China. As punishment for arresting the captain of a Chinese fishing boat in disputed waters, China temporarily halted all rare earths shipments to Japan, causing the global price to increase over 300%. It became clear to policymakers in both the US and Japan that Chinese control over these indispensable elements had become a national security risk.
In the years following, efforts to diversify the supply chain and promote domestic mining of rare earths had mixed success. Japan was able to reduce its reliance on Chinese rare earths by investing in Australian-owned Lynas Corp, one of the few Western companies involved in rare earths mining and processing. A Japanese-funded rare earths project in Namibia has also helped Japan diversify its supply chain. Today, Chinese imports only comprise 58% of Japan’s rare earths consumption.
Efforts to diversify the rare earth supply chain in the US have been less successful. Mountain Pass Mine in California — North America’s only rare earths mine — reopened in 2018, but its raw materials are processed in China due to domestic US environmental concerns. The Biden administration has announced $156 million for research to extract rare earths from mine waste, but the announced sum is tiny fraction of the recently passed $1.3 trillion infrastructure bill and reflects a lack of urgency in addressing the issue. Today, the US still obtains 78% of its rare earths from China. Despite limited US efforts to find alternative sources of rare earths, the US remains heavily dependent on China and Chinese-owned companies for these critical materials.
The US could contend with these modest investments in supply chain diversification and domestic production and processing were US-China relations on firmer footing. Unfortunately, the outlook for relations remains poor, and bipartisan consensus on China’s geopolitical threat to the US suggests no alleviation of tensions in the short-term. On the contrary, the Biden administration’s semiconductor export controls represent a further deterioration of US-China trade relations. The administration’s National Security Strategy not only seeks to “out compete” China, but also “[restrict] the PRC’s access to advanced computing” and “limit the PRC’s ability to obtain advanced computing chips or further develop AI and ‘supercomputer’ capabilities.” Such direct language likely strengthens Beijing’s belief that the US is a malicious actor intent on stifling China’s technological development.
In this tense environment of mutual distrust, the US should take close look at its supply chain vulnerabilities, especially concerning rare earths and other raw materials essential for national defense. The national security risk posed by US dependence on Chinese rare earths has been recognized for over a decade, yet progress on supply chain diversification has been painfully slow. Twelve years after the world woke up to China’s rare earths monopoly, Beijing still holds most of the cards. Regardless of how US-China relations progress, it behooves the US to reduce its reliance on China for these critical raw materials, lest America find itself scrambling to secure rare earths when it needs them most.
[Header image: Mountain Pass Rare Earth Mine & Processing Facility, by Tmy350, CC BY-SA 4.0, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Remi Meehan spent 12 years as a trader and geopolitical risk manager at Morgan Stanley where he specialized in mining and defense sectors. He holds an A.B. from the Princeton School of Public and International Affairs (SPIA) and is currently pursuing an MSc in International Strategy and Diplomacy at LSE.
