US Builds New Critical Minerals Supply Chain to Counter Chinese Rare Earth Monopoly

Chinese rare earth dominance increasingly becoming less of a concern as nations decouple, expert says

Wheel loaders fill trucks with ore at the MP Materials rare earth mine in Mountain Pass, Calif., on Jan. 30, 2020. Steve Marcus/Reuters

News Analysis

Washington’s recent move to limit semiconductor exports to China has raised concerns that Beijing might retaliate by cutting off rare earth supplies, similar to what it did to Japan in 2010. According to the U.S. Geological Survey (pdf), China has the world’s largest rare earth reserves, accounting for 78 percent of the U.S.’s rare earth imports from 2017 to 2020.

However, in response to such concerns, experts suggest that Beijing’s “rare earth card” likely won’t pose any real threat as nations, especially the United States, have started mining on their own for rare earth elements.

Rare earth metals are essential to the defense and clean energy industries. They are found in defense products such as lasers, radar, night vision systems, missile guidance, jet engines, and alloys for armored vehicles, as well as critical raw material for permanent magnets used in electric vehicles and wind turbines.

Since the 1980s, China’s rare earth production has increased substantially. Under its low-price strategy, in 2009, the country produced about 97 percent of the world’s rare-earth-metal supply. However, that number has declined over the years as other players have entered the market.

In 2018, China produced about 70 percent of the world’s rare earth supply while controlling about 85 percent of the world’s rare earth processing capacity, according to the Center for Strategic and International Studies (CSIS).

Frank Tian Xie, a John M. Olin Palmetto Chair Professor in Business and Professor of Marketing at the University of South Carolina Aiken, told The Epoch Times that China traded massive environmental costs for the market.

He said although the critical minerals are called rare earth metals, the resources are not scarce. It’s the great environmental cost of mining the metals that makes it rare, as the mining process can cause tremendous pollution.

“However, China’s approach is to completely ignore pollution and exploit the environment indiscriminately regardless of the cost, thus gaining a significant market advantage,” Xie added.

A loader shifts soil containing rare earth minerals to be loaded at a port in Lianyungang, in China's Jiangsu Province, for export to Japan. STR/AFP via Getty Images

‘Weaponized’ Rare Earth Dominance

According to a 2018 report by the U.S. Department of Defense (pdf), “China has strategically flooded global markets with rare earths at subsidized prices, driven out competitors, and deterred new market entrants.”

The report added, “when [Beijing] needs to flex its soft power muscles by embargoing rare earths, it does not hesitate, as Japan learned in a 2010 maritime dispute.”

In many instances, Beijing has weaponized its dominance in the minerals market by threatening to cut off supplies to other nations. A notable example was the Japan-China maritime dispute in 2010.

In 2010, Beijing blocked all 17 rare earth product exports to Japan over a long-standing dispute about the control of unpopulated islands in the East China Sea after ships from Japan’s naval self-defense force and Chinese fishing vessels clashed. At the time, Beijing also restricted some rare earth exports to other countries, causing global rare earth prices to skyrocket.

In addition, China had long adopted a two-tiered pricing structure for its rare earth sales, making foreign companies pay twice the rate compared to domestic firms. Foreign companies must move their factories and jobs to China if they want better pricing and a more secure supply.

The move not only promoted the Chinese economy but also made it easier for China to steal foreign intellectual property, according to Wired Magazine.

Since the 2010 maritime dispute, Japan has not relinquished its claims to the islands but actively warns other nations of China’s unreliable trading practices, including recent warnings from Japan’s ambassador to Australia, Yamagami Shingo, as Beijing employed similar tactics by imposing quotas and large tariffs on Australian goods coming into China. Beijing’s move came after Australia’s call for an investigation into the origins of COVID-19.

Decoupling From Chinese Rare Earth Supply Chains

Beijing’s frequent disreputable trade practices have shown Western nations the danger of relying on China. And diversifying the sources of rare earth supply has become necessary for countries seeking to decouple from Chinese supply chains.

Xie said Chinese-produced rare earth metals are generally not used for high-end applications as they require more refinement and further processing. They are mostly exported as raw materials to other nations.

He added that many countries, including the United States, have already started mining rare earth metals of their own, and if Beijing were to restrict its supplies, the impact would be minimal and short-term.

“Restricting rare earth supplies will be an empty threat,” Xie said, suggesting that the United States likely won’t see any meaningful retaliation and that any U.S.-issued semiconductor sanctions against China will remain firmly in place.

According to the U.S. Geological Survey (USGS) database, significant rare earth resources have been discovered in Greenland, Brazil, Canada, Vietnam, Myanmar, Laos, Norway, and several African countries since 2009. From 2010 to 2020, 261 companies in 37 countries outside of China initiated a total of 429 rare earth projects, adding between 80,000 and 100,000 tonnes of rare earth production capacity.

Meanwhile, from 2013 to 2020, China’s rare earth reserves fell by 20 percent from 55 million tonnes to 44 million tonnes due to decades of destructive mining. The country’s rare earth production has also dropped from nearly 100 percent of the global share in 2010 to 60 percent in 2021.

Samples of rare earth minerals from left: Cerium oxide, Bastnaesite, Neodymium oxide, and Lanthanum carbonate at Molycorp's Mountain Pass Rare Earth facility in Mountain Pass, Calif., on June 29, 2015. David Becker/Reuters

Reducing Dependence 

In a bid to challenge China’s chokehold over critical minerals, the United States has established a rare earth mining and processing industry chain that includes California’s Mountain Pass Mine, Australia’s Mount Weld mining and concentration plant, and Malaysia’s Kuantan refining facility.

In June, the Pentagon agreed to fund the entire $120 million cost of a heavy rare earth metal separation facility to be built in Texas by Australia’s Lynas Rare Earths, advancing a program launched in 2020, the company announced on June 14.

Located on the Gulf Coast, the new facility will give the United States access to domestically produced heavy rare earth metals.

The Texas facility that landed Pentagon funding will process heavy rare earth carbonate mined in Australia, forming a production cycle that bypasses China entirely. Lynas Rare Earths plans to combine the upcoming plant with a proposed light rare earth material separation facility that is being co-funded by the company and the Defense Department.

Lynas produces nearly 20,000 metric tons of rare earth oxides yearly from its Mount Weld mine in Australia and processing plant in Kuantan, on the east coast of Peninsular Malaysia. The Australian mining company’s rare earth production alone is “more than enough to meet all of America’s demand, let alone the 500 tons or so needed for defense-critical applications,” according to a 2021 Bloomberg editorial.

The project was first announced in July 2020 as part of the U.S. government’s strategy—under a 2017 executive order signed by former President Donald Trump—to reduce dependence on foreign imports of critical minerals. The Pentagon is also funding a heavy rare earth material processing and separation facility in Mountain Pass, Southern California.

Mountain Pass is home to the world’s eighth-largest reserves of rare earth materials.

In February, the U.S. Department of Defense (DoD) awarded a $35 million contract to MP Materials, the owner of Mountain Pass mine, to design and build a facility to process heavy rare earth elements (HREE) at the company’s Mountain Pass production site.

Matt Green, mining/crushing supervisor at MP Materials, displays crushed ore before it is sent to the mill at the MP Materials rare earth mine in Mountain Pass, Calif., on Jan. 30, 2020. Steve Marcus/Reuters

“This project will establish the first processing and separation facility of its kind for HREEs in support of both defense and commercial applications in the United States,” according to the DoD statement.

US Lawmakers Respond

The United States, in recent years, has passed laws addressing national security concerns involving rare earth materials.

For example, U.S. Sens. Tom Cotton (R-Ark.) and Mark Kelly (D-Ariz.) introduced a bill this past January to ban the use of Chinese rare earth metals in sensitive military systems by 2026 and create a one-year strategic reserve of rare earth elements and products by 2025.

Legislation put forward by Sens. Marco Rubio (R-Fla.) and Cindy Hyde-Smith (R-Miss.) in April would create a Department of Energy investment program to spur the development of rare earth production facilities in the United States, with the aim of reducing America’s dependence on China.

Ellen Wan contributed to this report.