Opinion/Owens: Strategic vigilance and rare earth elements

Mackubin Thomas Owens is a senior fellow of the Foreign Policy Research Institute in Philadelphia.

On Sept. 30, President Donald Trump signed an executive order declaring a national emergency in the mining industry with the goal of incentivizing “the domestic production of rare earth minerals [also called rare earth elements (REEs)] critical for military technologies while reducing American dependence on China.” The EO states that the country’s heavy reliance on critical minerals from foreign adversaries constitutes an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States. Trump ordered the appropriate departments to study the matter, examining the feasibility of government grants for production equipment, as well as tariffs, quotas or other import restrictions against China and other foreign adversaries.

REE refers to 17 minerals critical to the manufacturing of missiles and munitions, hypersonic weapons, and radiation-hardened electronics, as well as such consumer goods as cellphones and catalytic converters in automobiles. To cite just two examples, every F-35 fighter requires 920 pounds of REE and each Virginia-class submarine needs 10 times that amount.

The problem is that new domestic REE mines and processing facilities can't get off the ground due to high start-up costs. REE prices need to reach certain thresholds in order to encourage investment in new domestic production.  But REEs are typically byproducts of other minerals such as copper and nickel, the prices of which have been flat in recent years.  Consequently, mining companies have had little incentive to produce REEs. Instead, they are treated as a nuisance, impurities that must be removed. 

Based on market forces alone, REEs are not valuable enough to mine or process, enabling China's heavily subsidized mining industry to dominate global REE production.  As a result, the United States imports 80 percent of these elements directly from China, with much of the remainder indirectly sourced from China through other countries.

Among other things, China’s near monopoly on REEs provides the potential for economic blackmail. For instance, in September of 2010, a Chinese fishing boat rammed two Japanese coast guard vessels in the contested waters of the East China Sea. The Japanese government announced its intention to try the captain of the fishing boat. In response, the Chinese government took retaliatory measures to include an embargo on REE sales to Japan.

Fortunately, the risk created by U.S. dependence on China for critical minerals is now generally recognized.  Following Trump’s EO, Ellen Lord, Undersecretary of Defense for Acquisition and Sustainment, testified before the Senate Armed Services Subcommittee on Readiness and Management, calling for a U.S. rare earth mineral strategy.

The United States needs to develop a "commercially viable" minerals supply chain that will require government involvement along the lines suggested by Undersecretary Lord: increase U.S. REE stockpiles; require the government and certain businesses to purchase REEs and other minerals from domestic mines instead of importing them; offer matching funds to encourage private-sector investment in REE production; provide tax credits to companies that repatriate jobs from China; ban federal contracts to companies that outsource to China; and broaden the mandate of  the Committee on Foreign Investments in the United States (CFIUS) to include economic security and strategic vigilance.

But the long run key to reducing REE vulnerability is sustained attention to the problem rather than the episodic and short-lived responses that have characterized past U.S. actions. This means a prudent approach to “market fundamentalism,” the predisposition to make a fetish of “free trade.” The fact is that free trade works only when the parties to trade agreements act in good faith. China has not done so, and indeed, has gamed the system to change trade from a positive-sum game, in which both parties benefit, to a zero-sum game, in which there is no reciprocity. Prudence requires us to recognize the inability of the market alone to address geostrategic vulnerabilities.