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U.S. Falters in Bid to Replace Chinese Rare Earths

Despite new legislation, Washington won’t be delivering critical minerals needed for defense, high tech, and energy.

Rising tensions with China and the race to repatriate supply chains in the wake of the COVID-19 pandemic have given fresh impetus to U.S. efforts to launch a renaissance in rare earths, the critical minerals at the heart of high technology, clean energy, and especially high-end U.S. defense platforms. 

But it’s not going well, despite a slew of new bills and government initiatives aimed at rebuilding a soup-to-nuts rare-earth supply chain in the United States that would, after decades of growing reliance on China and other foreign suppliers, restore U.S. self-reliance in a vital sector.

“I think the light bulb has gone on, but we are still in a muddle about exactly what to do about it,” said David Hammond, an expert on rare earths at Hammond International Group, a consultancy.

The problem is that, despite years of steadily increasing efforts under the Trump administration, the United States—both the public and private sectors—has yet to figure out how to redress the fundamental vulnerabilities in its critical materials supply chain, and America still seems years away from developing the full gamut of rare-earth mining, processing, and refining capabilities it needs if it seeks to wean itself off foreign suppliers.

This month, Texas Republican Sen. Ted Cruz became the latest lawmaker to introduce legislation meant to jump-start a domestic rare-earth industry by offering juicy tax breaks for new projects—and especially large tax incentives for end consumers who source finished products from American suppliers. Other lawmakers, like Sen. Lisa Murkowski of Alaska, have pushed legislation of their own meant to spur U.S. development of rare earths. 

The U.S. Defense Department, meanwhile, is trying to throw money at the problem, putting rare earths at the center of the annual defense acquisition bill three years in a row, with plans this year to massively increase existing Pentagon funding for rare-earth projects. All that comes after a drumbeat of Trump administration moves, from a 2017 executive order seeking to ensure supplies of critical minerals to a 2019 Commerce Department report suggesting ways to do so.

“It’s ripe for legislation,” said an advisor to Cruz, who says that kick-starting domestic demand for finished rare-earth products will percolate back up the supply chain and rejuvenate a U.S. industry that has basically evaporated since its world-leading days three decades ago.

The drive to decouple from China has been thrown into overdrive by the coronavirus pandemic and new calls from hawks in Washington to take a tougher approach to confronting Beijing’s rise as a global rival. Sen. Josh Hawley, a Missouri Republican, took to the Senate floor this week to rail against China’s economic imperialism and called for the United States to leave the World Trade Organization and create a brand-new global economic order.

Other lawmakers and Trump administration officials, starting with the president, are also increasingly leery of maintaining the kind of deep economic integration with China that has marked the last two decades. 

“There’s this confluence of factors that really provided added momentum to the discussions on the Hill concerning security of supply [of rare earths],” said Jane Nakano, a scholar at the Center for Strategic and International Studies. “It went on before COVID, but certainly there’s added momentum because of COVID.”

Gaining independence on rare earths has been the subject of on-again, off-again debates in U.S. defense circles since 2010, when China, the world’s leading supplier, briefly halted rare-earth exports during a dispute with Japan. If there’s so much urgency about building a U.S. supply chain, it’s not to make the materials needed for the next generation of smartphones, electric car batteries, or wind turbines—though all those things need high-end rare-earth products. 

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