The U.S. moves to ensure a robust supply chain for rare-earth elements—beyond China’s control.
They could be the superheroes of minerals: Neodymium has the world’s mightiest magnetic powers, making it essential for missile guidance systems. Lanthanum enhances the clarity of glass, particularly for high-end camera lenses, such as those used for intelligence, surveillance, and reconnaissance, and phosphorescent europium warms the hues in LED lights and plasma displays, while its unique neutron-absorbing properties make it a crucial ingredient in the control rods used in nuclear reactors.
All three are part of a class of 17 elements known as rare-earth metals that are critical for modern technologies, from cellphones to aircraft engines, and from missiles to aircraft carriers. Yet despite their critical nature, the U.S. depends on China for 80 percent of its rare-earth metal consumption.
Now, the U.S. government is moving to change that equation. On Sept. 30, President Donald J. Trump declared U.S. dependence on China for rare-earth elements a national emergency, issuing an executive order directing a multi-agency review and immediate action to provide loan guarantees and grants to help stimulate domestic supply. U.S. mining firms, and possibly some foreign-owned competitors, will be eligible for those funds. In addition, Trump ordered environmental restrictions relaxed to further encourage domestic mining.
“Our nation’s undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States,” Trump wrote. “I hereby declare a national emergency to deal with that threat.”
Relying on foreign sources for these critical materials poses a risk to the DOD’s readiness to deter and defeat adversaries.Department of Defense 2021 budget request
In addition to rare-earth metals, China also provides more than half of U.S. annual consumption of 31 of 35 materials deemed critical to national security. The administration said the U.S. has no domestic supply for 14 of those. U.S. dependence on China for gallium, graphite, and barite, among other materials, “constitutes an unusual and extraordinary threat,” the order states, to national security and critical U.S. industries.
Competition for access to the Arctic Ocean and the rich resources beneath is one reason China is trying to normalize its presence there, Air Force Secretary Barbara M. Barrett said in July. In rolling out the service’s first-ever Arctic strategy, China wants “access to regional resources, which are said to include over 90 billion barrels of oil and an estimated trillion dollars’ worth of rare-earth metals.”
Trump’s September order followed five presidential determinations for the rare-earth elements supply chain issued in July 2019, addressing: Light Rare-Earth Separation and Processing; Heavy Rare-Earth Separation and Processing; Production of Rare-Earth Metals and Alloys; Production of Neodymium Iron Boron Rare-Earth Permanent Magnets; and, production of Samarium Cobalt Rare-Earth Permanent Magnets.
These efforts “will establish a domestic industrial capability to support key aspects of the rare-earth supply chain,” according to the Pentagon’s 2021 budget submission. “Relying on foreign sources for these critical materials poses a risk to the DOD’s readiness to deter and defeat adversaries.”
It listed rare-earth element permanent magnets required for jet fighter engines, missile guidance systems, missile defense, space-based satellites, and communications systems among the critical needs.
The 2021 National Defense Authorization Act looks to build supply chains domestically and with U.S. allies in an effort to reduce global reliance on China for the elements. The department plans to use some of the additional $120 million in Defense Production Act funds to get this supply chain established. In addition, “multiple projects are anticipated to be awarded in FY20 utilizing prior year funds,” the budget documents state.
Rare-earth elements aren’t necessarily scarce, according to U.S. Geological Survey (USGS) data. But they can be hard to locate. Instead of appearing as a vein in rock formations, like gold or silver, capturing rare-earth metals requires minors to extract a large volume of rock and then process it to separate out rare-earth elements, said professor Roderick Eggert, deputy director of the Critical Minerals Institute at the Colorado School of Mines.
After the mining phase, the rare-earth elements have to be separated from other material in a technologically tricky and environmentally hazardous process to obtain useful amounts of the elements. Once the elements are separated, they can then be processed into alloys and refined to be used to make useful materials. The final step is to take the refined rare-earth elements and turn them into magnets, chemical catalysts, or other components in aircraft, weapons systems, and other goods.
The Mountain Pass mine in San Bernardino County, Calif., is the only operational rare-earth metals mine in the United States, producing about 10 percent of all rare-earth concentrate, the material from which the metals are extracted, according to USGS data. But the mine does not process its own materials—nor does any other U.S. firm. Instead, Eggert said, all of the material is shipped to China for processing.
Converting rare-earth elements into usable metals is energy-intensive and environmentally fraught, one reason U.S. production disappeared. It’s hard to meet U.S. regulatory standards; China’s rules are far more forgiving, Eggert noted.
It wasn’t always this way. Just 30 years ago, the U.S. controlled most of the global rare-earth market, and the Mountain Pass mine accounted for 50 percent of global rare-earth production, But China pursued a slow and steady strategy to dominate the market, leveraging cheap labor, lax environmental standards, and government policies that promoted the industry, said Dean Cheng, a senior research fellow at the Heritage Institute.
While some raised alarms in the early 2000s, most U.S. policymakers were not concerned about China’s growing dominance of the rare-earths market. Cheng said that while China may have sought to manipulate the market to put foreign mines out of business, it generally produced rare-earth elements more efficiently and economically than rivals.
In his executive order, the President asserted that, “since gaining this advantage, China has exploited its position in the rare-earth elements market by coercing industries that rely on these elements to locate their facilities, intellectual property, and technology in China.” For example, China suspended exports of processed rare-earth elements to Japan in 2010, threatening that country’s industrial and defense sectors and disrupting rare-earth elements prices worldwide. As a result, the order states, “multiple companies were forced to add factory capacity in China.”
With a new National Defense Strategy released in 2018, however, the world has changed. “We see China as more threatening today,” according to Cheng. “Therefore, we ow think of rare-earths differently than we did 10 or 20 years ago. … Twenty years ago, why would you want to have horribly polluting, dirty processing of these ores [in the United States] when the Chinese are happy to do it for you?”
Cheng said the Japanese embargo, which struck Japanese cellphone manufacturers and automakers in particular, catalyzed concern among Japan, Australia, and the U.S. to begin investing in their own rare-earth supply chains.
However, Andrew Hunter, director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies, said that because the Department of Defense represents such a small share of U.S. rare-earths consumption—less that 5 percent—solving its problem without addressing the wider commercial markets would be inefficient. The solution has to address the entire market, he argued.
“If you throw enough money at it under the Defense Production Act, get Mountain Pass up and operating again and meeting defense needs, you most likely would end up with a supply chain that was divorced from the commercial market,” Hunter said. That, he added, would “be incredibly expensive and not very robust.”
Making a reliable commercial supply chain likely would involve collaboration with close U.S. allies such as Australia, Japan, and Canada. Australia has large material deposits, and its Lynas Corp. Ltd. is among the largest rare-earth producers outside of China. Japan, meanwhile, has expertise in processing and refinement, Hunter said, so it’s possible that raw material harvested in Australia could be processed and refined in Japan, then marketed to Australia, Japan, and the U.S.
Undersecretary of Defense for Acquisition and Sustainment Ellen Lord said the U.S. is considering all options. “One of the highest potential avenues is to work with Australia,” she said in 2019. She had visited Australia and held“discussions about rare-earths and whether or not we could work with Australia to stand up a facility that would take care of our DOD needs” and also those of other international partners.
Among U.S. producers, USA Rare Earth is among those that have pressed for government action. “What we’re hearing across the globe, both from governments and the private sector, is a concern around a secure supply chain of rare-earth and battery materials—and in particular, what we call the heavy rare earths,” said Pini Althaus, CEO at USA Rare Earth.
Each F-35 jet contains some 920 pounds of yttrium, terbium, and other rare-earth elements, particularly for their advanced targeting systems, according to a Congressional Research Service report from 2013.
USA Rare Earth is developing the Round Top Heavy Rare Earth and Critical Minerals Project in West Texas, a site 85 miles from east of El Paso, that has long been scouted by mining firms, but was never before deemed economically viable, Althaus said. It’s also developing new refining methods and will spend the next year refining its processes at a temporary facility in Colorado as it prepares to open a production plant in Texas, Althaus said. USA Rare Earth’s facility will be among the first new full rare-earth element and critical minerals processing facility outside of China in years, he said.
Round Top contains 16 of the 17 rare-earth elements, and a particularly high concentration of the heavy rare earths essential to the F-35 and other military applications. He argues it will “be able to provide U.S. defense with all the materials it will need for the foreseeable future.”
USA Rare Earth is also adapting a magnet plant in North Carolina formerly owned by Hitachi, which will help establish a wholly domestic supply chain for rare-earth element products, Althaus said, making his firm “the only company outside of China with a mine-to-magnet solution.”
Founded in Australia, USA Rare Earth established itself as an American company to launch the Texas project with the support of the Navajo Transitional Energy Company—the investment arm of the Navajo nation focused on green energy—as one of its major investors. All its investors are from the Five Eye countries: Australia, Canada, New Zealand, the U.K., and the U.S.
For the industry to survive and thrive in the U.S., however, Althaus argued that government investment and policy leadership will be critical. “As far as what the rare-earth sector is going to look like in five or 10 years, that is really in the hands of the U.S. government,” he said. “We can set up a critical mineral supply chain, and that could mean getting 20-, 30-, 40-percent of rare earth elements and critical minerals from U.S.-based companies.”
China won’t take new competition sitting down, Cheng said. It will continue to stymie rare-earth development abroad by buying rare-earth production companies around the world, exporting refined rare-earth materials, and driving down commercial prices to make competitors unprofitable, Cheng said.
“You can never out-subsidize the Chinese,” he said.
But the combined resolve of Australia, Japan, Germany, and the U.S. could be enough to prevent a Chinese monopoly, Hunter said. “The Chinese, in some ways, have done the easy part. Becoming a major market player is one thing, truly establishing a monopoly that everyone else has to do what you want” is a harder nut to crack.
Compared to other nations of its scale, China is relatively resource-poor, Hunter said, and rare earths are among the few naturally occurring commodities China can control. They want to use that control to become a leader in capital goods that need rare-earth elements, including windmills and batteries, both critical elements in alternative energy markets.
“Ultimately,” Hunter stated, “the source of U.S. national security is the economic power that made the U.S. what it was in the 20th century, and now the 21st century. That is the No. 1 threat, in my perspective, and the national security threat is derived from that.”
John A. Tirpak contributed to this report.