By David Husband —
In September 2010, a Chinese fishing trawler collided with a Japanese coast guard vessel near the uninhabited Senkaku/Diaoyu Islands, nominally controlled by Japan, but also claimed by China and Taiwan. After Japanese coast guard members arrested the captain, China halted the shipment of rare earths to Japan in apparent retaliation. This crisis in the East China Sea suggests both a strategic threat and an economic opportunity for the United States with respect to rare earth metals. By pursuing rare earth metal independence, the United States can expand into a potentially vast and profitable market while furthering its national security interests.
Officially, China’s actions in halting the shipment of rare earths were not in response to the collision—an official response would have allowed Japan to file a complaint with the World Trade Organization—but it was widely recognized as retaliatory. China refused to ship rare earth minerals for a month, even after Japan agreed to release the captain.
This incident reinforced the fears of many observers concerned about China’s expanding economic and military might. Rare earth metals are uncommon minerals used in the manufacture of high-tech products. Most of the world’s production (about 95-97%) is concentrated in China, which has in the past exercised strict control over these minerals. China, through its control of the production of rare earth metals, possesses an economic advantage exploitable at will, subject only to the vagaries of Chinese internal politics. The fear is that control over rare earth metals is one of the building blocks China is assembling as part of its nuanced strategy to raise its economic and military might to that of a great power. China is increasingly involving itself in discussions regarding Iran and North Korea, investing throughout the continent of Africa, and increasing military spending. According to the New York Times, as China has gained resources and influence, it has adopted new strategies and behaviors, ranging “from aggressive to passive-aggressive to diplomatic, in places that twenty years ago China’s leaders rarely thought about.”
The United States responded shortly after China lifted the ban, when Secretary of State Clinton visited Beijing and emphasized, “There are some in both countries who believe that China’s interests and ours are fundamentally at odds. But that is not our view. In the 21st century, it is not in anyone’s interest for the United States and China to see each other as adversaries.” However, despite the rhetorical language of friendship, policy makers are increasingly concerned that America is far too dependent on China for rare earth metals and must take action to secure an independent supply—a process that a Department of Energy report pessimistically notes could take up to fifteen years to achieve. The DOE report also emphasizes a fact that is often overlooked: rare earth metals are “not in fact rare. They are found in many countries, including the United States, Canada, and Australia. However, at present, more than 95% of production for rare earth metals is currently in China.”
These facts have alerted policymakers and businesses to the growing need (and opportunity) for alternatives to Chinese-produced rare earth metals. There have been some notable efforts to develop such alternatives—from Japanese attempts at more advanced recycling, to Australian company Lynas’ attempt to open a mammoth new rare earth metal refinery in Malaysia and Molycorp’s (the only American rare earth metal company) attempt to reopen a long-defunct rare earth metal mine in Colorado—however, Chinese production remains vastly disproportionate to that of the rest of the world.
Rare earth metals have numerous military applications. The U.S.-China Economic and Security Review Commission has a mandate to submit “an annual report on the national security implications of the bilateral trade and economic relationships between the United States and the People’s Republic of China.” According to the Commission, rare earth metals play a critical role in “sophisticated military applications including guidance and control systems; advanced optics technologies; radar and radiation detection equipment; and advanced communications systems. Some of the defense related weapons and equipment that contain rare earths are: Predator unmanned aerial vehicles, Tomahawk cruise missiles, Zumwalt-class destroyers, night vision goggles, smart bombs, and sonar transducers.” The Commission also notes that the United States was once the world leader of the rare earth metals industry, accounting in 1984 for at least one-third of global exports, a position that China successfully challenged through heavy governmental subsidies of non-profitable mines.
Until now, the American mining industry has avoided re-entering the fray and shied away from rare earth metal production due to the severe environmental impact and the cost to comply with stricter U.S. environmental standards. Yet, America’s technological know-how provides it an opportunity to re-emerge as a world leader in the rare earth metal industry. Correcting the rare earth imbalance presents a strategic opportunity for American manufacturing—an industry that is still the world’s leader, despite slowly shrinking as a percentage of the U.S. GDP. America’s competitive advantage lies in the fact that the American manufacturing sector is simply more efficient than those in other countries. Correcting the rare earth metal imbalance—already a national security imperative—provides a potentially fertile new area for industrial development.
There is also a new trend called “on-shoring” where American companies are bringing back production to the United States, influenced in part by rising energy prices, higher shipping costs, and the narrowing of the wage gap between the United States and developing countries. President Obama, in his recent State of the Union address, stressed the urgency of helping America become more competitive: “Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country and your country will do everything we can to help you succeed.” It is clear that the present Administration is eager to assist American manufacturing and create more U.S jobs. Rare earth metals provide an additional front for that effort, one that will also strengthen national security.
Furthermore, economic problems with national security implications should not be treated as purely economic. China is supporting its domestic rare earth metal industry and the U.S. Government should do the same, due to the strategic importance of rare earth metals. It should provide incentives in the form of tax rebates, support for mining operations, and innovation in order to remedy the rare earth metals imbalance. Helping spur the creation of a domestic industry that ensures the United States is not vulnerable to the whims of the Chinese government is good policy and good politics.