The tension that reigns in trade relations between China and the United States does not seem to abate, far from it. The rare earths (REEs, Rare Earth Elements) are still the protagonists of this particularly conflictual moment between the two countries. The 17 chemical elements, which have risen to the headlines again in recent weeks, are preparing to become the crucial battleground in which this economic and technological war will be consummated and could be the ace in the sleeve of the Chinese President, Xi Jinping, at order to make the US economy capitulate.
Yesterday, the ‘Xinhua’ government news agency, placed under the direct control of the State Council of the People’s Republic of China, published an article that leaves no room for further interpretation: ‘U.S. risks losing rare earth supply in trade war “.
“We are happy to see that rare earth resources and related materials can be used to make all kinds of advanced products that help to better meet the demand for prosperous life that comes from people from all over the world”, is what has been declared by a Chinese official of the National Development and Reform Commission, in Mu Xuequan, signing the article, which adds “if anyone wants to use rare earth imported against China, the Chinese will disagree“.
These statements are echoed by those of Xu Xijin, editor-in-chief of the ‘Global Times’, an important Chinese-language English newspaper, which has released this comment through its Twitter profile: «for what I know, China is seriously considering to restrict the rare earth exports to the USA. China could also take other counter-measures in the future “.
All this follows the visit of Xi to the JL Mag Rare-Earth Co., Ltd, a leading international company in the production and development of rare earths.
As the English writer Agatha Christie used to say, “a clue is a clue, two clues are a coincidence, three clues a proof“.
Recall that China owns 37% of the world’s REES reserves and – according to the U.S. Geological Survey – between 2011 and 2017, it produced about 84% of the rare earths in the world. By contrast, the United States, between 2014 and 2017, imported 80% of its rare earth compounds and metals from China.
Beijing, therefore, seems intent on leveraging its strong position in the rare earth sector to put pressure on the US administration, which since May 10 has further increased duties on Chinese imports. The increases in Chinese duties on US imports, on the other hand, will start from June 1st.
James C. Kennedy, Consultant to the U.S. Government, financial, mining and energy industry on strategic issues related to rare earths and thorium within the U.S. regulatory environment and President of ThREEConsulting. He is an internationally recognized expert on the economic, national security and geopolitical ramifications of China’s rare earth monopoly and thorium nuclear energy systems.
If China used the Rare Earth weapon in the trade war, would Trump be forced to cede on virtually all fronts?
In short, yes, assuming the embargo would need to be administered with strict export restrictions, or reductions, on all of China’s other trading partners (to prevent U.S. circumvention). If this happens the EU and the rest of the world should expect sharp reductions in rare earth imports.
Why has China not used this weapon so far?
This is no ordinary weapon. I don’t believe China will use it / waste it in a trade war. If China does ‘use it’ it will be more like the 2010 embargo against Japan that never actually happened – just some delays and lots of uncertainty. This, by the way, is an excellent strategy for China because the delays and uncertainty will force may U.S., EU, Japanese and Korean companies to move manufacturing to China to eliminate this threat (the largest unreported outcome of the 2010 ‘embargo’). I believe China is holding it for a future U.S. conflict (presumably not with China). If used properly it is so much more than just ‘going nuclear’. I would describe China’s rare earth monopoly as it’s Hegemon Trigger. Consider the scenario of the U.S. going to war with Iran, or anyone else for that matter. If China deploys its embargo at that time the U.S. will not be able to produce replacement weapons, while the domestic economy grinds to a halt. With the U.S. forced to fight its enemy on more equal terms casualty numbers will escalate, resulting in political chaos at home. At the same time China would begin openly selling U.S. Treasuries, forcing Saudi and the other gulf states to re-align with China (Saudi and the gulf states hold their fortunes in U.S. dollar denominated assets and treasuries) by abandoning the Petro-dollar system. The EU, and most other nations will follow the gulf states as the U.S. dollar collapses – ending the U.S. dollar’s world reserve status forever.This weapon, if used correctly, will vanquish the U.S. and give China unchallenged global hegemony, all without firing a shot. If you doubt it, consider all of the good will, investment and trade deals China has done with Saudi and the other gulf states. China has mended its fences with Russia and has established collaborative cross-trading systems to counter U.S./Iran sanctions. China is Iran’s most important trading partner. China is conducting trade around the world, with U.S. allies and enemies, on better terms that the U.S. can offer. Its “one belt, one road” program dwarfs anything done or imagined by the U.S.. It’s Made in China 2025 program is being built on the ashes of U.S. and EU industrial and technological leadership.This is the most powerful weapon China has. During peace time it is used to force U.S., EU, Japanese and Korean technology companies to move manufacturing to China. During war time it can shut down most of the world’s technology economy and prevent foreign militaries from re-arming any of their more advanced weapon systems.
There is a problem of environmental sustainability linked to the production of Rare Earths in China. Could this be a factor that would slow down Chinese production? And if so, wouldn’t a dangerous rise in prices trigger?
No. China, or any other country in the world, can produce these materials at the highest environmental standards. The problem for the U.S. and others is that they have failed to identify the real problem and provide a structured solution. The problem is thorium. Historically 100 percent of the world’s heavy rare earths came from the byproduct of some other commodity (titanium, zircon, iron, phosphates). The rare earths were separated from the primary commodity as part of the regular mineral processing. The most common mineralization was monazite, a rare earth mineral typically containing over 50 percent rare earths. However, monazite typically contained thorium. In 1980 the U.S. NRC and IAEA applied uranium mining regulations, including regulatory thresholds on “source material” (nuclear fuel) to all types of mining. This resulted in all of these byproduct mines terminating the sale of rare earths to avoid regulatory costs and liabilities. Instead, these mines disposed of this material into their waste streams (as they continue to do today). This regulatory change is the primary reason that the world’s rare earth industries shifted to China. Today the U.S. mining industry alone disposes of enough recoverable rare earths to meet 85 percent of global demand. The current administration has had a solution to this problem sitting in its White House Executive Office and with the Secretary of Commerce for over two years. The same solution was presented to the Pentagon over 10 years ago and was offered as a bill in the House and Senate in 2014.
The US is not self-sufficient in domestic production of rare earths. So, what is the risk of American Defense?
Please note that your question reflects the common misconception that the U.S. has made some progress or has attained some amount of self-reliance. It has not! The U.S. has an operating mine now called MP mine, in California. This is the double defunct Molycorp Mt. Pass mine. The mine formerly produced rare earth oxides. Oxides have no direct technology or defense application. Molycorp shipped its oxides to China to be processed into a usable form. The current MP mine is now shipping concentrates (dirt with some rare earth in it) to China to be converted into oxides and then something usable (e.g., metals, alloys, magnets or other post-oxide materials). So, in short, the U.S. remains 100 percent dependent on China for usable forms of rare earths and has no (NO!) domestic facilities to convert rare earth oxides into their usable form. It should be noted that a 2016 U.S. Government Accounting Office report estimated that it could take 15 years for the U.S. to develop these facilities.
We know that rare earths are fundamental for many industrial products and technologies. What is the risk of American industrial production? how much would it affect GDP?
I don’t think anyone knows for sure. Most large corporations and defense contractors have no idea if, how much or what rare earth are used in their finished products. For sure, it would halt nearly every automobile assembly line in the U.S (gas, diesel, hybrid and Evs). How can this be true? Every U.S. automobile built today has multiple rare earth dependent components (pollution control devices, power windows, mirrors, seats, starter motors, wiper control motor, LED screens, etc.,). Due to the engineered size and weigh reductions that were made possible using rare earths auto makers cannot use the old fashioned components because they are much larger and heavier. The re-engineering would take a considerable amount of time. The same is true for most advanced electronic devices and green technologies that are produced in the U.S. Of course, as U.S. supplies are stalled, China will pick up that business. The long-term consequences of such an embargo are impossible to estimate.
The problem of security (I refer to Defense but also to civil industrial production) includes the entire West, starting from NATO up to the EU’s GDP. Is that true? Can you explain well what the risks are? And can we quantify them?
Weapons procurement for the U.S. and our NATO partners is entirely subject to a Chines embargo. The EU commercial sector is in marginally better shape. They have made impressive strides in the area of recycling, despite the fact that none of these materials are competitive with Chinese pricing (and why would they, since China is operating a state supported monopoly that accepts losses, to control resources, to capture technology).
Can you explain in detail the legislative and industrial motivations for which the United States does not have a significant production of Rare Earths?
Resource abundance and availability are not the issues. High-value heavy rare earths are abundant, available, and recoverable. These resources were the backbone of the global rare earth market before NRC/IAEA regulations caused these resources to be withdrawn from the supply chain. Thorium/ uranium-bearing rare earth element phosphate ores (Th-U-REE-P), principally monazite, were the primary commercial source of rare earths until the mid-1960s. From 1965 to 1984, these Th-U-REE-P materials supplied nearly half of the world’s rare earth requirements and nearly 100% of the world’s heavy rare earth elements (REEs) (Haxel et al., 2002). The Th-U-REE-Ps are mineralogically superior to low thorium/uranium-bearing minerals such as bastnaesite because they typically contain recoverable quantities of all 16 REEs (promethium, the 17th REE, does not exist in the earth’s crust). These materials were also typically a low-cost (no cost) byproduct of some other commodity such as titanium, zircon, iron ore, or phosphates. Nuclear Regulatory Commission and IAEA source material regulations eventually eliminated Th-U-REE-P resources from the value chain for most of the world. By the mid-1980s, non-Chinese reﬁneries quit accepting monazite because it constituted a source material under the new regulations. Traditional producers of these valuable Th-U-REE-P byproducts began blending the Th-U-REE-P ore back into the depleted ore body or dumping it into tailings lakes to avoid regulatory and ﬁnancial obligations for source material producers. In short, a U.S. NRC and IAEA regulation terminated the production of all heavy rare earth production, shifting all rare earth mining, refining, metallurgical and advanced material science to China. Note: Molycorp was never a heavy rare earth producer and had no internal post-oxide capabilities. In fact, its primary business was in selling the most abundant and lowest value rare earth oxide, Lanthanum, to the petroleum industry.
Why did the American companies that tried to produce Rare Earth go bankrupt?
China operates a state sponsored monopoly and is motivated to control this space. China also gets over 50 percent of its rare earths as a byproduct of a single iron ore mine (read: no direct mining cost). This is in addition to its lower labor, capital and environmental cost. So, the better question is why would anyone believe that a U.S. rare earth mining operation would be cost competitive with China?
The White House is fighting a war for technological leadership with China, how is it possible that there are no Rare Earths on the table? if it is true that the rare earths are the basis of all modern industrial production, both civil and military, do you really believe that we are not dealing with this topic?
No one in the White House, Senate or Pentagon is dealing with this issue on the basis of reality. I have presented this data to the Administration, Congress and Pentagon but none of them found the data as a cause of concern. If you want to understand how this can be true consider the following: Unfortunately, the Pentagon, America and most of the world are trapped in the same semantic dystopia. What most people refer to today as ‘free markets’ and ‘capitalism’ are nothing more than the invention of globalist who have hijacked the language of classical economists to divert national incomes, off-shored industries and the sale of public assets for the enrichment of non-nationalist individuals and corporations. The rare earth problem dates back over two decades. Over this entire period past Administrations, Congress and the Pentagon has just assumed that the ‘free market’ was going to provide a solution — on its own. To put things in context, over 400 rare earth mining projects came to market shortly after 2010 and all but one are bankrupt. The only one that did not go bankrupt is Lynas. It was saved from bankruptcy by the generosity of the Japanese government, its creditors and customers. Today it is facing an environmental liability in Malaysia that may bankrupt it (the Malaysian upper house is controlled by ethnic Chinese).
Are the White House and Western governments aware of the problem and its seriousness? And if so why don’t they try to solve it?
I have spent 10 years ringing the alarm bell. I have met with the past two Administrations, the House and Senate Armed Services Committee (and most other relevant committees), the Pentagon, the Congressional Research Service, the Government Accounting Office, and the Department of Commerce. This is all covered in a book titled “SELLOUT” by Victoria Bruce. The government has failed to respond for the reason given above (the ‘free market will fix this’).
If legislative issues were resolved, how long would it take to rebuild the Rare Earths supply chain in the US?
Assuming the President enacted the Executive Order that has been sitting with the White House for over two years, resource production could begin in less than 12 months. Oxide production could begin in less than two years (limited production could happen within 12 months). Post-oxide production, including metals, alloys and metals within 3 years.
Starting from the EU, how is the situation in other countries?
As stated above, the EU has made great progress in the area of recycling (but it is NOT cost competitive with China) and has limited post-oxide capabilities. All in all, it’s just a few percentage points, but so much further along than the U.S. Japan has spent over $1 billion and only reduced its post oxide dependence by less than 3 percent. Keeping in mind that resource production is not a proxy for Chinese independence, the entire world is sharing less than 25 percent of the world’s non-Chinese post oxide capabilities, with Japan owning or controlling over 95 percent of that capacity.
We know your company has made a worldwide survey on patents related to Rare Earth. Could you explain the underlying patent problem and what your investigation could detect?
China has surpassed the entire world in rare earth patents and IP. China is writing so many patents that it will be able to make challenges to many existing patents and obstruct others from gaining patents. The world should expect China to begin challenging existing patents.
Are there any lobbies – except the Chinese – that work to slow down the development of rare earths in the West? Who benefits from the rare earth deficiency in the West?
China is the beneficiary of its monopoly. It uses market pricing and variation in supply to crush new entrants. At some point China will welcome new non-Chinese mining, but it will not allow any independent company to move up the value chain to post-oxide materials. Note: Public Chinese government documents estimate that black-market production of rare earths inside China are 150 percent larger than its official production figures. The Chinese often comment on their internal policies regarding black-market production, but this is a ruse. The black-market producer’s existence allows China to manipulate price up or down as it desires.