Rare Earth Materials - Not Good News

How the United States Lost the Rare Earth Materials War to China from The New Republic is not the first thing I have seen about China and the United States and rare earth materials. It is the first that I have read. It scared me, quite frankly. A quarter-century ago, I had a discussion with a Republican friend of mine about outsourcing. He was like what can go wrong, we're going to make money. What I thought could wrong was human nature and our history. Everyone assumed the world would stay at peace. I suppose the Austrian-Hungarians thought the same thing in 1913. Luckily, in my opinion, the disruption was not war, but the COVID pandemic. War may still be a possibility.

Yet even with deep technical expertise, a stake in Malaysia’s rare earth producer Lynas, and China’s reliance on Japanese industry for advanced rare earth components, Japan could not break free from Chinese supply—and they had substantially more leverage then than the U.S. has now. China relied on imports of Japanese components made from rare earth.

Japan learned a simple truth the hard way: China had built an unassailable lead by producing cheap, high-quality supply at scale. Replicating that capacity would require decades of work and material produced outside China would always cost more.

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Their material advantage was a boost for Chinese manufacturing—not only was China producing the materials, it was increasingly consuming them. Co-locating processing facilities near end-use customers allowed quicker iteration and tighter feedback, speeding up product design. These are advantages that only proximity can deliver. Before long, China dominated not just rare earth production, but also magnet making and other downstream industries built on the rare earth foundation.

At the same time, the West saw metal making as a dirty industry, ripe for outsourcing. Many rare earth facilities produce a tremendous amount of waste in addition to radioactive elements. Mining was a hard sell to local communities. Many countries legislated heavily to restrict them. It didn’t matter that these resources would power a green society or the next generation of weaponry. We ended up gutting the industry.

The U.S. once spoke the language of mining and metallurgy. Now we can barely understand it. It’s like a child of immigrants who never learned their parents’ language—because it was never passed down. 

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What’s more, even if the U.S. overcomes its technological inexperience and builds the foundations of a domestic supply chain, it will still face China’s vast excess capacity—more than 50 percent in some parts of the processing line. That means China can quickly ramp up production to undercut any newcomer trying to build from scratch. And as the world’s largest rare earth consumer, any producer of size still needs to sell to them.

And we do not have an industrial policy for our more mundane industries, just tariffs.

sch 5/5