Opinion: China's got the rare earths market, and it's playing tough
Interesting opinion today from Daniel McGroarty of Carmot Strategic Group. Having cornered the global market on rare earth elements (REEs), McGroarty argues, China can effectively stiff-arm any World Trade Organization action that victims of their market manipulation might win:
WTO rulings aside, China's resource export policy will not be influenced by outside institutions or international agreements, but by decisions taken at the top of the country's ruling circle. As a strategic resource, China will manage its rare earths accordingly -- for the long-term needs of its economy, its technology base and its military.
When will the U.S. do the same?
That’s the last bit of the opinion, so apologies for spoiling McGroarty’s ending. But the whole thing is worth a read. It reminded your blogger of a report by Brigadier General John Adams (U.S. Army, Ret.), Remaking American Security, that listed REEs among the many necessary materials that our military relies on, but is hard pressed to source domestically. In it, Adams describes why its so dang hard to get a hold of REEs these days:
Supply is up because non-Chinese companies have aggressively invested in REE mining. Japanese companies have opened rare earths mines and processing in Kazakhstan, India, and Vietnam. The production of elements outside China is predicted to grow tenfold over five years, from 6,000 tons in 2011 to 60,000 tons in 2015. …
The large and sudden investments in REE mining and processing have brought prices down, especially as global demand has softened. …However, China may ultimately retain its dominant position. The price squeeze is making it unprofitable to continue operations in advanced industrialized countries. … Even if mines outside China can locate heavy REs, the issue remains that China is an extremely low-cost producer. It will be difficult for companies in the United States or Australia to compete with Chinese mines when Chinese authorities are lax in enforcing health, safety, and environmental rules.
So: How do we reduce dependency on foreign suppliers for essential military equipment? The Adams report suggests the following steps:
- Increasing long-term federal investment in high-technology industries, particularly those involving advanced research and manufacturing capabilities.
- Properly applying and enforcing existing laws and regulations to support the U.S. defense industrial base.
- Developing domestic sources of key natural resources required by our armed forces (This one would apply to REEs).
- Developing plans to strengthen our defense industrial base in the U.S. National Military Strategy, National Security Strategy, and the Quadrennial Defense Review process.
- Building consensus among government, industry, the defense industrial base workforce, and the military on the best ways to strengthen the defense industrial base.
- Increasing cooperation among federal agencies and between government and industry to build a healthier defense industrial base.
- Strengthening collaboration between government, industry, and academic research institutions to educate, train, and retain people with specialized skills to work in key defense industrial base sectors.
- Crafting legislation to support a broadly representative defense industrial base strategy.
- Modernizing and securing defense supply chains through networked operations.
- Identifying potential defense supply chain chokepoints and planning to prevent disruptions.
Pretty broad, right? Don't worry, the Remaking American Security goes into these issues in depth. And you can read the entire report right here.
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