Cast your mind back nearly 10 years — for those of you in the metal business at that time, the market was briefly all about rare earths. For the first time in decades, all anyone could talk about was the West’s vulnerability to the supply of this misnamed group of highly important strategic metals and their salts.
In fact, so excited did the manufacturing sector become that it spurred a whole raft of startup specialists as consultants, analysts and research bodies as metal prices peaked in the summer of 2011 and then gradually fell back.
Not wanting to sound like the harbinger of bad news, but we could be in for a repeat performance if the significance of President Xi Jinping’s visit last week to a Chinese rare earth magnet factory in the province of Jiangxi is looked at with the seriousness Beijing intends.
China is rattling the saber ever so softly to say that it may be more exposed to general trade on a balance of payments position – China exports more to the U.S. than the U.S. exports to China — but the U.S. (and the rest of the Western world, as it happens) is uniquely exposed to China’s control of not just rare earth elements, but the whole supply chain. That supply chain includes everything from mining through refining to manufacturing of myriad components used in high-tech applications including from electric vehicles, cellphones, laptops, missiles and fighter jets.
An intriguing article in the subscription-only section of The Telegraph newspaper detailed the long-term risk the West has been running for years on rare earths elements (REE) and how REE could be the next flashpoint in an escalating trade war between China and the U.S.
The U.S. is nowhere near self-sufficient in REE, with even ores mined at California’s Mountain Pass shipped to China for processing and Lynas Corp’s proposed U.S.-based processing plant in Texas still years away from shipping a kilogram of refined metal. The post suggests China does not even have to announce an embargo of exports — it could close down selected parts of the U.S. supply chain by restricting supply to any number of component suppliers in China or shutting down a supplier on “environmental grounds.”
With the U.S. reliant on Chinese REE for whole components of U.S. manufacturing (examples cited range from simple car starters to chunks of aircraft), which are pre-finished in China using rare earths before shipping to the U.S.
Arguably, the military-industrial complex is even more exposed than the private sector.
F-35 Joint Strike Fighters need the thermal protection of rare earth coatings. Hellfire missiles, the Aegis Spy-1 radar and the sights of Abrams M1 tank all rely on rare earths. So do precision-guided weapons, the post’s list goes on, yet the White House and, indeed, successive U.S. administrations have been strangely sanguine about this vulnerability that covers not just the processing of ore to refined metals, but the infrastructure to use those refined metals and salts in a wide range of applications in the early stages of multiple supply chains.
Many, if not all, of those roads lead to China.
Maybe President Donald Trump should have used some of his brief time in Japan devising solutions to this shared problem with Prime Minister Shinzō Abe rather than watching Sumo wrestling and playing golf.