Editor’s Note: Eugene Gholz is an associate professor of political science at the University of Notre Dame. The opinions expressed in this commentary are his own.
Earlier this summer, the Chinese government implied that it might halt exports of rare earth elements to the United States as its next step in the ongoing trade war. These minerals serve as crucial elements in the manufacturing of a wide range of technology products, and American leaders worry that if China follows through on its threat, it will cripple the US economy and threaten national security. But these fears are misguided — there are other available sources for rare earth materials and components made from them, like Australia and Japan, that can be tapped into if China follows through on its threats.
Rare earth elements are like technology “fairy dust.” Very small amounts of these materials — including neodymium, dysprosium and yttrium — contribute to many signature products of the modern world, such as cell phones, electric cars, wind turbines and precision weapons.
In the face of this supposed threat to national security resulting from China’s potential cutoff of rare earth supply, politicians are racing to do something. Unfortunately, in their panic they are showing willingness to compromise the American business ethos.
Some in the Trump administration generally lean toward protectionism, and in late 2017, the president signed an executive order seeking to “increase activity at all levels of the supply chain, including exploration, mining, concentration, separation, alloying, recycling and reprocessing critical minerals.” And recently, using the Defense Production Act, originally enacted in 1950, the Pentagon has begun making inquiries to assess domestic processing and manufacturing capacity for rare earths, likely to begin the process of offering subsidies for rare earth production.
Additionally, US legislators, including some generally considered friendly to free trade, have introduced bills to give special treatment to the US rare earth industry. Senator Marco Rubio of Florida introduced a bill to exempt the rare-earth processing industry from antitrust law; others, like Alaska’s Senator Lisa Murkowski, have sought to relax permitting requirements for companies seeking to open new mines.
But the government doesn’t need to step in. There are plenty of sources for rare earth materials that US tech manufacturers can tap into.
The Mountain Pass mine, located in Mountain Pass, California, had been producing rare earth minerals since the 1950s when it closed in 2002. But now, under new ownership, the mine is operating profitably at commercial scale as MP Materials.
MP’s mine already produces a lot of rare earth concentrate. And if the Chinese government disrupts rare earth trade or if demand increases in the future, that same facility can mine ore at a faster rate to fill the needs of American consumers.
American firms like MP are not the only ones that saw opportunity in the possibility of China withholding rare earth materials.
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Over the past decade, an Australian mine owned by Lynas Corporation has also begun producing rare earths at commercial scale. A third company, Alkane Resources, also in Australia, is fully permitted and has more than a decade of research and development experience developing their processing system.
What has held Alkane Resources back thus far from entering the commercial market is a glut of rare earth materials — not a lack that requires a government remedy. That mine’s availability undercuts the argument that relaxing mine permitting rules is necessary to stimulate rare earths’ availability for national security uses.
The other government policy initiatives could also create problems. US government investments using the Defense Production Act to create still more rare earth production capacity would add to this glut. The government investment could even drive the privately funded, already-operating US mine out of business again. Well-intentioned policies frequently have unintended consequences.
Finally, rare earth alarmists also often point out that getting ore out of the ground is not the only step needed to ensure reliable supply. Ore must be processed into rare earth oxides, refined into rare earth metals, converted into rare earth alloys and manufactured into rare earth magnets and other components. Right now, a lot of that activity takes place in China, and US politicians want to use government investment or special antitrust exemptions to create a full rare earth supply chain in the United States.
But non-Chinese firms operating in Malaysia, Estonia, France, Thailand and elsewhere are able to process the raw ore, and for firms that have already done the research and development like MP Materials and their Australian competitors, the capital costs and delays involved in building new capacity are not large. There are also non-Chinese companies, including some in the United States like Eutectix and Hitachi, at other stages of the rare earths supply chain who are eager to expand their operations when market conditions warrant.
We should trust the dynamism of the market. Businesses react to opportunities. Government planning and protection are slow, expensive and prone to unintended consequences. Our politicians in Washington should remember that.