As the U.S.-China trade war escalates, rare earth elements have become a focal point of economic tension.  Described as an “ace in Beijing's hand", China produces 81 percent of the world’s rare earth elements, with the U.S. importing 80 percent of its rare earths from the Sleeping Giant.  Despite these figures, Chinese dominance over U.S. mineral markets is not the result of resource scarcity. 

Beginning in 1980, American companies have consistently opted to relocate to China in lieu of seeking out costly alternative rare earth sources.  No company wanted to be subjected to resource rationing, or cut off entirely, while their competitors excelled. China demonstrated willingness to use their industry influence in a political context when Japan found itself cut off from rare earth elements, pending the release of a captured Chinese military officer. Holistically, the collective passivity of both the American government and corporations has left the U.S. with very little bargaining power.

American companies began to relocate following the 1980 decision by the International Atomic Energy Agency (IAEA) and the U.S. Nuclear Regulatory Commission (NRC) to heavily regulate the transportation of mine waste rock and radioactive source material.  This meant that most heavy rare earth elements were suddenly regulated as radioactive, resulting in their removal from domestic supply. China, at the time, was not a member of the IAEA.

In 1990, the Chinese government capitalizing on their high output by declaring rare earth elements a “protected and strategic mineral.”  From 1990 to 2000, Chinese production of rare earth elements increased by more than 450 percent.  By 2007, China had rationed rare earth exports to foreign suppliers, forcing these corporations to move parts of their operation to China.

President Trump seems to be ready to begin to stem the tide of the nation’s rare earth dependency.  On June 4, 2019, the administration released a list of 35 minerals determined by the U.S. Geological Survey to be “critical to the U.S. economy and security” in conjunction with a plan for the security of rare earth resources.  Specifically, the Department of the Interior will be implementing faster permitting and appealing to U.S. trade allies with rare earth resources.  In order to instigate the rollback of permitting regulations, the Bureau of Ocean Energy Management and the Bureau of Land Management will review their permitting and land classifications as a means of streamlining both processes.

An additional option could be the creation of a rare earth elements cooperative based in the U.S. and comprised of magnet, electronic, and alloy manufacturers.  A rare earth element co-op gives these corporations the bargaining power they need as well as the resources to create a domestic supply chain.  Importantly, a co-op of this nature is compliant with antitrust laws and could redirect jobs and capital back to the U.S. 

China’s strong rhetoric and willingness to use rare earths as a weapon in a trade war requires swift action from the U.S.  Imposing new trade restrictions on rare earth elements would be a recipe for escalation, and pose new challenges for upcoming negotiations. Therefore, it is essential that the United States prioritize this issue before the trade conflict spirals further out of control.

-- Brady Africk