Eric Hannis is senior fellow in defense studies at the American Foreign Policy Council in Washington, D.C.
The United States, like most of the industrialized world, is currently engaged in a race to develop viable, non-Chinese sources of the rare earth elements that are so critical to modern technologies. And we better move fast, or we will lose that race.
Why are rare earths so important? Everything from smartphones to iPods to missile systems requires rare earths. Almost every piece of high tech gadgetry contains some combination of rare earths to make volumes louder, E-mails vibrate, and bombs able to hit their targets. Nations that control rare earth production own one of the most capable economic and national security levers in the modern world. Over the last quarter century, that lever has been controlled overwhelmingly by China.
China began a dedicated campaign to dominate the rare earth supply chain back in the 1970s. In 1992, Deng Xiaoping's drive to control these elements was famously reflected in his statement that the "Middle East has oil, China has rare earths." China today has the largest share of rare earth deposits on Earth—almost half the world's reserves. As a result, Beijing has been able to effectively use access to rare earths as a way to compel high tech companies to establish production in China. It has also worked to eliminate the competition; starting in the 1990s, China dumped huge quantities of rare earths onto the world market, resulting in plunging prices that forced U.S. companies out of the business.
With U.S. and foreign competitors out of the way, China began to use rare earths as an economic development lever. It works like this: Companies that produce their high tech products in China can get the benefit of lower prices as well as a guaranteed supply. China's intent all along was not just to develop rare earth production, but also the downstream high tech industries that depend on rare earths. This supply chain brings with it thousand of jobs—and tremendous dependency on China. The country currently has a stranglehold on the rare earth supply, amounting to more than 95 percent of worldwide production.
But a backlash is beginning. Many companies are increasingly loathe to move their production to mainland China. Most are afraid of the potential of intellectual property infringement and industrial espionage. But the need to gain a cost effective, guaranteed supply of rare earths means that many have been forced to make a "deal with the devil." If viable, non-Chinese sources are developed soon, however, companies will have an alternative that will allow them a way out of the China relocation trap.
This race is also important for defense reasons: A reliable domestic source of rare earths for weapons production is a critical national security goal for modern nations. As China proved in 2010 when it placed a rare earth embargo on Japan because of a territorial dispute, it is not afraid to use access to rare earths as a lever to get its way in the international arena. Because of concerns over China's dominance of the rare earths market, the U.S. Department of Defense was directed by Congress in 2011 to study the problem. The Department of Defense's analysis resulted in an April 2012 report entitled Rare Earth Materials in Defense Applications, which determined that we are at risk for interruption of some critical rare earth elements because of Chinese production hegemony.
But where are we in the race to develop rare earth production? The United States, with approximately 13 percent of the world's total reserves, has one of the most economically-viable concentrations of rare earths in California. Other countries with large deposits of rare earths include Australia, Russia, Mongolia, and Kazakhstan, among others. Production in California is rapidly developing, and will be able to supply the raw rare earth ore for much of America's needs within a year or two.
The problem is that mining for rare earths is just the start. The industrial capacity that takes raw rare earth elements and makes them into components that can be used in high tech products largely does not exist in the United States—and may not be developed for another 10 to 15 years. So the production of rare earth metals, alloys, and magnets have to rely on factories located outside the United States, and some even in China. An astounding 80 percent of the worldwide rare earth magnet production is from China. So the problem is not just about access; we must also develop U.S. capabilities to refine and make rare earths into useable components. Otherwise, we are simply shipping our raw materials to China, or other countries, for processing.
This state of affairs is unsustainable. Our national security and our economic health alike depend upon the development an end-to-end, domestic rare earths supply chain. In much the same way that we should strive for independence from Middle Eastern oil, the United States now needs to make "rare earth independence" from China a key priority of government. After all, the nation that supplies our rare earths shares one key similarity to the region that supplies much of our oil: Neither are getting friendlier to America.