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 Rare Earths: How America Dropped the Ball

By Shlomo Maital  

    This is about how the United States (i.e. Trump, but also predecessors) badly dropped the ball on a crucial component of hi-tech manufacturing – especially, crucial powerful magnets, that require rare earths.  

     But what are rare earths?   Note: They are not rare.  Just hard to process.  This is from Wikipedia:

       The rare-earth elements (REE), also called the rare-earth metals or rare earths,   are a set of 17 nearly indistinguishable lustrous silvery-white soft heavy metals. Compounds containing rare earths have diverse applications in electrical and electronic components, lasers, glass, magnetic materials, and industrial processes. The term “rare-earth” is a misnomer because they are not actually scarce, but historically it took a long time to isolate these elements.

  This is from the New York Times’ The Daily podcast.  It is an interview with Keith Bradsher, who has covered the subject for many years.   This blog is 1,690 words long, three times longer than usual. 

Background

     Rare earths are needed to make powerful magnets.  These magnets, it turns out, are ubiquitous in nearly every electronic product.  This is a story of how free-market economies generate vast wealth – but driven solely by short-term profit margins, fail to strategize long-run needs, until it is too late. 

In the ongoing trade war between the US and China, the biggest sticking point is a handful of metals that are extremely rare, essential to the US, and almost entirely under the control of China. The problem is, China has now cut off America’s access to those metals, threatening US industry and its military.

“…the most important and fastest growing uses are for very powerful magnets. You can make a rare earth magnet that is 15 times as strong as an old-fashioned steel magnet. Take a car, for example. If you went back quite a few years, you had to move the car seat back and forth manually.   These days, a single luxury car seat may have 12 separate motors to do all kinds of little adjustments to that seat — your thigh adjustment, your lower back adjustment, the tilt of the back of the seat. All these things these days have little electric motors, and each of those has a rare earth magnet.”

“…there are seven rare earth elements that are considerably less common. China completely dominates the world’s supply of them. It mines most of them and processes almost a hundred percent of them. Those seven are dysprosium, gadolinium, lutetium, samarium, scandium, ytterbium, and yttrium.”   Samarium is crucial for military hardware.

Root Problem

“What’s particularly striking is that it was the United States and a little bit Japan that invented these amazing magnet technologies using rare earths.   The US HAD a rare earth mine.  But in 1998, that mine was forced to close. It stopped production.   It turned out that it had a pipeline that leaked traces of heavy metals and a faint radioactive residue in a desert area, including where there were a few rare tortoises. And the cost of the cleanup and of improving the environmental compliance was more than the owners of the mine could afford, so the mine shut down.

 “And meanwhile, China had been ramping up its own rare earth production through the 1980s, through the 1990s, doing it very cheaply without a lot of environmental compliance at all. And many big businesses were welcoming China’s decision to join the World Trade Organization in 2001. And so the feeling was that this was the beginning of a closer economic integration with China.And it’s not just limited to cars.  For example, the seventh of these rare earth elements, samarium, has lots of military applications, because it can stay strongly magnetic even at temperatures that will melt lead. And as a result, samarium magnets, you find 50 pounds of them in an F-35 stealth jet. You find them in missiles. You find them in drones. You find them in smart bombs. Really, these rare earths now are in critical both to the economy and to national security.

      “This was the heyday of free-trade orthodoxy. I mean, this was the moment for optimism around this. And I’d imagine that the US closing its only mine for rare earths, ceding the field to China, makes for a pretty big business opportunity over there for businesses that want to get into this.    

      “A lot of people in China saw a chance to make money and set up their own mines and processing facilities, both legal businesses and also organized crime.

     “These rare earths are not that hard to mine. It doesn’t take lots of big, sophisticated equipment. And they were being mined, in the case of the best ore deposits of all, in a poor province in South Central China with a reputation for corruption. Let me tell you how they mine them. You get a guy with a dirt bike, he carries them.  This is where the dirt bikes come in.  You get a guy with a dirt bike, and he drives up the side of a pine-covered red clay hill, digs a small hole in the dirt, dumps in a sack of cream-colored powder. It’s ammonium sulfate. In less concentrated versions, it’s actually a fertilizer. And then he dumps a bunch of water in it. And as it percolates down through the inside of the hill, it dissolves a lot of the rare earths with it. And it begins coming out the bottom of the hill, just because water eventually comes out somewhere.  And that causes the rare earths to settle out as faintly pink crystals on the bottom of the clay pit. So then you dump out all the remaining acid and other liquid and contaminants into the creek, let the faintly pink crystals dry. Then from there, after the different rare earths are separated from each other, they’re taken to the magnet factories in Guangzhou and turned into these extraordinarily powerful magnets.

      “What’s remarkable is that companies like Boeing, Lockheed Martin, General Motors, Toyota, Volkswagen, everybody depended on these very dubious rare earth value chains. But nobody was clear on where their rare earths were coming from, how much was from legal mines, how much was from illegal mines.  At the same time, demand for these rare earths was exploding, as companies found more and more uses for them. So by 2004, China had acquired an almost complete grip on the entire supply chain for rare earths and rare earth magnets. But then in 2010, China shocked the world. 

      “In the East China Sea are at the heart of an escalating dispute between China and Japan.  China suddenly imposed a total embargo on any shipments of rare earths to Japan, which at the time, really played the central role in making the magnets and many other technologies.    But this incident, which really shook Japan and to some extent the US, resulted in both countries taking actions on rare earths, although what Japan did would prove much more effective than the American response.  

      “The Japanese government, in cooperation with one of the big trading companies of Japan, began providing the financing for a big mine to be dug in Australia and for mineral processing then to be done in Malaysia. So those moves reduced considerably Japan’s dependence on China. Interesting. So Japan decided to try to become self-sufficient because of all of this.

        “What did the US do?”  

           “China released a flood of additional rare earths into world markets. And that flood of rare earths pushed the prices way down. It wasn’t possible for the rare-earth US Mountain Pass Mine to earn enough money selling rare earths at these low prices to pay back its debts. And so the mine ended up closing in 2015, and went bankrupt.  The Japanese companies were willing to pay a little more to get production that they knew wouldn’t be interrupted from Australia. And the Japanese corporate and government alliance was willing to keep lending money to make sure that the Australians didn’t go out of business.   What we’re talking about here is industrial policy. Japan showed a willingness to prop up an industry that may not be profitable, but is seen as critical to national interests.  The United States tried to do the same. But after a few years, as sometimes happens, people began to lose interest. There wasn’t the same enthusiasm for maintaining a separate supply chain from China. So the US sort of lost track of this issue. And then when China suddenly halted supplies in April 4 this year, that failure to keep track of it came back to haunt the United States.

      “Here we are today facing another situation in which China is restricting the export of rare earths, putting the US and a lot of countries in a really difficult position. So what does the US do now? What are the steps the administration has taken?

       “It’s likely we’re going to see China resuming commercial supplies of rare earths to the West. The difficulty, however, is that China may not allow enough rare earths to be exported for people to build stockpiles, so that they know the next time China cuts off supplies, they won’t run out immediately. So we’ll likely see continued limits on the volumes, even for commercial.

     “And then for national security uses, for military uses, it may be extremely difficult to persuade China to resume shipments of samarium, which are needed for all of these fighter jets, missiles and so forth. And are needed not just by the United States, but for weapons deliveries to places like Ukraine or Israel or Taiwan.

       “One way you could look at this is that Trump kind of did the worst thing possible for the American manufacturers that he says he’s trying to help, which is that he essentially provoked China to hit them right at their Achilles heel where they’re most vulnerable, which is their reliance on China for these extremely rare and important metals. .”

• – – – – – – – – –

       The US dropped the ball.  Expect many more fumbles in future, as a shoot-from-the-hip President and a performance-art Cabinet lead America into more and more hot water. 

Suppose your child needed regular supplies of a life-saving medicine. Would you hand that supply over, to a bitter enemy and rival who has sworn to take revenge on you, for past wrongs?

The US did it, under the President whose mantra is ‘common sense’.