Rare earth metals are essential components for many technologies, yet are subject to supply and demand fluctuations.
As commodity prices surge, mining companies scramble to develop alternative sources of supply. Unfortunately, new mines often take time to come online - an impetus for diversifying DOD supply chains.
Rare Earth Elements (REEs) are essential components of many modern technologies ranging from smartphones in our pockets to magnets powering electric vehicles and jet fighters, but Beijing has long monopolized global supply of these materials by forcing nearly all mined ores to travel there for refining prior to being utilized in technologies (source: U.S. Geological Survey). At its peak in 2010, China controlled 97% of REE market (source: USGS).
Since tensions between Washington and Beijing first emerged, the Pentagon has made efforts to reduce its REE dependence on China by purchasing mines and processing facilities outside its borders. Unfortunately, however, these assets remain too dependent upon China for sustained use, leaving their National Defense Stockpile vulnerable to supply disruption (Source: Hsu 2019).
As demand for REEs increases worldwide, the United States must invest in methods to secure its domestic supply. Leveraging its natural resource endowment and downstream equipment manufacturers as well as consumer markets could lay a strong foundation for competitive positioning in this arena; but this may take some time. Until then, democratic allies such as Australia and Canada that share similar supply chain security risks with China should be prioritized due to their specific and trusted contributions in rare earth mining and processing industries.
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As more countries shift away from fossil fuels, rare earth metals have become essential components in producing green energy technology such as permanent magnets for hybrid and electric vehicles, wind turbines, advanced batteries and nuclear reactors - as well as being integral parts of military applications like nuclear reactors and special ammunition. Their growing demand has necessitated their inclusion as essential military applications like nuclear reactors or special ammunition require rare earths as components for production.
Before China's rapid economic development and reentry into global trade, the United States dominated virtually all rare earth production and high-tech manufacturing. But in the late 1970s, Deng Xiaoping initiated his policy of developing China into a global manufacturer, including taking steps to secure foreign markets for rare earth elements to offset domestic manufacturing decline.
China successfully employed this strategy to gain dominance of the REE market worldwide. In the 1990s, companies owned by Chinese government entities joined with American investors to purchase Magnequench rare earth processing company and move it from France to China.
China's dominance in REE production and exports is becoming even more alarming as geopolitical tensions between the US and China escalate. To combat this challenge, incentive programs modeled on the Oil Depletion Allowance should prioritize domestic content while offering tax credits modeled on Oil Depletion Allowance are recommended to develop robust domestic supply chains (as proposed in Rare Earth Magnet Manufacturing Production Tax Credit Act of 2021). Furthermore, Interior should increase access to critical minerals on federal lands while shortening permitting processes.
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Rare earth elements (REE) play an essential role in creating green economies and building tomorrow's technologies, from magnets in electric cars to precision guided weapons powering military missiles. But rare earth elements are hard to find economically viable concentrations of, with China dominating global supply chains as they supply these 17 metals globally.
Beijing holds almost complete control of this process: mining raw materials, extracting them into concentrate and refining products produced from that concentrate into finished goods - which leaves most countries dependent on Chinese producers, particularly in relation to US allies and the U.S. itself.
The Pentagon's Vital Signs 2023 report and December executive order both aim to break China's stranglehold over metal supply, but doing so won't be easy. Nakano estimates it may take 10 years to build an adequate supply chain - and even then, independence from single producers such as petrostates is unrealistically expected - similar to its dependence on oil suppliers for fossil fuel production.
The ZEW study, using METRO model from ZEW Research Group, highlights that rare earths face high supply chain risks. That is because unlike many metals, these rare earths cannot be replaced if anything disrupts supply chains - an example being when China blocked Japanese imports of neodymium and praseodymium due to territorial disputes with Japan in 2010, leaving U.S. allies scrambling for alternatives suppliers.
Rare earth elements are increasingly essential in a world transforming towards renewable energy, from wind turbines and solar panels to electric vehicle batteries and national defense technology. Their demand has skyrocketed as we switch away from fossil fuels toward more eco-friendly solutions.
Rare earth minerals may not be hard to come by, but their location can be difficult. Since they don't occur as veins like gold or silver do, mining them requires significant drilling. Once mined, extraction costs and labor requirements make profit generation extremely challenging; many mining companies have gone bankrupt; Molycorp was acquired by China's Molybdenum & Rare Metal Co Ltd in 2012. As a result of that acquisition, Molycorp is limited to processing ore for exportation back into China for final refining and production of rare earth elements production and refinement before further exportation back outbound to Molycorp relegated as Molycorp only processing ore for exportation to China for final refinement and production of rare earth elements for production there
Chinese market dominance presents a threat to defense contractors: China could exploit it to manipulate REE supplies, disrupting time-sensitive programs and potentially sparking another trade war between the U.S. and China. To counteract this risk, however, the Pentagon has taken an important step to reduce its reliance on Chinese REEs by awarding contracts to several domestic REE mining and processing firms like USA Rare Earth and Lynas Rare Earths Ltd of Australia as REE mining suppliers. Furthermore, working closely with defense contractors on creating an in-country stockpile system guarantees domestic control at program level.