Billion Dollar Club, page-32

America Dropped the Baton in the Rare-Earth Race

Washington keeps trying to play catch-upin the rare-earths game with China. It’s losing ground

If the global scramble for rare earths—the elementsbehind F-35 fighter jets and missile guidance systems—were a relay race, Chinagrabbed the baton in the 1980s and bolted. The United States, once an industryleader, was left in the dust, along with the rest of the world.

Souring U.S.-China relations havereignited U.S. efforts to get back in the game. Eager to slash its reliance onBeijing, Washington has ramped up efforts to resurrect its own rare-earthsindustry. But even with this new momentum, experts say lawmakers remain stumpedover how to counter China’s economies of scale and plug a gaping expertise gap,two key vulnerabilities that have long hampered the American sector. Rare-earthmining is also notoriously dirty—one reason the U.S. industry has shrunk—andprospective companies must contend with lengthy regulatory and permittingprocesses.

To reconstitute the U.S. rare-earthsindustry, “You need educated people; you need experienced people; you needmines and processing systems that are operational,” said Jack Lifton, theexecutive chairman of the Critical Minerals Institute. “None of this exists inthe United States. None.”

Rare earths, a group of 17 elements, are anything but rare, but they do underpin everything from high-tech weapons to wind turbines. Yet China overwhelmingly dominates the supply chains that transform ore into powerful permanent magnets, commanding 85 percent of processing and 92 percent of magnet production. Beijing briefly wielded its rare earths as political leverage in the past—and has reportedly weighed an export ban on certain types of magnet technology recently—further underscoring how its industry could be a major pressure point for both Washington and U.S. defense companies alike.

“More than 95 percent of rare-earth materials ormetals come from, or are processed in, China. There is no alternative,” defensegiant Raytheon chief Greg Hayes warned this week. “If we had to pull out of China, it would take us many, many years to reestablish that capability either domestically or in other friendly countries.”

From submarine sonar to aircraft disk drive motors,the U.S. military is almost wholly reliant on China’s extensive rare-earth value chains. Every Lockheed Martin F-35 fighter jet, for example, is built with 920 pounds of rare earths; an Aegis destroyer requires around 5,200 pounds. The Mongols’ great weakness was the lack of siege engines; America’s problem is that they are made by its rival.

Alarmed by this dependence, former U.S.President Donald Trump issued an executive order on rare earths and boosted funding for domestic firms. The Biden administration built on these actions, including by incorporating rare-earths projects into its Defense Production Act and expanding its rare-earth stockpile. But U.S. efforts have, by and large, failed to move the needle, said James Kennedy, the president of ThREE Consulting, a rare-earths consultancy.

“For 15 years now, the United States hasbeen pursuing or promoting or pushing policies, and every one of them has beenan abysmal failure,” he said.

Christopher Ecclestone, a miningstrategist at the financial advisory firm Hallgarten & Company, likenedWashington’s approach to a hamster running circles on a wheel. U.S. policy hasbeen “going round and round like some sort of hypnotic sort of wheel,” he said.“It mesmerizes people, but it’s not actually producing anything at the otherend.”

Part of the trouble is that lawmakers arefacing a policy challenge of a near-Herculean scale: building out an entireindustry from scratch, when China already has a decadeslong lead. Mountain Passin California, the United States’ sole rare-earth mine, has very limited amounts of the heavy rare earths required for military purposes and currently ships nearly all of its output to China. But it’s now attempting to carve out a bigger stake in the global industry, with plans to build out separating and processing capabilities backed by a $35 million Biden administration package.

In recent months, Reps. Guy Reschenthalerand Eric Swalwell have also introduced bipartisan legislation that would use tax credits to stimulate domestic magnet production, the latest in a slew of government efforts to incentivize production at the top of the rare-earths value chain. (They also attempted to advance a similar bill in 2021.) Some experts warn it may not have the desired effect: Kennedy noted that the bill’s language doesn’t differentiate between types of magnets, so firms could still qualify for the tax credit if they produce cheap, low-grade magnets. The goodies are the smaller, precision-milled permanent magnets that do wonders in the defense sector.

Stan Trout, the founder of Spontaneous Materials, saidthat the legislation would likely incentivize the production of physicallylarger magnets—like those that go into wind turbines—as opposed to magnets withdefense applications. “That bill, whether they knew it or not, actually wouldtend to push people toward making magnets for wind turbines over anything else,because they get paid by the kilogram,” he said.

The challenges in crafting thislegislation underscore how U.S. lawmakers are still struggling to crack thecode on kick-starting an industry that can compete with China’s. Decades ofinvestment and intense subsidies have given China sweeping economies of scale,making it nearly impossible for U.S. firms to enter the market.

“You can roll up to the Pentagon orWashington and say, well, give us some money and we’re going to do rare earths,and then Washington will peel off, you know, $2 million, $4 million, whatever,and say here, go play with this,” Ecclestone said. “But it’s not money thatmoves the dial.”

Beyond the economics, U.S. efforts havealso been hampered by a vast expertise gap that has only widened over theyears. While China funneled resources and money into research efforts atuniversities, laboratories, and other agencies, interest and investment recededin the United States. In 1996, Washington also shuttered the U.S. Bureau of Mines, a key research agency—dealing yet another blow to an already-crumbling industry.

“In China, rare-earth mining, refining,processing, fabricating, and making end-use products like rare-earth permanentmagnet motors is a respected and profitable business, and there’s tens ofthousands of people involved in that,” Lifton said. “Here [in the UnitedStates], there is no one.”

Whether Washington can build up its ownindustry—or if it will remain largely reliant on China—is a question that hasramifications that extend far beyond the defense sector.

“If EVs are the mode of transportation inthe future, there’s really not much of a place for the United States or theEU,” Kennedy said. “China can continue to leverage its position and continue toforce more and more components to be made in China, and then more value-addedsystems, and then complete automobiles.”

“China can decide who wins and loses,” headded.



I hope we are all over this. We have what they need and this would take us to a new level in the billions if we could strike up a deal.


The article as only released a few days ago. Lots of news coming our way soon I hope.