China’s Rare Earth Restrictions and its Impact on the United States

China’s Rare Earth Restrictions and its Impact on the United States

On December 3rd, 2024, the Chinese government retaliated against the United States in an ongoing tech war by restricting the export of refined rare earth metals to anything defined by "dual-use.". [1]

This has been a year in the making, but one that has been expected given the increasing tensions over semiconductors and microchip production.

The Chinese retaliation is the first serious move by Beijing to hamper and hurt the economic, technological and military sectors of the United States, the result of which will have a profound long-term impact on the role of rare earths in international trade.

Regarding short-term impacts, the Chinese restrictions come at a particularly bad time for the United States. Rare earths are critical in the production of modern military assets.

While we do not know the complete dependence on the US military vis-à-vis rare earths (REM), a few examples can give us some idea of its overall importance via extrapolation.

On one general example, it was reported that between 2019 and 2022, 95% of Washington’s REM consumption came from imports, a large majority from China. [2]

On another more specific example, the F-35 is noted to depend on upwards of 417 kg (920 pounds) of refined REM to function at an operable rate properly.[3][4][5]

These REMs are used in critical components in the F-35’s engines and targeting system electronics.[6]

Known REM materials include neodymium for missile guidance systems and electric drive motors, for example, whereas in other military equipment such as laser targeting equipment, a combination of yttrium, europium, and terbium is needed, whereas radar and sonar applications rely on yttrium combined with neodymium, lanthanum, lutetium, and/or emporium. [7]

This in itself is a national security concern for Washington, as Beijing refines around 85% of all known REM and mines around 70% of global rare earths. [8]

But the conundrum worsens at a time when the US is struggling to meet production due to an overwhelming demand from its allies concerning the ongoing Russia-Ukraine war and the Israel-Palestine conflict (alongside the Israel-Iran proxy wars).[9]

The restrictions of REM, contrary to popular perception, are not designed to cripple the US military; after all, as the Ukraine-Russia war showcased, when there is a will, there is a way for great powers to acquire the things they need. What the restrictions are meant to do is seriously hurt the US military as an export market.

By restricting REM to Washington, it does two negatives. The first is that the sudden cut-off of supply will increase the price of REM, which, in turn, will increase the production price of US military export equipment [10], which is already noted for its high price.

The secondary effect is that the lack of supply will likely force the US to reallocate resources and funding to construct their own REM production and mining facilities.

This would also increase the price of their end product as it would force Washington to scale down production due to shifting resources, and even then, American REM production would be exponentially more expensive than their Chinese counterparts due to higher labour costs, higher environmental safety regulations, less prominent state subsidies and inferior logistical supply chain networks.[11]

The result, in theory, is that American military exports would be uncompetitive on the global military market.

So, how would this impact in the long term? As other analysts conclude, the United States will eventually get their own REM production up and running [12], and if not, it will get alternate suppliers like Australia.

However, the issue is that American REM production technology is significantly behind that of the Chinese, and compared to Australia, Canberra’s own REM facilities struggled to expand despite investments [13], to say nothing on China’s own REM market having outsized global impact on foreign production [14] [15] nor Beijing’s own attempts to further tighten its REM supply chains. [16]

REM production is not like other heavy metal production. It is heavily polluting, very dangerous to handle (due to the inclusion of concentrated acids),[17] extremely energy intensive (requires an artificial environment that mimics high pressure and heat) to procure,[18][19] and painstakingly long to refine (requires multiple separations for rare earth ore to be produced at bare minimum 95% purity).[20]

China has already filed over 23,000 patents for advancing REM technologies.[21] China has dominated REM for decades and will remain dominant in the foreseeable future.

Washington tried to wean off its dependence in 2012, but the result of over 400 start-ups led to only one surviving past 2012.[22] It highlights how difficult it is for non-Chinese REM industries to survive in such a monopoly. Likewise, Washington also looked into REM recycling [23], but that area also contains impurities, inefficiency, and pollution issues. [24]

So even in the long term, Washington would be playing catch up, and while it is easy to say that Washington can restart its long-defunct REM industries, whether American REM production can stay globally competitive is another question and challenge entirely.

Endnotes 

[1] Ministry of Commerce Notice 2024 No. 46: Notice Concerning Strengthening Controls on Exports of Relevant Dual-Use Items to the United States (3 December, 2024) Center for Security and Emerging Technology. https://cset.georgetown.edu/publication/china-rare-earth-export-ban/.

[2] Russell, W. (12 September, 2024) Government Accountability Office. United States Congress. https://www.gao.gov/blog/critical-materials-are-high-demand.-what-dod-doing-secure-supply-chain-and-stockpile-these-resources.

[3] Irving, D. (20 March, 2023) The Time to Prevent Shortfalls in Critical Materials Is Now, RAND.  https://www.rand.org/pubs/articles/2023/the-time-to-prevent-shortfalls-in-critical-materials.html.

[4] Kenlan, A.R. (1 November, 2020) ‘Rare Elements of Security’, Air and Space Forces Magazine. https://www.airandspaceforces.com/article/rare-elements-of-security/

[5] United States Congress and Grasso, V.B. (23 December, 2013) Rare Earth Elements in National Defense: Background, Oversight Issues, and Options for Congress. Washington, D.C.: United States Congress. Pp. 4. https://sgp.fas.org/crs/natsec/R41744.pdf

[6] Kenlan                                                                                                                             

[7] United States Congress and Grasso, V.B. Pp. 10-22.

[8] Seth, N. (29 August, 2024) ‘Mine the Tech Gap: Why China’s Rare Earth Dominance Persists’, New Security Beat. https://www.newsecuritybeat.org/2024/08/mine-the-tech-gap-why-chinas-rare-earth-dominance-persists/.

[9] Harris, B. and Robertson, N. (30 April, 2024) ‘Soaring US munitions demand strains support for Israel, Ukraine, Taiwan’, DefenseNews. https://www.defensenews.com/pentagon/2024/04/30/soaring-us-munitions-demand-strains-support-for-israel-ukraine-taiwan/.

[10] Green, J.A. (5 July, 2019) ‘What will the US defense industry do when China cuts off rare earth supplies?’, Defense News. https://www.defensenews.com/opinion/commentary/2019/07/05/what-will-the-us-defense-industry-do-when-china-cuts-off-rare-earth-supplies/.

[11] Russell, W.

[12] Hu, X. (13 November, 2024) IP24095 | Rare Earth Supremacy: China’s Ace in the Clean Technology Competition, RSIS. https://www.rsis.edu.sg/rsis-publication/idss/ip24095-rare-earth-supremacy-chinas-ace-in-the-clean-technology-competition/.

[13] Seth, N.

[14] Wembridge, M. (30 October, 2024) ‘Lynas Rare Earths cuts production as prices languish’, Financial Review. https://www.afr.com/companies/mining/lynas-rare-earths-cuts-production-as-prices-languish-20241030-p5kmjj.

[15] The Business Times (17 September, 2024) ‘US allies struggle to break China’s dominance of rare earths’. https://www.businesstimes.com.sg/international/global/hong-kong-courts-ultra-rich-middle-east-families-wealth-push.

[16] Teoh, S. (18 March, 2024) ‘Malaysia looks to China to fast-track rare-earth processing and tackle illegal exports’, The Straits Times. https://www.straitstimes.com/asia/se-asia/malaysia-looks-to-china-to-fast-track-rare-earths-processing-and-tackle-illegal-exports?close=true.

[17] Science of Rare Earth Elements (no date) Science History Institute.  https://www.sciencehistory.org/education/classroom-activities/role-playing-games/case-of-rare-earth-elements/science/.

[18] Berry, A. et al. (no date) Novel process of extracting rare earth elements from phosphate ores, ANU. https://research.anu.edu.au/partner-with-us/technology-marketplace/novel-process-of-extracting-rare-earth-elements-from.

[19] Ibid.

[20] Pecharsky , V.K. and Gschneidner, Jr., K.A. (21 November, 2024)  Processing ores in rare-earth element, Britannica. https://www.britannica.com/science/rare-earth-element/Properties-of-the-metals.

[21] Kennedy, J. (21 March, 2019) ‘China Solidifies Dominance in Rare Earth Processing ’, National Defense Magazine. https://www.nationaldefensemagazine.org/articles/2019/3/21/viewpoint-china-solidifies-dominance-in-rare-earth-processing.

[22] Ibid.

[23] Allen, M. (2016) ‘Recycling rare earths’, SCI, (2). https://www.soci.org/chemistry-and-industry/cni-data/2016/2/recyling-rare-earths.

[24] Ibid.