China is seriously considering restricting rare earth exports to the US. Why is that important?

One week ago, President Xi and Vice Premier Liu He, China’s top trade negotiator, visited a rare earth metals mine in Jiangxi province. This has led to the rumor that China is seriously considering restricting rare earth exports to the US. China may also take other countermeasures in the future. The trade negotiations between U.S. and China got a lot more serious. It extends far beyond tariffs and intellectual property, it now involves strategic materials.

The first thing we must realize is that rare earth metals are not all that rare. They are a thousand times or more abundant than gold or platinum in the earth crust and easy to mine, but a little more difficult to refine. Thorium and Uranium will  also be mined at the same time as the rare earth metals since they appear together in the ore.

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U.S. used to be the major supplier of rare earth metals, which was fine up to around 1984. Then the U.S. regulators determined that Uranium and Thorium contained in the ore made the ore radioactive, so they decided to make rare earth metal ore subject to nuclear regulations with all what that meant for record keeping and control. This made mining in the U.S. unprofitable so in 2001 the last domestic mine closed down. China had no such scruples, such as human and environmental concerns, so they took over the rare earth metals mining and in 2010 controlled over 95% of the world supply, which was according to their long term plan of controlling the world by 2025.

Rare Earth Element Production

The U.S. used to have a strategic reserve of rare earth metals, but that was sold off in 1998 as being no longer cost effective or necessary. Two years later the one U.S. rare earth metals mine that used to supply nearly the whole world, the Mountain Pass Mine in California closed down, together with its refining capacity. From that day all rare earth metals were imported. In 2010 it started up again together with the refining capacity but went bankrupt in 2015, closed down the refining but continued selling ore to China. They just announced they will start up refining again late 2020. Meanwhile China is slapping on a 25% import tariff on imported ore starting July 1. Rare earth metals may be in short supply for a while.

So, why is this important? Just take a look at all the uses for rare earth metals. The most sought after pays all the cost of mining and refining, and the rest are readily available at nominal cost.

The Chinese almost got away with it, and that is but one reason the trade negotiations are so complicated and hard fought, but necessary. Donald Trump fights for reciprocity and fair competition.

People, raw material and energy, the trade war with China, and will tariffs solve anything?

We are in a pickle. At least we were until President Trump stirred the pot and decided to address the trade war with China that has been going on for more than a decade, encouraged and abetted by former President Obama and his religious belief that the biggest threat to civilization is not nuclear holocaust, chemical poisoning of people and the earth or super-volcanoes, earthquakes, tsunamis and other natural phenomena, but climate change, all man-made of course.

Let us compare the economies of China and the U.S. in raw numbers.

1. Concrete. China produced 51.4% of the world’s cement in 2015, USA produced 1.8%. China’s production was almost 30 times larger.

It takes a lot of concrete to build artificial islands so they can take control of the South China Sea.

2 Steel production. China produced 50.3% of the world’s crude Steel in 2015, USA produced 4.9%. China’s production was over 20 times larger. Some of this steel was dumped below production cost to crush our domestic low end steel industry. An example: Rolled steel to make steel cans were exported at about $200 a ton, the production cost in the U.S. is more like $400 a ton.

3. Aluminum (or Aluminium as the British and IUPAC call it) China produced 41% of the world’s raw aluminum in 2010, USA produced 4.5%. China’s production was nearly 10 times larger.

This is easily rectified. Aluminum is produced where electricity is abundant and cheap, like in Norway and Iceland. Aluminum is produced whenever there is excess electric capacity, never on peak hours. Even here China dumps their excess Aluminum.

4. Coal. China burned 51.2% of the world’s coal in 2012, USA produced 12.5%. China’s production was more than four times larger.

This of course with the Paris accord in mind. U.S. and the European countries are to limit their emissions and slowly diminish them, down to a per capita emission comparable to the mid 1800’s, while China, being a developing country is allowed to increase their emissions until 2030, and then stabilize them, not decrease them.

If this seems like we have already sold out to China, it is nothing compared to

5. Rare Earth Metals. First, rare earth metals re not rare at all, they exist in small quantities together with Thorium and sometimes Uranium wherever other metals are mined.

The Lanthanides occur in quantity in Monazite, a byproduct of mining Phosphates, but also as a byproduct of mining Titanium, and even from some Iron ores. The rare earth metals are free to begin extraction if it was not for one thing, they also contain Thorium, and Thorium is radio-active, so in the mid 1980’s the NRC and IAEA reclassified Monazite and anything containing Thorium as a “Source Material” and after that it became too costly to comply with all the regulations for nuclear material, so all production of rare earth minerals ceased in the U.S.

China saw an opportunity to grab the world market for Rare Earth Metals and is now controlling about 94% of the supply of all rare earth metals.

So what are rare earth metals used for?

China now has a de facto monopoly on all usages of rare earth metals, and in the case of war or an embargo, not only are our precious cell phones and computers in jeopardy, so is our defense, night vision goggles, aircraft engines, navigation systems, laser guidance, just to name a few uses.

And not only that, we import the completed parts from China, even for our most sophisticated military equipment, such as the F35 aircraft, after telling the Chinese how to make the components. The very same components are now in China’s version of the F35, still under development, but in a year or so China will have their faithful copies made!

This is clearly unsustainable, so in 2014  Congress tried to pass HR 4883 and         S 2006 to remedy the situation, but the bills got killed in review by none other than the defense department, citing National Security!

We are no longer under the Obama “Strategic Patience” doctrine, so an updated version of these bills need to be introduced ASAP, or we will be on the hook from China forever!

After all this, the current spat with North Korea seems like a nuisance.