The controls apply to any manufactured good made anywhere in the world whose value is comprised of 0.1% or more Chinese-mined or processed REEs. Say, for example, that a German factory makes a military drone using an entirely European supply chain, except for the use of Chinese rare earths in the onboard motors and compute. If this rule were enforced by the Chinese government to its maximum extent, this almost entirely German drone would be export controlled by the Chinese government.
The public debate quickly devolved into arguments about who provoked whom (“who really started this?”), whether it is China or the US that has miscalculated, and abundant species of whataboutism. Like too many foreign policy debates, these arguments are primarily about narrative setting in service of mostly orthogonal political agendas rather than the actions demanded in light of the concrete underlying reality.
But make no mistake, this is a big deal. China is expressing a willingness to exploit a weakness held in common by virtually every country on Earth. Even if China chooses to implement this policy modestly at first, the vulnerability they are exposing has significant long-term implications for both the manufacturing of AI compute and that of key AI-enabled products (self-driving cars and trucks, drones, robots, etc.). That alone makes it a relevant topic for Hyperdimensional, where I have covered manufacturing-related issues before. The topics of rare earths and critical minerals have also long been on my radar, and I wrote reports for various think tanks early this year.
What follows, then, is a “how we got here”-style analysis followed by some concrete proposals for what the United States—and any other country concerned with controlling its own economic destiny—should do next.
A note: this post is going to concentrate mostly on REEs, which is a chemical-industrial category, rather than “critical minerals,” which is a policy designation made (in the US context) by the US Geological Survey. All REEs are considered critical minerals by the federal government, but so are many other things with very different geological, scientific, technological, and economic dynamics affecting them.
How We Got Here
If you have heard one thing about rare earths, it is probably the quip that they are not, in fact, rare. They’re abundant in the Earth’s crust, but they’re not densely distributed in many places because their chemical properties typically result in them being mixed with many other elements instead of accumulating in homogeneous deposits (like, say, gold).
Rare earths have been in industrial use for a long time, but their utility increased considerably with the simultaneous and independent invention in 1983 of the Neodymium-Iron-Boron magnet by General Motors and Japanese firm Sumitomo. This single materials breakthrough is upstream of a huge range of microelectronic innovations that followed.
Economically useful deposits of REEs require a rare confluence of factors such as unusual magma compositions or weathering patterns. The world’s largest deposit is known as Bayan Obo, located in the Chinese region of Inner Mongolia, though other regions of China also have substantial quantities.
The second largest deposit is in Mountain Pass, California, which used to be the world’s largest production center for rare earth magnets and related goods. It went dormant twenty years ago due to environmental concerns and is now being restarted by a firm called MP Materials, in which the US government took an equity position this past July. Another very large and entirely undeveloped deposit—possibly the largest in the world—is in Greenland. Anyone who buys the line that the Trump administration was “caught off guard” by Chinese moves on rare Earths is paying insufficient attention.
Rare earths are an enabling part of many pieces of modern technology you touch daily, but they command very little value as raw or even processed goods. Indeed, the economics of the rare earth industry are positively brutal. There are many reasons this is true, but two bear mentioning here. First, the industry suffers from dramatic price volatility, in part because China strategically dumps supply onto the global market to deter other countries from developing domestic rare earth supply chains.
Second, for precisely the same reasons that rare earth minerals do not tend to cluster homogeneously (they are mixed with many other elements), the processing required to separate REEs from raw ore is exceptionally complex, expensive, and time-consuming. A related challenge is that separation of the most valuable REEs entails the separation of numerous, less valuable elements—including other REEs.
In addition to challenging economics, the REE processing business is often environmentally expensive. In modern US policy discourse, we are used to environmental regulations being deployed to hinder construction that we few people really believe is environmentally harmful. But these facilities come with genuine environmental costs of a kind Western societies have largely not seen in decades; indeed, the nastiness of the industry is part of why we were comfortable with it being offshored in the first place.
China observed these trends and dynamics in the early 1990s and made rare earth mining and processing a major part of its industrial strategy. This strategy led to these elements being made in such abundance that it may well have had a “but-for” effect on the history of technology. Absent Chinese development of this industry, it seems quite likely to me that advanced capitalist democracies would have settled on a qualitatively different approach to the rare earths industry and the technologies it enables.
In any case, that is how we arrived to this point: a legacy of American dominance in the field, followed by willful ceding of the territory to wildly successful Chinese industrial strategists. Now this unilateral American surrender is being exploited against us, and indeed the entire world. Here is what I think we should do next.
by Dean Ball, Hyperdimensional | Read more:
Image: via
[ed. Think the stable genius and minions will have the intelligence to craft a well thought out plan (especially if someone else down the road gets credit)? Lol. See also: What It's Like to Work at the White House.]
