New Report: China’s Regime Sees Its Dominance of Rare Earths as Leverage

The only rare earths mine in the United States, pictured above, is located in Mountain Pass, Calif. Nearly all of the world’s supplies of these critical metals come from China. | Wikimedia Commons

China views this critical industry as a way to “win without fighting.”

Way back in 2013, Brig. Gen. John Adams, who spent 30 years with the U.S. Army before retiring, authored a report warning about some of the national security dangers that had arisen because of America's reliance on imports.

Adams and the team at the firm Guardian Six examined how the lack of a defense industrial base left the military unable to domestically source many of the supplies it needs. One of the things Adams specifically warned about was rare earth elements, which are essential components in many military technologies, particularly high-tech ones.

China controls 90 percent of the global supply of rare earths. Given China’s near-monopoly, the United States needed to quickly get to work on producing more of these critical metals, Adams recommended.

It is now 2020. The world is very different than it was seven years ago, but not a whole lot has changed when it comes to rare earths. China not only continues to dominate the rare earth market, but now is prepared to use its control over the world’s supply of these essential metals to further its own ambitions.

The Wall Street Journal reported on Monday on a new study that finds China “sees its dominance in strategic rare-earth minerals as leverage that can be used against the West—including in trade disputes with the U.S.”

Researchers at Horizon Advisory examined open-source documents from China, including government papers and academic research funded by the Chinese government. China spent years heavily subsidizing its rare-earth industry, all with the goal of gaining a foothold over the rest of the world, the report concludes.

China has used rare earths as leverage before. In 2010, China halted the export of rare earths to Japan in the aftermath of a territorial dispute over the Senkaku Islands.

“They’re not concerned with economic return… they see controlling this type of [industry] as a path to win without fighting,” Nathan Picarsic, one of the report’s authors, told the WSJ.

Horizon Advisory knows this subject matter well. The firm specializes examining public statements made by Chinese officials and studying other primary documents to examine China’s overall thinking on industrial policy.

On Monday, in fact, Picarsic and his colleague Emily de La Bruyère appeared on our podcast, The Manufacturing Report, to discuss another study they authored that found China is strategically aiming to use the COVID-19 pandemic as a way to further its geopolitical ambitions.

The Manufacturing Report · China's Regime Has a Plan for Rebuilding America's Infrastructure

China runs the same playbook over and over again.

Right now, Horizon Advisory found, the regime is preparing to utilize its state-owned and controlled companies to win U.S.-taxpayer funded contracts to build critical infrastructure. It is a lot like how China used “state champions” such as CRRC and BYD to win contracts to build U.S. rail cars and buses.

CRRC and BYD both severely underbid to win these contracts. The goal isn’t to turn a profit, but rather to win enough of them that China eventually dominates these entire industries.

Washington is finally starting to wake up to this threat. Congress passed bipartisan legislation in 2019 to ban Chinese state-owned, controlled and subsidized companies from building U.S. rail cars and buses.

As lawmakers now get to work on a $1.5 trillion infrastructure investment package, they would be wise to include Buy America and other provisions that ensure taxpayer dollars are reinvested into American workers and communities, and don’t go to fuel the ambitions of the Chinese regime.

Meanwhile, when it comes to rare earths, the Defense Department does seem to be taking some notice. In April, the WSJ reported that the Pentagon is helping to pay for a new processing facility at the Mountain Pass mine in California, the only domestic source for rare earth minerals.

Right now, processing of the California-mined metals happens in China – the U.S. doesn’t have any facilities to do that work.