China Maintains Dominance In Rare Earth Production.

• Author: Magnuson, Stew
• Position: SPECIAL REPORT: RARE EARTH ELEMENTS

In 1987, then-Chinese President Deng Xiaoping famously said, "The Middle East has oil. China has rare earths."

"I don't think people at the time understood it. But China understood that rare earths were going to be the backbone of manufacturing," said Pini Althaus, CEO of USA Rare Earth, a startup with aspirations to mine and refine the 17 elements categorized as strategic minerals.

While what the former Chinese president said was true--China has vast deposits of rare earth elements to mine--so do many other nations, including the United States, Canada, Australia and Japan.

After Deng's declaration, China legitimately partnered with foreign companies that were doing the complex work of separating rare earths from the surrounding rock and refining them, then moved the production to mainland China, Althaus said.

Meanwhile, the U.S. government widely thought that rare earth mining and refinement was a difficult and dirty business, so it let China do it all on the cheap so it can supply U.S. manufacturers with inexpensive rare earths, he said.

There are two pitfalls, Althaus said. One is if China economically weaponizes rare earths and stops sending the refined products to the United States so they can't be used in weapon systems or commercial applications.

Or the nation may create shortages by prioritizing its own industries such as the burgeoning electric vehicle market, which uses some of the key elements to make high-performance magnets used in engines.

"We're seeing shortages already and those shortages are projected to increase in the coming years," he said.

In 2010, China pulled the "rare earth card" in response to a territorial dispute with Japan, which led to an undeclared Chinese embargo, according to the Biden administration's 100-day review, "Building Resilient Supply Chains, Revitalizing American Manufacturing and Fostering Broad-Based Growth."

That served as a wakeup call to U.S. policymakers, the Pentagon and its contractors, which rely on several of the elements to make weapon subsystems. The United States, European Union and Japan protested China's actions at the World Trade Organization and prevailed, yet little coordinated action to counter China in the rare earths market has taken place in the past decade.

China has over the past 30 years established two rare earth R&D hubs in Changchun, Jilin Province, and Baotou in Inner Mongolia. It has legions of students studying material sciences. Researchers devoted to finding and...