China has once again hinted strongly that it may retaliate against the United States in the latest trade war round by cutting off US supplies of rare earth products.
While President Donald Trump has raised tariffs on many Chinese exports to the United States, no tariffs were put on rare earth materials. As matters now stand, the US and its top Asian allies are totally dependent on China for rare earth metals and products, a dangerous situation impacting both national security and competitiveness, even halting the emerging battery-powered car market that depends on rare earth materials.
What can the US do?
China produces about 97% of rare earth ore, 97% of rare earth oxides, 89% of rare earth alloys, 75% of neodymium iron boron magnets (NdFeB) and 60% of samarium cobalt magnets (SmCo). The United States almost entirely lacks the refining, fabricating, metal-making, alloying and magnet manufacturing capacity to process rare earths and is nearly completely dependent on China.
Rare earth metals are used in commercial and defense applications. For example, Virginian-class nuclear-powered submarines each use 9,200 pounds of rare earth metals, while Arleigh Burke guided missile destroyers require about 5,200 lbs of rare earth metals – there are 66 destroyers in service and 14 either under construction or on order.
The F-35 Joint Strike Fighters each require 920 lbs of rare earth metals – 380 have been built so far and the total buy for the US alone is 2,663 aircraft with Japan now about to order an additional 105 F-35s.
Overall, the US defense market for rare earth materials is less than 5% of domestic consumption. But the defense market needs are for very high leverage applications such as fin actuators in missile guidance and control systems, disk drive motors installed in aircraft, tanks, missile systems and command and control centers, lasers for enemy mine detection, interrogators, underwater mines and counter-measures, satellite communications, radar and sonar on submarines and surface ships and optical equipment.
The Rare Earth Technology Alliance writes: “The electrical systems in aircraft use (rare earth) samarium-cobalt permanent magnets to generate power. These magnets are also essential to many military weapons systems.
“In addition, aircraft use small high-powered rare earth magnet actuators that control their various surfaces during operation. Heat-resistant ceramic coatings are applied to jet engines as a barrier to protect metal alloys. The ceramic coating maintains its heat-resistant durability thanks to yttrium oxide – an important rare earth element – which prevents the zirconia from transforming from a tetragonal to a nonclinical structure.
“Terfonal-D is a rare earth alloy made of terbium, iron and dysprosium that is used in high-power sonar on ships and submarines. Stealth helicopters use Terfonol-D speakers in their noise cancellation technology blades and NdFeB super magnets.”
Small scale projects
While there are some government-supported cooperative research projects with industry, these are mostly small scale. In spite of the rising importance of rare earth elements for national security, the US Defense Department has not sought to safeguard US supplies, either by stockpiling materials or partnering with industry to develop rare earth mining and refining outside China.
This is rather odd, because when it came to semiconductors and the need for certain products – even products coming from allied and friendly sources – the DOD invested a bundle. Perhaps the most famous investment was in supporting very high-speed chip development and manufacturing in a program called VHSIC (Very High Speed Integrated Circuit).
The VHSIC program office in the Defense Department spent more than US$1 billion – in today’s dollars about $2.37 billion – in the 1980s trying to upgrade US manufacturing of very high-speed semiconductors. What is most interesting about this, and about other efforts to secure special semiconductors for different military applications, is that semiconductors for defense was less than 1% of the overall US market compared to rare earth materials for defense that are now less than 5% of the US market.
Comparatively, commercial high-speed semiconductors actually outpaced any dedicated military high-speed integrated circuits, so much so that after 10 years the VHSIC program folded and the DOD contented itself buying commercial off the shelf semiconductors for high-value defense applications.
Another key difference is that the US has always had semiconductor FAB facilities in the United States producing top-end products, and friendly countries including Japan, Taiwan and South Korea that were more than happy to compete for DOD-related business.
Failure to act
It is also interesting that it was the Reagan administration, which was conservative and free-trade oriented, nonetheless was willing to step in to backstop the semiconductor industry, yet subsequent administrations – both Republican and Democrat – simply failed to act on rare earth despite the compelling importance for national security and the danger, already clear since 2010 when China curtailed rare earth exports to Japan, that China could rather easily cut off the United States from supplies, as they appear to be getting ready to do now.
The difference between semiconductors and rare earth materials in the eyes of the US government and the Pentagon specifically raises a serious question as to why the Defense Department has done little to support the rare earth domestic industry, or enter into partnerships with other countries that are friendly and who would have no cause to cut off supplies to the United States?
In the short term, stockpiling is probably the only practical measure available. Without a stockpile of rare earth materials and metals, the US could find some of its top strategic programs such as the F-35 in trouble should China cut off or curtail supplies.
This could leave the Trump administration with little choice but to make big concessions to China to get a rare earth supply cut off canceled, a difficult political choice for a trade-aggressive president.
The Japan option
But the mid-term is full of more opportunities for the United States and the Trump administration has a chance to set the stage. The best chance is to partner with Japan. Japan has discovered huge deposits of rare earth materials at Minamitori Island (Minami-Tori-shima), about 1,150 miles (1,850 km) southeast of Tokyo.
The estimate of the Minamitori deposits indicates that there is enough yttrium to meet the global demand for 780 years, dysprosium for 730 years, europium for 620 years and terbium for 420 years. US policymakers could seek a partnership with Japan in commercializing Minamitori’s rare earth resources and arranging assured supplies for defense and vital commercial applications.
Indeed, it is too bad that President Trump and Japanese Prime Minister Shinzō Abe didn’t address the subject in their recent meeting in Tokyo.
But the president probably was not encouraged by the US bureaucracy, which has – largely for political reasons – been sitting on its hands and not moving the rare earth issue forward. Yet the opportunity is there if the US and Japan consider the national security and supply issues objectively.
In short, there is a short-term and mid-term opportunity to end US dependence on China and assure US national security requirements for rare earth materials.