The Pentagon is hoping to team up with Australia to construct a rare earths processing facility that would permanently break China’s hold on an industry crucial to high-tech manufacturing and weapons development, Voice of America News (VOA) reported on Monday.
The outlet noted that securing a reliable source of rare earths is one of the Pentagon’s highest priorities, for the benefit of both America’s armed forces and those of allied nations. According to VOA:
Under Secretary of Defense for Acquisition and Sustainment Ellen Lord told reporters Monday the Pentagon’s “highest potential avenue” is to build a rare earths processing facility with Australia in order to take care of the Pentagon’s needs and the needs of other international allies.
“The challenge is really the processing of them [rare earths] and having the facilities to do that, because quite often China mines them elsewhere and brings them back to China to process them,” Lord said.
About 80% of rare earth minerals imported by the United States come from China, and in 2017, China accounted for 81% of the world’s rare earth production, according to data from the U.S. Geological Survey.
Rare earth minerals are needed in U.S. military jet engines, satellites, missile defense systems and night vision devices.
“We’re concerned about any fragility in the supply chain, especially when an adversary controls the supply,” Lord said.
The Chinese have not been shy about threatening to choke off rare earth shipments if the metals are used to “curb the development of China,” as an official with the Chinese economic agency put it.
Beijing explicitly threatened to use rare earth exports as an economic weapon in May, cooking up a poll that ostensibly showed the Chinese people in favor of banning such exports if hostile foreign powers continued to “suppress China’s development.”
Chinese officials began musing in public that if the trade war with America continued, there might not be enough rare earth minerals to spare for foreign customers. Communist Party chief Xi Jinping visited a mine in Jiangxi province to rally workers by invoking the spirit of the Long March – in other words, telling them they might need to suffer in order to achieve ultimate Communist victory.
At the height of rare earths anxiety in late May, some observers wondered if China might be reluctant to play the potent card of an export ban because customers might look elsewhere for their supply, permanently destroying China’s grip on the market.
There are known deposits of the minerals outside China, but there were various regulatory obstacles and profit considerations preventing them from being developed, as long as rare earths could be readily obtained from China at reasonable cost. By threatening that assumption, Beijing may have blundered by challenging the assumptions that kept everyone else’s rare earths buried in the Earth.
As Defense News noted on Tuesday, China’s dominance of the market is even more precarious because the problem is not really obtaining a supply of raw materials, but rather refining the rare earths into useful products. The United States had only one refinery, and it went bankrupt in 2015. Australia’s Lynas Corporation has a rare earths mine and it owns a processing facility in Malaysia, but the facility cannot currently handle the type of refinement needed by the Pentagon. Upgrading the refinery or building a new one are not impossible tasks, especially for the relatively small portion of rare earths products required by the U.S. military.
“You’re never going to beat the Chinese on a huge scale. The department’s strategy is focused on: ‘I don’t need to worry about the automotive industry, I just need to make sure my defense supply chain is secure.’ And for a relatively small investment, they can get that capacity up and running,” president Jeff Green of J.A. Green & Co. told Defense News.
Other sources of rare earths can be found in Canada, South Africa, and Vietnam. The United States has an operational rare earths mine in California, but it does not have a processing plant, although it is planning to build one next year.
A firm in Texas called USA Rare Earth is developing mines and processing facilities that could supply 15 of the 17 rare earth elements. A company executive told the South China Morning Post over the weekend that last month the Pentagon began asking mining companies how quickly they could develop the capability to supply the minerals needed for military applications. Both American and Canadian firms have reportedly expressed interest in taking up the challenge.
The Pentagon’s game plan might be to ramp up Australian production quickly for the near term while enough additional sources, including mines and processing facilities conveniently located in North America, are developed to permanently dilute China’s leverage. Beijing could be very close to losing the rare earth card it threatened to play, but never actually slapped down on the table.