"Sleeping at the switch": How China Dominated Rare-Earths Industry and Why

leon1163
11 minutes ago
3 min read

While the United States strategic planning cycles tend to follow Presidential terms - in practical terms 8-10 years - China can patiently execute decades-long strategic plans.

1991: China wasn't the monopoly - the US was

In 1991, Mountain Pass mine in California enabled the United States to be the world's largest producer of rare earths.

"The Middle East has crude oil. Chia has rare earths" said Deng Xiaoping. It wasn't an empty statement.

Also in 1991, China passed a legislation which defined rare earths as a strategic resource. The same legislation also severely restricted (read: prohibited) any form of collaboration between local companies and foreign companies to mine China's rate earth deposits. There is of course more. Foreign citizens were also prohibited to visit rare earth mines without special permission from Chinese government.

1995: China shuts down US based competitor

In 1986, using grants from Pentagon, General Motors developed a new permanent magnet and began manufacturing new magnets at a newly-formed subsidiary: Magnequench.

In 1995, Magnequench was purchased by Sextant Group. However, only months prior to the takeover of Magnequench San Huan New Materials was fined by US International Trade Commission for patent infringement and business espionage. The fine was $1.5 million

Sextant Group was a corporate front for 2 Chinese companies with close ties to the Chinese giovernment: San Huan New Material and the China National Non-Ferrous Metals Import and Export Corporation.

Astute readers still remember what Den Xioapeng said earlier, ""The Middle East has crude oil. Chia has rare earths".

The CEOs of both companies - San Huan New Material and the China National Non-Ferrous Metals Import and Export Corporation - were in-laws of the late Chinese premier Deng Xiaopeng.

In 1998, Sextant closed Magnequench plant in Anderson, Indiana and moved the entire assembly line to China. Most of the workers in the remaining Magnequench factory in Valparaiso, Indiana have been fired.

Valparaiso, Indiana plant was manufacturing magnets for JDAM munitions. Coincidence?

In 2000, another subsidiary of Magnequench - GA Powders - followed the same fate. All production facilities were moved from Idaho Falls, Idaho to a newly built plant in Tianjin, China.

Shortly thereafter, Magnequench announced relocaton of HQ office from Indianapolis to Singapore.

2005: China increases pressure

How can China further increase the world's reliance on China as a rare earths monopoly supplier?

Simple,

Increase export taxes and encourage vehcle-parts manufacturers and other companies to relocate factories to China.

In 2005, China’ increased export taxes on rare earths. As a result, it became much more expensive for magnet manufacturers outside of China to produce their products. Left with no choice,, companies with a heavy reliance on on rare earths relocated factories to China in order to have access to cheaper raw materials.

By the mid-2000s, the U.S. rare-earth industry had been erased, with Mountain Pass, America’s major rare-earth mine, closed.

China now produced 97% of the world’s rare earths: effectively a global monopoly.

2014: China wins WTO fight

In 2012, the Obama administration, with the European Union and Japan joining the United States, filed a suit against China at the World Trade Organization, accusing it of improperly using export quotas to restrict rare-earth supplies abroad. China's counter arguments: the restrictions were necessary to maintain mining at sustainable levels and of course protect the environment

China did not mention that proccessing of arare earths is one of the least environmentally friendly activities.

In 2014, the WTO ruled against China. China abandoned export quotes and and rare earths sales to the U.S. surged.

China elected to follow WTO ruling for a different reason.

Molycorp, an American company, decided to revive Mountain Pass mine. Molycorp went bankrupt as American rare-earth prices collapsed. Cheap Chinese prices had contributed to shutting down America’s only rare-earth mine for the second time.

2025: China goes beyond export controls

Rare earths are crucial for various defense technologies, to name a few: F-35 fighter jets, submarines,Tomahawk cruise missiles, radar systems, unmanned aerial vehicles, and the Joint Direct Attack Munition series of smart bombs.

The United States is already struggling to keep pace in the production of major weapon systems.

How do rare earths export controls help China?

China is is acquiring advanced weapons platforms and equipmentr at a rate 5-6x faster the United States, according to Center for Strategic and International Studies.