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 # 608  

May 2010




Is America About to Become Even More Dependent on China?

The Case for Domestic Rare Earth Elements (REEs) Exploration and Excavation

by Caroline May



China is already the largest holder of U.S. debt, yet if the pending “Hardrock Mining and Reclamation Act” becomes law, Americans could find themselves even more beholden to the Chinese.

Introduced by Jeff Bingaman (D-NM) on the Senate side as S. 796 and Rep. Nick Rahall (D-WV) in the House as H.R. 699, this pending legislation seeks to amend the General Mining Act of 1872 to require that companies pay up to an 8% royalty on mining projects. It also imposes harsher permitting standards, levies a number of burdensome fees and grants the Department of the Interior increased regulatory authority over the mining industry.1

If the legislation becomes law it would discourage investment in domestic mineral development, increase U.S. reliance on foreign sources for minerals, and surrender significant American economic power to China.

REEs - known as “technology metals” to market insiders, as many modern devices require them - are a group of 17 minerals, commonly found together, with atomic numbers 21, 39, and 57–71.2

REE minerals are essential to the function of such common devices as the catalytic converter, MRI machines, X-ray machines, iPods, cell phones and color televisions.3 Perhaps more critically, REEs are integral to America’s defense systems, as they are used in night vision goggles, precision-guided munitions, cruise missiles and the like.4

REEs also are critical if “green” energy is to replace today’s carbon-based fuels, as most “green” technologies require vast amounts of these metals. For example, the permanent magnets used to manufacture one wind turbine use two tons of REEs5 and electric cars such as the Prius use up to 25 pounds of REEs.6 Furthermore, without REEs, there would be no such thing as a compact fluorescent light bulb.7

In the last ten years two game-changing developments have made legislation hindering domestic mining more damaging to American interests. First, worldwide demand for REEs has tripled from an annual demand of 40,000 tons to 120,000 tons in the past decade.8 Second, the United States has moved from being completely self-sufficient to being 100% reliant on foreign nations for its REEs. Between 2005 and 2008, the United States imported 91% of its REEs from China and most of the rest from Russia, Japan and France.9

Controlling 97% of global supply, China is a veritable REE powerhouse and is wielding its authority accordingly by severely restricting export of the precious resource.10 11 In the past seven years alone, China has reduced its exports of REEs by 40% the amount available for export.12 The Independent newspaper in Britain reports that by 2012 China could halt exports entirely, producing only enough to satisfy its own domestic need.13

Jack Lifton, an independent consultant and leading commentator on nonferrous strategic metals, explains what such a halt means: "A real crunch is coming. In America, Britain and elsewhere we have not yet woken up to the fact that there is an urgent need to secure the supply of rare earths from sources outside China. China has gone from exporting 75% of the raw ore it produces to shipping just 25%… There has been an effort in the West to set up new mines but these are 5 to 10 years away from significant production."14

With REEs likely to be in short supply in the future, Lifton has appropriately dubbed this “The Rare Earth Crisis of The Second Decade of the Twenty-First Century.”15

Politicians across the ideological spectrum repeatedly have demanded that Americans wean themselves from foreign energy. Days after his inauguration, President Barack Obama said, “I want to be clear from the beginning of this administration that we have made our choice: America will not be held hostage to dwindling resources, hostile regimes and…We will not be put off from action because action is hard.”16

By promoting wind energy, hybrid vehicles and compact fluorescent light bulbs, Washington might think it is working toward that vision of autonomy. However, even if the country is able to convert to a green economy and reduce dependence on foreign oil, without sensible mining policies, if America does not have a ready and sufficient domestic supply of REEs, the United States may find itself even more beholden to foreign governments than it presently is.

Former Chinese leader Deng Xiaoping foreshadowed China’s material dominance when he said, “The Middle East has oil, China has rare earth metals."

Are Americans willing to be held hostage by yet another foreign government?


Caroline May is a policy analyst with the National Center for Public Policy Research.

 


Footnotes:

1 Adela Harding, “Mining Law Reform,” Elko Daily Free Press, December 31, 2009, available at http://www.elkodaily.com/articles/2009/12/31/news/local_news/doc4b3cd9b078b0d971874077.txt as of January 22, 2010.

2 Jack Lifton, “The Rare Earth Metals, Uranium, and Thorium: All Commonly Found Together; And All Desired By China,” Jack Lifton’s Instablog, November 15, 2009 available at http://seekingalpha.com/instablog/65370-jack-lifton/35768-the-rare-earth-metals-uranium-and-thorium-all-commonly-found-together-and-all-desired-by-china as of February 2, 2010.

3 “Rare Earths,” U.S. Geological Survey, Mineral Commodity Summaries, January 2009 available at http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2009-raree.pdf as of February 2, 2010.

4 Metal Place “The Battle Over Rare Earths,” Proactive Investors, January 14, 2009 available at http://www.proactiveinvestors.com.au/companies/news/4241 as of February 2, 2010.

5 Lindsay Hilsum, “Are Rare Earth Metals Too Costly for the Environment?” PBS Newshour, December 14, 2009 available at http://www.pbs.org/newshour/bb/asia/july-dec09/china_12-14.html?print as of February 2, 2010.

6 Cahal Milmo, “Concern as China clamps down on rare earth exports” The Independent, January 2, 2010 available at http://www.independent.co.uk/news/world/asia/concern-as-china-clamps-down-on-rare-earth-exports-1855387.html as of February 2, 2010.

7 Tom Vulcan, ”Mark Smith: Why Rare Earths Matter,” Hard Asset Investor, May 15, 2009 available at http://www.hardassetsinvestor.com/features-and-interviews/1571-mark-smith-why-rare-earth-metals-matter.html?start=2 as of February 2, 2010.

8 Cahal Milmo, “Concern as China clamps down on rare earth exports” The Independent, January 2, 2010 available at http://www.independent.co.uk/news/world/asia/concern-as-china-clamps-down-on-rare-earth-exports-1855387.html as of February 2, 2010.

9 “Rare Earths,” U.S. Geological Survey, Mineral Commodity Summaries, January 2009 available at http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2009-raree.pdf as of February 2, 2010.

10 “Leading Article: An elemental challenge for China and the world,” The Independent, January 2, 2010, available at http://www.independent.co.uk/opinion/leading-articles/leading-article-an-elemental-challenge--for-china-and-the-world-1855408.html as of February 16, 2010.

11 Cahal Milmo, “Concern as China clamps down on rare earth exports” The Independent, January 2, 2010 available at http://www.independent.co.uk/news/world/asia/concern-as-china-clamps-down-on-rare-earth-exports-1855387.html as of February 2, 2010.

12 Ibid.

13 Ibid.

14 Ibid.

15 Jack Lifton, “The Rare Earth Crisis Of The Second Decade Of The Twenty-First Century: A Threat Or An Opportunity?” The Jack Lifton Report, January 16, 2010, available at http://www.jackliftonreport.com/2010/01/the-rare-earth-crisis-of-the-second-decade-of-the-twenty-first-century-a-threat-or-an-opportunity/ as of April 6, 2010.

16 Barack Obama “Remarks by the President on Jobs, Energy Independence, and Climate Change,” The White House, January 26, 2009 available at http://m.whitehouse.gov/blog_post/Fromperiltoprogress/ as of April 6, 2010.




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