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China Controls the Rare Earth Market, Key to U.S. Military Technology

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The intricate machinery of America’s defense system, from F-35 jet fighters to nuclear submarines, relies on a material as unassuming as it is critical: rare-earth magnets. These small metallic elements, essential for the operation of missile guidance systems and Predator drones, are overwhelmingly produced in China, which commands 92% of the global market. This dominance presents a significant strategic vulnerability for the United States, given the crucial role these components play not only in military hardware but also in a range of civilian technologies such as electric vehicles, wind turbines, and MRI machines.

Recognizing the risks of this dependency, the U.S. government has initiated a substantial effort to revive domestic production of these vital materials. Hundreds of millions of dollars in grants and tax credits have been allocated to stimulate the re-establishment of magnet manufacturing in the United States. As Anthony Di Stasio, a senior U.S. defense official, poignantly noted, “We’re not going to be able to simply flip a switch and get to where we want to be.” The complexity of this endeavor is reflected in the strategic investments being made by the Defense Department, which is probing deep into the supply chains to bolster the foundational elements of military hardware.

The legislative landscape has also shifted in response to these concerns. In 2018, U.S. law began to restrict the use of magnets made in China in American military equipment, shrinking the pool of potential suppliers to a select few in Japan and the West. Looking ahead to 2027, these restrictions will expand to include any magnets manufactured from materials mined or processed in China, which encompasses nearly all of the current global supply.

Despite the daunting challenge posed by China’s market dominance, efforts are underway to rebuild America’s capacity to produce these essential materials. The U.S. Defense Department has committed more than $450 million toward initiatives related to rare earths and the magnets they power, aiming to mitigate the strategic risks associated with foreign dependency. The Energy Department is also offering incentives, focusing particularly on the magnets critical for electric vehicles.

A pivotal development in this initiative is the establishment of a North American factory by a German magnet-maker, marking its return to U.S. soil two decades after the closure of its last facility. This new venture in Sumter, South Carolina, intends to source rare earths locally, potentially from projects receiving government support in California and Texas. As Di Stasio elucidates, the strategy is to “go as close to the dirt as we can so we know we’re still going to need it in 15 years,” underscoring the long-term vision behind these investments.

However, the road to revitalizing the U.S. rare-earth industry is fraught with obstacles. Chinese prices, kept artificially low due to less stringent regulations and lower labor costs, have previously undercut international competitors, making sustainable production elsewhere challenging. The U.S. Commerce Department’s 2022 probe confirmed this, finding that China’s dominance allowed it to set prices that competitors found unsustainable. Furthermore, Western mines and processing facilities face stricter regulations and a dearth of domestic expertise, necessitating costly measures like importing talent or automating processes to reduce labor costs.

The strategic implications of these efforts extend beyond the military. The civilian sectors that depend on these magnets, including manufacturers of electric vehicles and wind turbines, must also contend with the implications of shifting supply chains. Companies such as General Motors have signaled a readiness to support domestic production by committing to purchase American-made magnets, reflecting a broader recognition of the need for a secure and reliable supply chain.

The U.S. initiative to reestablish its rare-earth magnet production capability represents a significant step toward securing not only its military superiority but also its economic independence and technological leadership.

China strategy of subsidizing markets until they own them is illegal in most countries, subject to internal anti-trust and anti-monopoly laws. In this case China’s strategy has made a dangerous situation for the U.S. We need to remedy this as soon as possible.

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