Rubio: US Security Against China Needs a Cooperative Rare-Earth Model – Foreign Policy

by admin on June 17, 2020

Underpinning our modern economy are fewer than two dozen naturally occurring elements found near the bottom of the periodic table that few Americans even know exist. These rare-earth minerals, such as neodymium and dysprosium, power everything from computer hard drives to the laser-guided missiles used to defend our nation. The United States has historically dominated their production, but we are now reliant on China, which has seized a near-monopoly over the mining and processing industry after decades of painstaking planning. This represents a major threat to American national security and a major vulnerability for the American economy.

In a recent report in Foreign Policy, writers Keith Johnson and Robbie Gramer discuss the strategic vulnerabilities this dependence creates and describe a challenging yet important truth: American legislators have plenty of good policy ideas, but we have not yet succeeded in solving this problem. Plans are many, but we lack a policy consensus in Congress.

We’ve seen well-thought-out legislative proposals. We’ve seen proposals to increase federal investment in supporting and advancing American technological prowess in this area. We’ve seen proposals to provide a tax environment that incentivizes American capital investment in this sector. We’ve seen proposals to expedite permitting and systematically assess our domestic rare-earth resources, and to pursue creative solutions to extract rare-earth elements from the waste products of other industries.

The proliferation of plans brings new ideas to the table that represent important steps on the path to a more enduring solution. I am encouraged to see growing interest in reshoring and investing in supply chains critical to the national interest such as pharmaceutical production. We need to apply the same thinking to rare-earth minerals. I am also pleased to see proposals to use tax policy to promote the sector—a good idea that mirrors my own proposals on how to incentivize capital investment in American critical industries. All of the ideas on the table are important parts of this conversation.

What is missing from this growing stable of ideas, however, is the ability of the American rare-earth sector to coordinate and cooperate. The obstacle at hand isn’t a lack of natural resources; America has plenty of promising sites to mine. But with expensive start-up costs associated with refinement and production, Beijing has effectively undercut the market, precluding a domestic industry from forming here. If the United States cannot find a way to allow and encourage that cooperation, it will fail to address the fundamental reality that China now wields total control over the pricing of these elements and can take retaliatory action against individual American actors trying to rebuild this critical industry. China’s state-backed ability to crash the market at any time takes this problem out of the realm of ordinary market dynamics. Quoting an expert in this field, Johnson and Gramer report that we cannot offer “a market solution for a non-market problem.”

Mining The Future: A special report by FP Analytics details China’s control and influence in critical metals and minerals vital to global high-tech industry. Read here.Mining The Future: A special report by FP Analytics details China’s control and influence in critical metals and minerals vital to global high-tech industry. Read here.

Mining the Future:A special report by FP Analytics details China’s control and influence in critical metals and minerals vital to global high-tech industry. Read here.

The problem is made all the more challenging because the United States must rebuild more than one piece of its rare-earth domestic supply chain. The United States will remain vulnerable if just one piece—from mining to refining, all the way to the production of parts needed by end users—is reliant on China. In other words, Americans can and should reduce regulatory burdens to improve our ability to mine these elements, but we will still be completely dependent on China for refining them into useful form unless and until we stand up an American capacity to do so. Unless the United States confronts these realities, all the good ideas in the world will not be enough to stand up its own complete and resilient supply chain.

China’s ability to manipulate pricing ensures that normal economic rules don’t apply and threatens Americans’ ability to compete. Instead, we need to ensure that the industry as a whole can work tougher to mitigate this threat, so that no single enterprise can be bullied by Beijing into submission.

This is the goal of my RE-Coop 21st Century Manufacturing Act, which would direct the U.S. government to establish a Rare Earth Refinery Cooperative by convening private actors responsible for coordinating the establishment of a fully integrated domestic value chain. The cooperative would serve the national interest by providing for the needs of American defense, as well as any industry or investors involved.

Johnson and Gramer conclude their report by noting that some experts suggest more creative policy may be required, which innovates past “the dicey market economics of rare-earth mining and processing altogether” and offers stronger government support to the industry as a whole. This is correct. While one expert quoted in the article implies that the way to do this may be by leaning toward the nationalization of our rare-earths supply chain, I don’t believe we need to imitate China in order to beat China.

A federally convened, privately funded cooperative exempt from antitrust law would allow the industry to coordinate—and mitigate its risk.

The proposal would help American firms that need rare-earth minerals by providing them an opportunity to invest together in American refining capacity, undertake that processing in an economically efficient manner, and share profits. Over time, this would allow the development of a robust, integrated rare-earth mineral supply chain through further investment, while providing a buffer against possible retaliation from China’s potential abuse of its current pricing power.

We need to invest in American companies operating in critical sectors. We need to incentivize their productive activity. We need to remove federal barriers that stand in their way. But any solution to the rare-earths problem must also approach the issue more broadly. The present situation threatens our national security, limits our economic productivity, and robs Americans of opportunities for dignified work.

Change must be part of a greater effort to reintegrate critical supply chains, aimed at the ultimate goal of defending—and, in this case, standing up—industries vital to the national interest. This will include everything from basic pharmaceuticals and medical equipment to the high-tech industries needed to win the future. Policymakers’ ability to coalesce around a common goal of national resilience and, where needed, to promote American industry’s ability to cooperate as well will determine the success of America and our global order for decades to come.

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