The U.S. Vs China: The Rare Earths Cold War

Rare earths have become the subject of a gripping trade cold war involving the world’s two biggest economies. China —the world’s largest producer and with the biggest reserves— is seeing its position in the market threatened, while the U.S. —which has just returned to the fore— seeks self-sufficiency by building its first sustainable supply chain to wean off the Asian giant’s rare metals exports.

Up Through The Ranks

At present, the U.S. is pushing the development of a local industry while diversifying its sources. According to Bloomberg, the hunger for these metals led the country to deploy drones and other technologies in its territory to help locate possible reserves. 

Along the same lines, Washington agreed with Canada and Australia to deploy joint projects focused on refining these materials, and it is seeking federal funds to strengthen the sector. 

In its attempt to fortify its position in the market, the U.S. “has resumed activity… but it will take time to compete with China,” as explained by David Merriman, a metals expert at the Roskill consultancy. 

The first step was already taken last year. The production of rare earths in the U.S. increased by 44% and the country went from fourth to second in the world with 12% of the market, but still very far from China with 63%, according to statistics from the U.S. Geological Survey. 

The jump is not accidental. Its main and only rare earth mine, located in California, has risen from the ashes.

“A Geopolitical Tool”

“The U.S. is not comfortable with China’s dominance,” says Chris Berry, founder of House Mountain Partners —a New York-based commodity consultancy. The discomfort was evident when the Asian giant, amid a trade war, threatened to paralyze rare earths exports. 

According to a Roskill analysis, “These elements have become a geopolitical tool” and they are of the utmost importance for the U.S., to such an extent that they have been classified as “essential for national and economic security.”

For this reason, these metals were an asset in the first phase of a trade agreement in which China agreed to buy two types of rare earths from the U.S.: scandium and yttrium. Both are used in defense applications, aeronautics, and to manufacture televisions. 

This is certainly a strategic move and will pay off for the fledgling U.S. industry, but not immediately. 

Juan Diego Rodríguez-Blanco, professor of nanomineralogy at Trinity College Dublin, says, “The U.S. is thinking about the future because now the production of these two metals is minuscule.”

For some analysts, however, rare earths self-sufficiency could be just around the corner, maybe in seven or ten years according to estimates by Eugene Gholz, political science professor and national security expert at the University of Notre Dame, Indiana.

Weaning Off China’s Rare Earths

In addition to promising an expansion of the U.S. supply of semiconductors and mining, processing, and recycling of critical minerals, President Joe Biden has introduced a new bill that seeks to force defense contractors to stop using rare earth minerals from China by 2026.

To achieve this, the U.S. has awarded MP Materials Corp MP $35 million to expand a company's rare earth project in Mountain Pass. In turn, the company will invest another $700 million of its own funds to create more than 350 magnet supply chain jobs by 2024. 

The goal of this investment is to establish the first complete supply chain in the country and wean off Chinese strategic minerals. 

Berkshire Hathaway Energy Renewables (NYSE: BRK-B) is planning to advance sustainable lithium production over the next five years, and will launch new facilities in California to test the commercial viability of a process that extracts lithium from geothermal brine, a concentrated salt solution rich in metals.

If successful, the company would begin commercial production of lithium hydroxide and lithium carbonate in 2026, the same deadline for the U.S. to stop depending on Chinese rare earths for defense applications.