Four Steps for the U.S. to Decouple From China

First: Purchase from domestic producers

The failure of Molycorp demonstrates why markets alone can’t solve supply chain issues and why deep investments are needed to enhance the long-term sustainability of private REE ventures. During its rise, Molycorp benefitted from China’s restriction on exports to Japan in 2010, which artificially inflated prices that ultimately dropped. Combined with an aggressive debt structure, this sent Molycorp into bankruptcy. Without a bulwark against future price manipulation, current and future U.S. producers will remain vulnerable.

DoD only represents about 5 percent of U.S. REE consumption; however, an agreement to purchase from domestic producers could provide a stable “safe harbor” that is insulated from Chinese manipulation and reduce the risk for nascent U.S. producers. A guaranteed buyer would also instill confidence in emerging U.S. producers, drive private investment, and allow producers to build the fiscal solvency to remain sustainable over time. While the 2021 National Defense Authorization Act requires military systems to use non-Chinese REEs within five years—in addition to the existing ban on Chinese rare earth magnets—DoD must do more to support domestic production sooner and more aggressively.

Second: Reduce regulatory burdens

Domestic mining facilities require assessments and permits that take up to ten years to attain. This excessive red tape has all but forced miners to move to jurisdictions with fewer requirements, which has led to astonishing environmental damage in China. Though historic REE mining processes have been environmentally taxing, modern technologies can significantly reduce harms and externalities. Without reform, however, these technologies will never be used. Reducing the time-to-permit would ease the financial burdens on potential domestic producers and provide a more supportive environment in which they could achieve success.

Third: Continue using DPA funds to invest in innovative domestic producers

The Biden administration should continue to invoke the Defense Production Act to support domestic REE producers who find innovative solutions for America’s supply chain issue—especially when those solutions are environmentally sustainable processes like recycling or improvements to existing processes through rapid solvent extraction. Innovation is deeply ingrained in America’s history, and DoD’s continued use of DPA authority will only propel our nation’s history of ingenuity forward.

Fourth: View trusted foreign allies as part of the process to achieve true supply chain security

The U.S. relies on trusted foreign allies for critical military REE supply chains; however, they should be viewed as part of the solution for achieving true supply chain security, which only happens when the U.S. has a wholly domestic supply chain from mine to magnet. The potential sale of Hitachi Metals in Japan poses one case-in-point: the U.S. government and military have no assurances that Chinese bidders will not acquire the company, and the Committee on Foreign Investments in the United States—which is designed to address predatory investments—has no power in foreign countries. Even worse, the U.S. can’t enforce patents or approve production permits overseas, which subjects our nation to rely on the whims of foreign and sometimes fickle regulatory bodies. With REE-heavy platforms across all branches of the military, these are not vulnerabilities DoD should embrace.

www.realcleardefense.com/articles/2021/04/13/four_steps_to_help_the_us_decouple_from_china_772494.html

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