BREAKINGVIEWS-US rare earth chokepoint is a big little problem

By Gabriel Rubin

WASHINGTON, Oct 13 (Reuters Breakingviews) - It’s tough running high-stakes trade negotiations on geological time. Ever-fractious talks between China and the United States spiraled into escalatory threats on Friday. At the center of the flare-up: the stranglehold held by the People’s Republic over crucial rare earth minerals. U.S. moves to break the monopoly are in motion, and the problem seems small enough to be solvable. It’s just that the White House’s standing start leaves it no choice but to make nice for now.

The statistics are imposing. China controls some 70% of rare earth mining and 93% of magnet manufacturing, according to the Center for Strategic and International Studies, adding heft to effective embargo threats. A breakdown in trade negotiations will inevitably return to this pressure point because it is one of the few as painful as U.S. curbs on advanced chips.

Beijing’s position is well-earned: strategic investments over decades won control of the vast majority of mining and processing of rare earths including dysprosium and terbium, as well as other metals used in batteries and magnets for electric vehicles, wind turbines, and defense systems.

Yet this is simply not a vast market, sized at only around $5 billion by the Department of Energy and researchers. Catching up should be plausible. After a slow ramp-up, U.S. investments have accelerated. Uncle Sam took a direct 15% stake in MP Materials MP.N, a miner developing the Mountain Pass site in California. Over $1 billion of capital investment was announced in the second quarter of this year, some 91% government-backed, Benchmark Mineral Intelligence reckons. JPMorgan JPM.N, which assisted the government on its MP Materials investment, announced Monday that it will spend $10 billion on companies involved in U.S. national security, including mineral firms.

The problem until now was that, since they represent a tiny fraction of the cost of much more complex final products, rare earths haven’t attracted much corporate attention. Interventions to correct this should make an embargo a dead letter, eventually. The key, though, is that timing. Even by 2030, the International Energy Agency projects, China’s dominance will still extend to 54% of mining and 77% of refining. Such slow shifts are little help for trade talks due this month.

After all, MP Materials’ mine languished for years, its prior owner declaring bankruptcy in 2015. Fixing the supply chain will take laborious, coordinated effort. And as Friday’s market selloff makes clear, losing access to these materials would be existential. The question now is whether the White House can patiently develop domestic capacity, or if shorter tempers play to Beijing’s advantage.

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CONTEXT NEWS

China's Ministry of Commerce said on October 9 that, starting in December, foreign firms will need a license from the Chinese government to export products that by value contain 0.1 percent Chinese-origin heavy rare earths, or were produced using the country's technologies.

U.S. President Donald Trump on October 10 threatened to impose additional levies of 100% on Chinese goods, along with new export controls on "any and all critical software" by November 1.

China controls most of the world’s rare earth mining and supply chains, accounting for roughly 70% of rare earth mining, 90% of separation and processing, and 93% of magnet manufacturing.