How China Took Over the World’s
Rare Earths Industry
China seized mines and built factories.
Japan took note and invested in Australia. But the United States did little
despite concerns about control of supplies.
China
shook the world in 2010 when it imposed an embargo on exports of crucial rare earth
metals to Japan. Panicked Japanese executives appeared on television to warn that
they were running out of the critical raw materials.
The
embargo, prompted by a territorial dispute, lasted only seven weeks. But it changed
the global supply chain for these metals. When the embargo was over, China took
forceful control of its mineral bounty. Top officials in Beijing rooted out corruption,
crushed smugglers and consolidated the industry under state control.
The
world was put on notice, especially Japan and the United States, two of China’s
biggest customers for rare earth metals used in everything from cars to smartphones
to missiles. Governments from both countries drafted detailed plans for how to mitigate
their dependence on China. Japan has largely followed through on its plans and today
can source the minerals from Australia.
Not
the United States. Even after 15 years, the country is still almost entirely reliant
on China for the processing of rare earth metals. As a result, American automakers,
aerospace companies and defense contractors have been
left vulnerable.
Angry
about President Trump’s tariffs, China has suspended all exports of certain rare
earths, as well as the even more valuable magnets made from them.
These
small yet powerful magnets — no bigger than a ring for a person’s finger, yet with
15 times the force of a conventional iron magnet — are an inexpensive and often
overlooked component of electric motors. They are used in electric and gasoline-powered
cars as well as robots, drones, offshore wind turbines, missiles, fighter jets and
many other products.
The
American failure to devise an alternative to its dependence on Chinese supplies
has spanned Democratic and Republican administrations.
“U.S.
policymakers for 15 years have done very little to address the risk of dependence
on China for rare earths, and specifically rare earth magnets,” said Milo McBride,
a specialist in critical minerals at the Carnegie Endowment for International Peace
in Washington.
Rare
earths, he said, are “the most strategic minerals of all the minerals that have
been discussed for the last several administrations.”
Beijing’s
2010 embargo against Japan was undermined by Chinese organized crime syndicates
that controlled much of the industry in south-central China in collusion with local
officials. The gangsters had been smuggling up to half of China’s annual rare earths
production out of the country.
Weeks
after the embargo ended, Beijing took revenge. Government forces acting under national
security orders stormed the valley near Longnan in Jiangxi
Province where much of the world’s heavy rare earth minerals were produced. They
seized the privately run mines and jailed thousands of people across southern China.
Regulation of the industry was transferred from local governments to Beijing.
The
mines were later nationalized and consolidated into a single state-run company,
China Rare Earth Group. During a visit last week to the valley without the knowledge
of the local authorities, there was no sign of the thugs who used to guard southern
China’s rare earth mines.
China
has recently developed its own magnet industry instead of shipping the materials
to magnet factories in Japan. Beijing has poured money into building advanced magnet
factories in Ganzhou, a city near Longnan.
China
now produces 90 percent of the world’s magnets. Further construction was underway
at two of Ganzhou’s largest magnet factories last week.
China’s
top leader, Xi Jinping, said in a speech in 2020 that it was important for China’s
national security that the West’s supply chains remain dependent on his country.
“We
must build up our strengths and consolidate our international lead in industries
where we have an advantage,” he said a few months after visiting Ganzhou’s most
advanced magnet factory. He called for “intensifying the dependence of international
industrial supply chains on China, forming a powerful capacity to counter and deter
deliberate supply cutoffs by foreigners.”
Japan
also took far-reaching actions after the 2010 embargo. Its manufacturers began holding
enough rare earths in inventory to meet up to two years of their own needs. They
also started looking overseas.
The
conglomerate Sumitomo Group, with financial backing from the Japanese government,
helped support the development of Lynas, an Australian mining company. Lynas mines
and refines 60 percent of Japan’s light rare earths, which are mixed with small
quantities of heavy rare earths to make rare earth magnets. And the company is preparing
to start refining heavy rare earths for Japanese manufacturers this summer in Malaysia,
although initially in tiny quantities.
Japan’s
biggest magnet manufacturers — Proterial, Shin-Etsu Chemical
Company and TDK Corporation — have moved some production from Japan to China to
have reliable access to rare earths, and also to Vietnam, where labor costs are low. But they have also kept considerable production
in Japan.
The
U.S. rare earth magnet industry started with a subsidiary of General Motors in northern
Indiana in the 1980s. But factories shut down and moved to China and Singapore.
After
the embargo in 2010, the Japanese company Hitachi Metals, which changed its name
in 2023 to Proterial, responding to concern from the administration
of former President Barack Obama, built a rare earth magnets factory in North Carolina
from 2011 to 2013.
The
Hitachi Metals factory, with several dozen employees, had higher costs than the
giant complexes being built in Ganzhou. American companies proved unwilling to pay
extra for magnets produced in the United States and switched to Chinese suppliers.
Hitachi closed the factory in 2020 and the equipment went into storage.
Today
the only active rare earth mine in the United States is in Mountain Pass, Calif.
Its operator, MP Materials, plans to start ramping up commercial production of rare
earth magnets at the end of the year at a factory in Texas. But even when running
at full speed, the facility will produce in a year the equivalent of a day of China’s
production.
Chinese
factories supply thousands of tons of rare earth magnets each year to the country’s
manufacturers of electric cars and offshore wind turbines — two industries that
Mr. Trump has criticized.
Like
magnet production, rare earth mining has also had an uneven history in the United
States. The Mountain Pass mine produced a majority of the world’s rare earths from
1965 until 1995, when China began flooding the global market with all manner of
low-cost exports.
The
mine closed in 2002, partly because of ever stricter environmental regulations by
California. A $1.5 billion upgrade started in 2010, but mining did not resume until
2017 — and then the mine had to ship its ore to China for processing at low-cost
refineries there. Only now has the mine begun refining a large share of its production.
Zoning
and environmental regulations make it hard to open a rare earth mine in the United
States. Opening a rare earth mine in the United States
takes 29 years, said Mark Smith, the chairman and chief executive of NioCorp Developments, which has obtained construction permits
to build a mine in Nebraska.
“You
can spend a whole career getting a mine up and running,” Mr. Smith said.
By
contrast, mines in China can be opened quickly and do not have to undergo the same
kind of rigorous regulatory approval.
Underpinning
all the problems is that the global market for the minerals is tiny next to other
kinds of mining, like copper.
Few
American companies have wanted to make big investments in rare earths only to face
the risk, as Hitachi found, that customers prefer cheaper products from government-backed
industries in China.
“U.S.
companies have been reluctant to take the plunge,” said David Sandalow, who oversaw critical minerals policy in the Obama
administration.