US reliance on China for critical metals is being ignored

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The economic impact of China

FBN’s Charles Payne on China’s impact on the global economy.

The United States has made no progress to decrease its dependence on China for metals and materials that are critical to our national security and defense, according to a narrowly-circulated report from the Department of Defense.

The document, dated January 2017 and titled, “Strategic and Critical Materials Operations Report to Congress,” confirms the widespread fear among industry experts that the U.S. remains dangerously incapable of mining and producing so-called rare earths. Those 17 metals and elements are needed for, among other things, the Pentagon’s new F-35 fighter jet, laser-guided missiles and catapults that launch fighter jets from aircraft carriers.

Those same materials, which the United States imports almost exclusively from China, are also used for consumer goods such as smartphones, GPS systems, automobile electronics and computer and television screens.

With President Trump vowing to deal more aggressively with China on trade matters, possible Chinese export restrictions on critical metals like rare earths have again been raised.

Our perilous dependence on Chinese-produced rare earths is likely to be a topic of discussion when the U.S. Senate Committee on Energy and Natural Resources meets Tuesday. Among the witnesses expected to testify is an associate director of the U.S. Geological Survey, the government agency that released a report showing that the U.S. is 100 percent reliant on foreign producers of rare earths. The last American rare earth production facility, Molycorp, closed in 2015.

Also expected to testify are representatives of mining and energy companies that hope Trump will encourage domestic production of rare earths and other critical metals, which exist in abundance under American soil.

Those producers have been frustrated by eight years of inaction by the Obama administration, which largely ignored America’s rare earth dependence because of environmental concerns and because those materials could be imported from China more cheaply than they could be produced domestically.

In 2012, the Obama administration brought a complaint against China to the World Trade Organization, charging it was restricting exports of rare earths, as well as tungsten and molybdenum. When, in 2015, the WTO ruled in favor of the United States, China removed its quotas. It also exposed American reliance on Beijing exports of rare earths and rang alarm bells in the defense establishment.

“The WTO allows appeals when issues of national security enter into consideration,” said Anthony Marchese, chairman of Texas Mineral Resources Corp., a company that has pending rare earth projects in the United States. “The Obama administration was effectively hamstrung since any mention of national security concerns would have strengthened China’s position.”

The danger of America’s dependence is hard to overstate. “What would you say if you blanked out the words rare earth and said, ‘How would you feel about being totally dependent on a product from a potential adversary whose use is ubiquitous in your defense industry and everyday products like smartphone?” says Marchese.

So far, no one has the rarest notion of how to answer that question.