What do iPads, flat screen TVs, Chevrolet’s plug-in Volt, and Raytheon’s Tomahawk cruise missiles have in common? Each uses one or more of the 17 rare earth elements in their manufacture, and over 95% of those elements come from China.

President Obama, in a new tough-on-China policy, announced on March 13 the filing of a request for consultation (cosigned with the European Union and Japan) with the World Trade Organization (WTO) over China’s imposition of unfair trade restrictions on the exports of rare earth elements. These elements are used in the manufacture of many familiar products: neodymium and lanthanum are essential for building batteries for hybrid and electric cars; scandium is used in lighting; dysprosium and neodymium are critical in building specialty magnets used in wind turbines; gadolinium and terbium are used in video screens; and tellurium is used in solar panels. If there is no voluntary agreement after a 60-day consultation period, the complaint goes to a WTO panel, which may take years to reach a decision.

In spoken remarks, Obama cited the reason for the WTO claim: “We want our companies building those products right here in America, but to do that American manufacturers need to have access to rare earth materials which China supplies.” Referring to the need for a properly functioning global market in rare earths, Obama said, “Now if China would simply let the market work on its own, we would have no objections.”

Consistently Poor Policies

The president’s statements suggest that he remains committed to a policy of relying on the purchase of raw materials critical to our national security from countries that do not support U.S. interests. Do you see the striking resemblance between Obama’s rare earth minerals policy and his energy policies? Instead of enacting policies designed to increase domestic sources of fossil fuels or minerals on public lands, his approach is to blame foreign producers for rising prices while at the same time asking those same producers to increase production (see my editorial “Abundance of Energy” in the March 2012 issue). Filing this complaint will do nothing to safeguard rare earth supplies to U.S. manufacturers in the future. More definite action is required, beginning with opening public lands to mining of rare earths.

China strips these raw materials from the earth at rock bottom costs and makes a tidy profit on their sale. China also won’t hesitate to use its market muscle as a tool of its foreign policy. In September 2010, a Chinese fishing vessel’s captain was arrested after a collision with a Japanese boat in disputed waters. Japan’s refusal to release the captain caused a diplomatic uproar that was followed by a complete embargo on exports of rare earths to Japan. Days later, Japan capitulated, the captain was released, and the embargo was lifted. To paraphrase an old saying, “He who has the rare earths makes the rules,” and China enjoys making the rules.

Rare Earths Not Exactly Rare

China may have the market cornered on rare earths today, but it has only 36% of known reserves; U.S. reserves are about a third to one-half of China’s, depending on the data source. From the mid-1960s through the mid-1980s, the U.S. led the world and was self-sufficient in rare earth element production. A seismic shift in the global market occurred just as demand for rare earths began to soar. China saw a market opportunity in rare earths where it could be the low-cost supplier, coincident with the strengthening of U.S. open-pit mining health and safety and environmental rules, and the closing of millions of acres of public lands to future mining. By 1999, the U.S. was importing 90% of its needed rare earth elements. The last rare earth mine in the U.S. closed its doors in 2002.

Prices for rare earth elements began skyrocketing on the global market in 2007 when China began restricting exports. The price of rare earths spurred the February reopening of Colorado-based Molycorp Inc.’s Mountain Pass Mine located on public lands in southeast California, near the Nevada border, after the company spent $781 million on environmental and technology upgrades. The mine is expected to produce 20,000 tons per year of selected rare earth metal ores (a fraction of that produced by China) suitable for processing into pure metals beginning later this year. However, the U.S. does not have the capability to refine the oxide ores into pure elements. One source says the ores will be shipped to China to be refined.

Defense in Depth Desired

In my opinion, Obama should be worrying about the effect on manufacturers should China embargo rare earth exports to the U.S. in the future, as it did with Japan. China knows it wins, even if it loses the WTO decision, because the final decision is years away. Whether minerals or fossil fuels, placing the country’s economic well-being in the hands of unpredictable and unreliable global trading partners is poor policy. Materials critical to our economy and national security must have substantial domestic supplies. When a country corners the market of any critical material that cannot be produced domestically, America is vulnerable.

Much as with fossil fuels, the U.S. doesn’t have a shortage of rare earth metals. We have a shortage of leaders whose vision of America’s economic safety and security is beyond the present.

Dr. Robert Peltier, PE is POWER’s editor-in-chief.