The issue of 'American dependency on Chinese rare earths' is back in play again with President Trump. Articles from John Moody at Fox News have raised the issue from several angles and have telegraphed forthcoming legislation from Congressman Duncan Hunter of California. I am pleased to see the government moving on this important issue, but hope that the proposed solution goes beyond what went wrong at Molycorp.
Dear Legislators, please be careful with the policy. You can't break US dependence on Chinese REE by replicating their industry here. Ask your experts why. We need to use next-generation technologies for sourcing, processing, and recycling REE. We need to look to unexpected sources, like industrial waste. We need domestic capacity to convert REE salts into materials used in intermediate and final products. We need to get ahead of recycling. What's more, we can do all these things with US-based technology today and this will lead us down a path that positions us as world-leaders in REE indefinitely.
There are some deep political-economic differences between China and the West, which are well-described by REE-expert Jack Lifton in a speech here. His first observation is that many critical materials are byproducts of base metal mines. Hence, the supply risk. Lifton says that China has been able to dominate the critical materials markets by over-producing base metals using the power of central planning. Ever wonder why there's so much copper in Chinese system?
In contrast, the West cannot over-produce base metals to get a dominant position in critical materials because market forces make it difficult for us to sustain losses to achieve political-strategic purposes. Subsidies may change that, but we risk winning a game that the Chinese are not playing anymore. Better to think differently and play our own game.
The takeaway from Jack Lifton's speech is that the West doesn’t have to play China's game: there are technologies available in the USA today to produce sufficient REE from above-ground sources of mine material. Pick which game you play carefully, Congressman Hunter, and watch the competition spin their wheels.
John Moody's articles in Fox News are both good and original. I love the Deng Xiaoping quote from 1992 here and Mr. Moody is not wrong that US legislators have done too little for too long. However, I find his points about Molycorp somewhat misleading since Molycorp produced a subset of REE that are less important for USA strategic concerns. A bailout of Molycorp would not have resolved USA REE dependence and a foreign takeover of the company now will not make the situation worse.
Molycorp's failure was a symptom of low prices, which can be attributed to China, but there is more to the story. Consider a radical thought: those low prices for REE may actually prove to be a good thing for the US REE industry.
Low prices gutted the USA REE industry for many years, but some survivors quietly tried to find a way to make it work. They knew what was coming and have tried to get ahead of it.
These small US-based companies found new sources of REE, new ways to extract them more cheaply, safely, and effectively than ever before. They had to! A little bit of government funding can go along way with startups like this.
What's more, these companies need help navigating the labyrinths of the military-industrial complex and securing agreements to sell the REE they produce. If the Government can get behind these innovators, then the USA will show the world a better way to produce REE and dominate the global markets while building an economic moat based on technological innovation.
