Chinese rare earth minerals are ‘a national security risk’: Sen. Mark Kelly

·4-min read

The Biden administration’s push to reduce U.S. reliance on Chinese imports has renewed domestic efforts to produce rare earths minerals, critical to the production of electric vehicles and electronics.

A new bipartisan Senate bill is aiming to accelerate that timeline, by banning defense contractors from sourcing those materials in the first place.

In an interview with Yahoo Finance Live, the bill's co-sponsor Sen. Mark Kelly (D, AZ) called Chinese rare earth minerals "a national security risk" and urged the Pentagon to act quickly to eliminate the metals from military weapons systems.

“We've got to stop relying on Chinese rare earths in our defense industry. It's a national security risk to us. If China decided to cut us off on those rare earth minerals right now, this would have a serious impact on our national defense,” Kelly said. “So, this requires that DOD and the Department of Interior work together to build a stockpile of rare earth minerals.”

The bill marks the latest U.S. attempt to break China’s near monopoly on a group of 17 metals that are crucial to the development of everything from smart electronic devices to wind turbines. The country controls nearly 80% of rare earths imports, according to data from the U.S. Geological Survey, while the U.S. claims just one rare earth mine and has no capability to process the minerals.

Last month, China moved to strengthen its hold on the market by consolidating key producers within a new conglomerate to double down on the development of mines in China.

Kelly’s legislation, known as ​​the Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022, specifically calls for the U.S. Department of Defense and Interior to develop a strategic reserve of rare earths and products large enough to meet the needs of one year, by 2025. It also bans the use of Chinese metals in sensitive military systems by 2026, and requires defense contractors to track and disclose the origins of the metals used in equipment it delivers to the Pentagon.

“This sets the parameters, to put the United States in a position that we have to choose to do this. We build this stockpile, defense contractors will have access to it, and we will build the supply chain of rare earths that we need,” Kelly said. “We don't want to continue to be in the situation where our adversary, could cut us off from things that we need for our national defense.”

Wheel loaders fill trucks with ore at the MP Materials rare earth mine in Mountain Pass, California, U.S. January 30, 2020. Picture taken January 30, 2020. REUTERS/Steve Marcus
Wheel loaders fill trucks with ore at the MP Materials rare earth mine in Mountain Pass, California, U.S. January 30, 2020. Picture taken January 30, 2020. REUTERS/Steve Marcus

The U.S. has been here before.

For decades, the only rare earths mine in the country is in Mountain Pass, California, and it has dominated global supply. But, concerns around its environmental impact, treatment of workers, and regulation slowed output in the 1980s.

That coincided with China’s aggressive move to capture global market share through government subsidies, lax environmental standards, and lower labor costs. By 2010, China accounted for 97% of global rare earth supply.

Over the years, Beijing has sought to use its leadership in the metals space as leverage in geopolitics. In 2010, China halted all rare earths exports to Japan, after the country detained a Chinese fishing captain near disputed islands in the South China Sea. Later that year, China slashed its export quota for the metals to protect domestic supply, inflaming trade ties with the U.S. and its allies.

But U.S. attempts to revive its domestic metals industry have been fraught with challenges. Fears of a rare earth shortage prompted Molycorp Inc. to reopen the Mountain Pass mine in 2010. That same year, the company listed on the New York Stock Exchange, only to see its price collapse. Poor investment decisions ultimately led to its demise, with the company filing for bankruptcy five years later. Las Vegas-based MP Materials (MP), which bought the mine in 2017, has been attempting to revive domestic production since.

The Biden administration’s larger focus to reduce U.S. reliance on Chinese supply chains, may provide a tailwind to the industry. Last year, the president signed an executive order, calling for a review of the domestic supply chain on critical resources, including rare earths and electric car batteries. This fall, the U.S. Department of Energy announced $30 million in funding to national labs to build out materials critical to clean energy technology.

Kelly said his legislation will push the U.S. to double down on those efforts.

“We do not have a significant enough supply here in the United States today. And this legislation will fix that,” he said. “We can build this strategic reserve of rare earth minerals over time if we focus on it. And if we choose to do it.”

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita

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