Andrew Jackson Detsch VIAFF 3180: Globalization & National SecurityFinal Research PaperProfessor Celina RealuyoMonday, April 25th, 2011

Reversing China’s Chokehold on Rare Earth Elements

On September 7th, 2010, a collision between a Chinese fishing vessel and a

Japanese Coast Guard patroller near disputed waters surrounding the Senaku and

Diaoyuti Islands in the East China Sea sent seismic tremors through global politics,

resulting in a protracted diplomatic standoff between Beijing and Tokyo.1 The global

supply chain of rare earth elements (REEs) was chiefly impacted. Beginning on

September 21st, Japanese importers reported that China had halted trade of the metals,

crucial in the development of high-tech products that are vital to the global economy:

from mobile phones to jet fighter engines and hybrid automobile batteries.2 Beijing also

sought to assert its power as a supplier of REEs to the West, expanding the embargo to

the United States and Europe through a 30% cut in trade quotas. Policymakers accused

the Chinese of attempting to use their resource wealth as a political weapon.3 Beijing

countered that the cut was implemented on the grounds of environmental protection and

resource conservation.4

1Richard C. Bush III, “China-Japan Security Relations,” Brookings Institution Press, October 9, 2010, accessed March 30, 2011, http://www.brookings.edu/~/media/Files/rc/papers/2010/10_china_japan_bush/10_china_japan_bush.pdf.2 Mari Yamaguchi, “China rare earth exports to Japan still halted,” Bloomberg Businessweek, October 21, 2010, accessed April 7, 2011, http://www.businessweek.com/ap/financialnews/D9J02PF01.htm.3 Keith Bradsher, “China Said to Widen Its Embargo of Minerals,” The New York Times, October 19, 2010, accessed April 23, 2011, http://www.nytimes.com/2010/10/20/business/global/20rare.html?_r=1.4 John W. Miller and James T. Areddy, “Trade Judges See Flaw in China Policies,” The Wall Street Journal, February 18, 2011, accessed April 20, 2011, http://online . wsj . com/article/SB20001424052748703561604576150301821467250 . html .

Detsch 1

Between 2006 and 2009, according to the U.S. Geological Survey, the United

States was 100% dependent on foreign sources for rare earth supplies, with China

supplying 92% of inputs.5 Indisputably, Beijing’s status as a dominant producer gives it a

tactical economic weapon against Washington: using its rare earth monopoly as a

chokehold, China can adversely affect national security, damaging American

manufacturing of green technology and increasing our dependence on foreign sources of

oil, allowing capital to flow towards anti-American dictators around the world, such as

Hugo Chavez and Colonel Muammar al-Qaddafi. It has also hurt the bilateral relationship

between the two countries, vital to curbing Iranian nuclear power and moderating

tensions between Pyongyang and Seoul on the Korean Peninsula.

Continual reduction in China’s REE supply quotas is due to increased domestic

demand, which has nearly quadrupled since 2000. Direct control of the industry allows

the Politburo to accomplish its own central goals: consolidation of their domestic supply

of REEs serves to stoke a “green” development drive and expedite the creation of

strategic supply reserves to ascertain their dominance in the marketplace.6 These

aggressive behaviors clearly demonstrate Beijing’s intent: to take a larger slice of the

overall global market place for rare earths and to vault up the supply chain, using export

tariffs and boosting exports with the sale of valuable finished goods to other countries.7

5 “Rare Earths Factsheet 2011,” U.S. Geological Survey, accessed April 6, 2011, http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2011-raree.pdf.6 Steve LeVine, “Is China’s rare earth power play really such a big deal?” Foreign Policy,

October 21, 2010, accessed April 1, 2011, http://oilandglory.foreignpolicy.com/posts/2010/10/21/is_chinas_rare_earth_power_play_really_such_a_big_deal.7 “The Difference Engine: More precious than gold,” The Economist, September 17, 2011, accessed March 30, 2011, http://www.economist.com/blogs/babbage/2010/09/rare-earth_metals.

Detsch 2

China’s chokehold on the supply chain of rare earths is forcing governments to look

internationally to diversify supply in a race for resources and hurting cooperation

between Washington and Beijing on issues of mutual importance. The United States must

globalize: collaborating with a variety of producers in order to diversify supply and

ramping up domestic production to sustain economic growth.

Importance of the Supply Chain to U.S. National Security

For the United States, the battle over rare earth elements is a vitally important one

for several reasons. First, China’s strategic control of REE resources could cut into

economic growth and international trade at a time when markets are still emerging from

the tremors of economic recession. With the supply chain continually short-circuited,

Washington would also be unable to plan strategically for its national security needs.8

REEs have a myriad of defense uses, including guidance and control, optics, fuel

efficiency, surveillance and detection, communications, and lasers.9 Jack Lifton, a rare

earths expert, argues that America’s green industry, a national security priority for the

Obama Administration, stands to suffer the most from a shutdown, as it depends on REEs

as a startup technology,10 necessary in constructing components of wind turbines and

electric vehicles, as the strategy rightly acknowledges.11 Prolonged disruption in REE

8 Valerie Bailey Grasso, “Rare Earth Elements in National Defense: Background, Oversight Issues, and Options for Congress,” Congressional Research Service, March 31, 2011, accessed April 17, 2011, http://www.fas.org/sgp/crs/natsec/R41744.pdf.9 “Military Applications for Rare Earth Technologies,” Rare Earth Industry and Technology Association, accessed April 6, 2011, http://www . reitausa . org/storage/downloads/Military%20Applications%20Pyramids . pdf 10Steve LeVine, “Is China’s rare earth power play really such a big deal?” Foreign Policy,

October 21, 2010, accessed April 1, 2011, http://oilandglory.foreignpolicy.com/posts/2010/10/21/is_chinas_rare_earth_power_play_really_such_a_big_deal.11 “Blueprint for a Secure Energy Future,” The White House, accessed March 31, 2011, http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf.

Detsch 3

supply would force the U.S. to continue to rely heavily on petroleum, giving producers

such as Venezuela and Russia increased capital in international politics, diminishing

Washington’s national security prospect. China’s erratic behavior in rare earth markets is

deeply rooted in their foreign policy motivations: by building a strategic chokehold on

the commodity, Beijing can build its way up the supply chain to re-assert their

diminishing status as the dominant exporter to the West.12

The murky state of rare earth markets reflects the lack of candor in the U.S.-

Chinese relationship: while American officials publicly said they had sought assurances

that China would continue to supply rare earths to the West before President Hu Jintao’s

visit to Washington in January 2011, the joint statement issued after the meeting of

Presidents Obama and Hu made no mention of the matter.13 Speaking at a press

conference with his counterpart, President Obama called America’s bilateral relations

with the Chinese “positive, constructive, and cooperative” and lauded Beijing’s role as a

partner in foreign policy, cooling tensions between Pyongyang and Seoul on the Korean

Peninsula and supporting sanctions against Iran on the United Nations Security Council.14

While the President’s rosy language is not a perfect portrait of reality, one thing is clear:

tensions over rare earth markets have the potential to derail any progress in the U.S.-

China relationship, damaging national security prospects for both nations.

12 Joe Weisenthal, “China’s Trade Surplus Tumbles in December as Export Growth Collapses,” Yahoo! Finance, January 10, 2011, accessed March 17, 2011, http://finance.yahoo.com/tech-ticker/china's-trade-surplus-tumbles-in-dec.-as-export-growth-collapses-535792.html?tickers=FXI,PGJ,EPP,EEM,EWH,EWT,EWY.13 Keith Bradsher, “China Seizes Rare Earth Mine Areas,” The New York Times, January 20, 2011, accessed March 27, 2011, http://www . nytimes . com/2011/01/21/business/global/21rare . html .14 “Transcript of the Obama-Hu News Conference,” The Wall Street Journal – Washington Wire, accessed April 20, 2011, http://blogs.wsj.com/washwire/2011/01/19/transcript-of-the-obama-hu-news-conference/.

Detsch 4

Rare Earth Market Picture

The world’s most dominant producer of REEs, China was responsible for an

estimated 95% of global production in 2010, increasing from 27% in 1990 despite

controlling only 36% of total global reserves.15 The idea that REEs are actually “rare” is

something of a misnomer: although somewhat abundant near the earth’s crust, they are

not concentrated enough in any specific area to make them easily obtainable at a

reasonable price.16 In total, there are seventeen REEs, which are primarily divided into

two categories: light and heavy (See Figure 1).17 Light rare earths (yttrium, lanthanum,

and neodymium) can be used as light aluminum-scandium alloy for aerospace

components, high refractive index glass, and computer memories, while heavy rare earths

(terbium, dysprosium, and ytterbium), less abundant and more expensive, are used in

rare-earth magnets, x-ray machines, infrared lasers, and PET scan detectors (See Table

1).18

Stabilization of rare earth markets over the long term will be critical. In the short

term, because there are no rare earth mines operating in the United States, Washington

will need to pair with international allies and a myriad of suppliers to ensure free flow of

supply.19 China’s export tariffs, designed to keep rare earths within the domestic market,

15 Anil Das, “Facts of China’s rare earth reserves – Commodities and Futures,” International Business Times, March 3, 2011, accessed March 30, 2011, http://www . ibtimes . com/articles/118284/20110303/rare-earth-minerals-china-u-s- geological-survey . htm . 16 Marc Humphries, “Rare Earth Elements: The Global Supply Chain,” Congressional Research Service, September 30, 2010, accessed April 1, 2011, http://www.fas.org/sgp/crs/natsec/R41347.pdf.17 “Rare Earths Factsheet 2011,” U.S. Geological Survey, accessed April 6, 2011, http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2011-raree.pdf.18 John Neuman, “ ‘Rare Earth Materials in the Defense Supply Chain’ ” (paper presented at briefing for congressional committees, Washington, DC, April 1, 2010).19 Lara Crigger, “Jack Lifton: US Has Been ‘Foolish’ On Rare Earth Metals,” Technology Metals Research, September 4, 2010, accessed April 16, 2011,

Detsch 5

have caused global prices to skyrocket, with the value of exports jumping from $232.5

million in 2009 to $630.5 million in 2010 (See Figure 2).20 This year, the situation could

worsen: some of the most significant elements in the supply chain, including neodymium,

lanthanum and cerium will be moved to the 25% tariff bracket.21 A new tax imposed on

heavy rare earths in March by the Chinese Commerce Ministry sent further shockwaves

through tenuous global markets, after prices had already hit $34,000 per ton, up from

2010’s average of $14,405 per ton.22

Global demand is estimated at 134,000 tons per year, with global production

around 124,000 tons annually. The difference is covered by readily available, above

ground stockpiles. Demand is projected to increase rapidly in the short term to 180,000

tons annually by 2012, and exceeding 200,000 tons per year by 2014.23 China’s

production output will only reach 160,000 tons per year by 2014 (See Figure 3).24 This

means that, unless another supplier is to account for the rest of the demand, a shortfall of

40,000 tons per year will occur, although the USGS estimates that global reserves and

potentially undiscovered resources will be enough to meet demand, making

diversification an economic and national security necessity.

Rethinking the Global Supply Chain

http://www.techmetalsresearch.com/2010/09/jack-lifton-us-has-been-foolish-on-rare-earth-metals/.20 “Rare earth metals prices vs. gold,” Reuters, accessed April 7, 2011, http://graphics.thomsonreuters.com/F/10/CMD_RAREPRC1010.gif.21 Bloomberg News, “China Raises Export Taxes of Some Rare Earths to 25%,” Bloomberg Businessweek, December 16, 2010, accessed April 6, 2011, http://http://businessweek.com/news/2010-12-16/china-raises-export-taxes-of-some-rare-earths-to-25-.html.22 Michael Montgomery, “Rare Earth Prices Jump and a New Tax is Imposed,” Rare Earth Investing News, March 28, 2011, accessed March 30, 2011. 23 Ibid.24 Dudley J. Kingsnorth, “ ‘Rare Earths Supply: Alternatives to China’ ” (presentation at SME Annual Meeting, Sydney, Australia, February 4, 2008).

Detsch 6

The Senaku incident, which highlighted China’s chokehold on the global supply

chain, is proof that rare earth exploration has become a significant driver of globalization,

as it resulted in increased interest in diversification of the supply around the globe.25

For the United States, this will be important in sustaining national security and economic

prosperity. While there is no current production of REEs in the United States, it boasts at

least 13.0 million metric tons in reserves.26 Colorado-based Molycorp Minerals owns a

rare earth mine in Mountain Pass, California which is slated to be ready for full-time

production of 20,000 tons of rare earths per year by 2012, equaling 16% of China’s total

production output in 2010.27 Modicums of rare earth supply also exist in Wyoming,

Idaho, and New Mexico, but they are still being explored and could take up to 15 years to

become fully viable (See Figure 4).28

Internationally, Australia’s Lynas Corporation has also taken a vested interest in

using Malaysia as a potential supplier and refiner of rare earths, investing $230 million to

build a rare earth refinery in the port city of Kuantan, which will process neodymium and

yttrium from the Mt. Weld depository.29 Canada, which has larger deposits of heavy rare

earths than the United States, has projects in Hoidas Lake, Saskatchewan, which may

25 Damon van der Linde, “The Rise in Global Demand for Rare Earth,” International Business Times, March 24, 2011, accessed March 27, 2011, http://www.ibtimes.com/articles/126245/20110324/the-rise-in-global-demand-for-rare-earth.htm.26 Jack Lifton, “A Rare Earth Crisis?” (presentation at the American Enterprise Institute for Public Policy Research, Washington, DC, April 6, 2011). 27 Brett Hartke, “Racing for Heavy Rare Earths,” Resource Investor, December 30, 2010, accessed April 20, 2011, http://www . resourceinvestor . com/News/2010/12/Pages/Racing- for-Heavy-Rare-Earths . aspx .28 “United States – A Summary of Domestic Deposits and a Global Perspective,” U.S. Geological Survey, accessed April 1, 2011, http://pubs.usgs.gov/sir/2010/5220/.29 Keith Bradsher, “Taking a Risk for Rare Earths,” The New York Times, March 8, 2011, accessed March 30, 2011, http://www.nytimes.com/2011/03/09/business/energy-environment/09rare.html?ref=science.

Detsch 7

contain reserves of up to 1.5 million tons of REEs,30 and at Thor Lake, in the Northwest

Territories, containing indicated mineral resources of up to 57.46 million tons of REEs.31

Japan, which felt the brunt of Beijing’s supply quota cuts last fall, forged a significant

supply deal with Vietnam on October 31st, 2010, making Tokyo an important investor in

rare earth element exploration in the Northwestern Lai Chau province.32 Additionally, a

consortium of Japanese and South Korean firms recently sought a $2 billion dollar deal to

buy a stake in a Brazilian mining company to explore for alternative sources of REEs.33

Greenland has also emerged as a potential game changer in rare earth markets with the

Kvanefjeld multi-element project, containing 14% heavy-rare earth minerals.34 Estonia’s

Silmet Factory produces 3,000 metric tons per year of REEs as a refiner of Russian

ores.35 Finally, Great Western Minerals Group expects to see output of 2,700 tons per

year from its Steenkampskrall mine, 250 miles northwest of Cape Town, South Africa

once it is brought online in 2013.36

30 “Hoidas Lake, Saskatchewan,” Great Western Minerals Groups Ltd., accessed April 24,

2011, http://www.gwmg.ca/html/projects/hoidas-lake/index.cfm.31 “Thor Lake Introduction,” Avalon Rare Metals Inc., accessed April 20, 2011, http://www.avalonraremetals.com/projects/thor_lake/thor_lake_intro/.32 “Rare earths supply deal between Japan and Vietnam,” BBC News, accessed March 24,

2011, http://www.bbc.co.uk/news/world-asia-pacific-11661330.33 “Japanese and Korean firms look to Brazil for rare metals,” BBC News, accessed April 10, 2011, http://www.bbc.co.uk/news/world-south-asia-12631102.34 “Rare Earth Elements at Kvanefjeld,” Greenland Minerals and Energy Ltd., accessed April 22, 2011, http://www . ggg . gl/Rare-Earth-Elements/Rare-Earth-Elements-at- Kvanefjeld . htm /. 35 Anneli Reigas, “Estonia’s rare earth break China’s market grip,” AFP, November 30, 2010, accessed April 10, 2011, http://www.google.com/hostednews/afp/article/ALeqM5itXbI57zv-lwfcaFdBdh7UZXuVuA?docId=CNG.a00f68010092a06189a0276c763e93a4.14136 Wendell Roelf, “Great Western sees S. African rare earth production,” Reuters, February 9, 2011, accessed March 30, 2011, http://af.reuters.com/article/investingNews/idAFJOE7180ER20110209.

Detsch 8

Overall, at least 40% of the world’s rare earth reserves are located in the United

States or in ally nations, with many of these expected to be available between now and

2013 (See Figure 5).37 Diversification and globalization of the rare earths supply chain is

not just of political importance: it is an economic necessity. By 2012, China’s domestic

consumption will outpace domestic production, forcing the U.S. and its allies to diversify.

By 2015, China is expected to become a net importer of rare earth elements as it struggles

to compensate for domestic demand.38 When the U.S. Department of Defense announced

last year that Afghanistan hosted deposits of untapped mineral resources, including

deposits of rare earth elements valued at $7.4 billion, China jumped at the opportunity.

As China attempts to move up the supply chain and build dominance in the export of

finished goods to global markets, it will look to increase its hold on mineral supplies

elsewhere, potentially making access more difficult for the United States and its

international partners.

Current Strategies

Washington has not shied away from the challenges present in rare earth markets:

a myriad of responses from the legislative and executive branches have cut to the heart of

the problem. Most recently, on April 6th, 2011, Representative Mike Coffman,

Republican of Colorado, introduced the Rare Earths and Critical Minerals

Revitalitization Act of 2011 (RESTART). Coffman’s bill hopes to reestablish competitive

domestic rare earths production, refining, and magnet industries by expediting the

37 “TMR Advanced Rare-Earth Projects Index,” Technology Metals Research, accessed April 7, 2011, http://www.techmetalsresearch.com/metrics-indices/tmr-advanced-rare-earth-projects-index/.38 Gareth Hatch, “Will China Become A Net Importer of Rare Earths By 2015?” Technology Metals Research, February 27, 2011, accessed April 6, 2011, http://www . techmetalsresearch . com/2011/02/will-china-become-a-net-importer-of-rare- earths-by-2015/.

Detsch 9

permitting process for such projects, and strengthen the supply chain by formally creating

a stockpile of rare earths in the Defense Logistics Agency of the Department of Defense

and legally designating rare earths as vital to U.S. national security.39 These are critical

steps, but more international diversification is needed, in both the short term and long

term, to ensure the free flow of rare earths to domestic markets. To that end, RESTART

fails: while it authorizes the Secretary of the Interior to collaborate with international

partners to ensure supply, it does not insist upon any formal mechanism of doing so,

which is badly needed.

The U.S. Department of Energy’s comprehensive strategy on rare earths, the 2010

Critical Materials Strategy, is an effective evaluation of America’s position in the market

and a decent policy blueprint for the future. It emphasizes the creation of an integrated

research plan with respect to REEs and encourages Washington to work closely with

allies in Japan and Europe to reduce disruptions and address critical needs, cutting to

issues at the heart of the problem, such as information gathering, permitting and

financing for production, stockpiling, recycling, and diplomacy.40 Additionally, the

D.O.E.’s fiscal year 2012 budget supports the creation of an innovation hub to pursue

research and development efforts in rare earth elements, including environmentally safe

and responsible extraction, and mineral recycling and reuse.41 While the Critical

Materials Strategy covers a broad base of issues, its focus is too narrow: concentrating on

39 “H.R. 1388,” Government Printing Office, accessed April 24, 2011 http://www . gpo . gov/fdsys/pkg/BILLS-11 2hr1388ih/pdf/BILLS-112hr1388ih.pdf.40 “2010 Critical Materials Strategy – Summary,” U.S. Department of Energy, accessed April 24, 2011, http://www.energy.gov/news/documents/Critical_Materials_Summary.pdf.41 “U.S. Department of Energy FY 2012 Budget Summary,” U.S. Department of Energy, accessed April 4, 2011, http://www.gpoaccess.gov/usbudget/fy12/pdf/BUDGET-2012-BUD-10.pdf.

Detsch 10

the clean tech uses of rare earths while omitting major commercial and military uses.

Additionally, a cohesive plan to assist private mining companies in permitting and

extraction is needed.

Internationally, the United States is mounting legal challenges to China’s

adversarial policies. On March 1st, a confidential, preliminary World Trade Organization

(WTO) report rebuked China’s report that export restrictions on rare earth materials

served the purpose of environmental protection and conserving scarce resources.42 This

came on the heels of several challenges from international actors: in 2009, the United

States, Mexico and the European Union sued China at the WTO on the basis that rare

earth export restrictions through quotas discriminated against global manufacturers,

giving Chinese producers an unfair edge.43 While Washington’s efforts to use to

international forums to address the rare earth quandary are admirable, President Obama

needs to play hardball with Beijing in order to command the attention of the Politburo.

He must threaten protectionist measures against China and contain market disruption by

building a wide coalition of international allies to insulate the United States from further

national security threats.

Policy Recommendations

To rebuild its shaky position in rare earth markets, Washington could use a

number of effective policy tools. Internationally, cooperation and mediation will be vital.

The Obama Administration should look to Japan to help gather signatories for a formal

42 John W. Miller and James T. Areddy, “Trade Judges See Flaw in China Policies,” The Wall Street Journal, February 18, 2011, accessed April 20, 2011, http://online . wsj . com/article/SB20001424052748703561604576150301821467250 . html .43 Juliane von Reppert-Bismarck, “WTO opens China to rare earth challenge—sources,” Reuters, March 1, 2011, accessed March 30, 2011, http://af.reuters.com/article/metalsNews/idAFLDE72029E20110301?sp=true.

Detsch 11

treaty agreement to address rare earth exploration, procurement, and trade between a

myriad of suppliers and demanders. This would include Russia, Brazil, Australia,

Canada, India and South Africa, among others, expanding on the grey areas of

RESTART and the Critical Materials Strategy. Acting in tandem, this coalition could

work to reduce supply from China. Washington must also engage its vast resources in the

private and public sector to assist the development of this industry internationally:

sending analysts for the U.S. Department of Interior and private engineers abroad to

conduct comprehensive geological surveys to verify the capacity of reserves and build the

mining and refining infrastructure necessary to promote greater global exploration and

get alternative markets up and running. To this end, joint investments on mining and

refining, such as those made by Malaysia and Australia for supply from the Mt. Weld

mine, must become commonplace.44

As Beijing shifts to a demander, Washington could eventually build its position as

the hub of a global rare earth supply cartel, fairly moderating supply and prices in the

market with the help of its allies, ensuring national security prospects for the long term.

Washington must also continue to lead the charge against China in the WTO, pressing

Beijing on vital issues of worker safety and environmental degradation. With their

leverage in markets reduced as a result of this policy, China will be forced to comply.

Domestically, the Obama Administration and Congress could promote a host of

initiatives to get the industry back on track. Working with state governments to provide

tax incentives to lower the cost of exploration and mining in the short term, as companies

climb out of the red, could give the industry a much-needed boost. Additionally, the U.S.

44 Marc Humphries, “Rare Earth Elements: The Global Supply Chain,” Congressional Research Service, September 30, 2010, accessed April 1, 2011, http://www.fas.org/sgp/crs/natsec/R41347.pdf.

Detsch 12

Department of Energy and the U.S. Department of the Interior should look to formally

establish a governor’s conference on rare earths, giving states a formal mechanism by

which to come to crucial agreements on mining and refining, and engaging the productive

engine of the entire country. Congress must also look to develop a legislative strategy to

implement rare earth substitution and recycling programs domestically, taking the

pressure off suppliers and moderating market prices in the short-term. Finally, the

Department of Energy will need to work in tandem with the Environmental Protection

Agency to reduce the ecological impacts of mining.45

Conclusion

Last September’s Senaku incident demonstrated the dangers of America’s

dependence on Chinese sources of rare earths, which are necessary to sustain economic

growth in the tech sector and defend Washington’s interests at home and abroad.

However, though Beijing undoubtedly strengthened their chokehold on the global supply

chain during the incident, their position in rare earth markets in the medium term is far

from secure: with domestic demand rapidly increasing and the government keen on

keeping supply within China’s borders in order to create and sell finished goods to

international markets, they are set to become an importer of rare earths by 2015.

Additionally, as production ramps up globally, other states will compete with China in

the sale of finished goods by refining rare earths themselves.

In Washington, the Obama Administration and Congress have taken steps in the

right direction on this issue: encouraging domestic production of rare earths and keeping

pressure on Beijing through the World Trade Organization. Further approaches, both

45 Katherine Bourzac, “Can the U.S. Rare-Earth Industry Rebound?” Technology Review, October 29, 2010, accessed April 4, 2011, http://www.technologyreview.com/energy/26655/?p1=MstCom&a=f.

Detsch 13

formal and informal, to build relationships with suppliers around the world, will be

necessary for the United States to remain a competitive economic player on the global

stage and successfully emerge from recession. In this light, greater globalization of the

marketplace can only benefit Washington.

Finally, as the Senaku collision demonstrated, there is much at stake in the battle

for supply of rare earths for both China and the United States: acrimony could derail the

tenuous security relationship between Beijing and Washington, and cast a pall of

uncertainty over the fate of some of the Obama Administration’s most important strategic

interests, such as the stability of the Korean Peninsula and further sanctions against Iran.

The strategic importance of unimpeded access to rare earths is manifold: developed

countries depend on these materials to drive economic growth through commercial

technologies and to build clean energy alternatives, breaking dependence on oil. For the

United States, these rightly remain pillars of national security policy.

Present developments show that the Senaku incident was perhaps just a taste of

what is to come: the geopolitical competition between the United States and China will

continue to intensify in the near future as Washington steps back from the brink of fiscal

recession, and attempts to counter Beijing’s political weapon by building global rare

earth partnerships.

Detsch 14

Maps, Graphs, and Statistics:

Figure 1

Source: U.S. Geological Survey

Table 1: Examples of Rare Earth Elements Used in Commercial ProductsRare Earth Element Used Commercial ProductNeodymium, praseodymium, dysprosium, terbium, lanthanum, cerium

Hybrid electric motors and hybrid batteries

Neodymium, praseodymium, terbium, dysprosium

Computer hard drives, mobile phones, and cameras

Promethium Portable x-ray unitsScandium Stadium lightsEuropium, yttrium, terbium, lanthanum Energy Efficient light bulbsEuropium, yttrium Fiber opticsCerium, lanthanum, neodymium, europium Glass additives

Source: GAO analysis of government and industry data

Figure 2

Detsch 15

Source: Thomson Reuters Datastream, Asian Metals

Figure 3

Source: Dudley Kingsnorth/Industrial Minerals Co. of Australia

Figure 4

Detsch 16

Source: U.S. Geological Survey

Figure 5

Detsch 17

Source: U.S. Geological Survey/Reuters

Bibliography

Detsch 18

Areddy, James T. “Quotas exceeded in China’s rare-earth exports slide.” The Wall Street Journal, January 20, 2011. Accessed March 27, 2011. http://www.theaustralian.com.au/business/news/quotas-exceeded-even-though-chinas-rate-earth-exports-slide/story-e6frg90o-1225991483262.

Avalon Rare Metals Inc. “Thor Lake Introduction.” Accessed April 20, 2011. http://www.avalonraremetals.com/projects/thor_lake/thor_lake_intro/.

Bailey Grasso, Valerie. “Rare Earth Elements in National Defense: Background, Oversight Issues, and Options for Congress.” Congressional Research Service, March 31, 2011. Accessed April 17, 2011. http://www.fas.org/sgp/crs/natsec/R41744.pdf.

BBC News. “Japanese and Korean firms look to Brazil for rare metals.” Accessed April 10, 2011. http://www.bbc.co.uk/news/world-south-asia-12631102.

BBC News. “Rare earths supply deal between Japan and Vietnam.” Accessed March 24, 2011. http://www.bbc.co.uk/news/world-asia-pacific-11661330.

Bloomberg News. “China Raises Export Taxes of Some Rare Earths to 25%.” Accessed April 6, 2011. http://http://businessweek.com/news/2010-12-16/china-raises-export-taxes-of-some-rare-earths-to-25-.html.

Bourzac, Katherine. “Can the U.S. Rare-Earth Industry Rebound?” Technology Review, October 29, 2010. Accessed April 4, 2011. http://www.technologyreview.com/energy/26655/?p1=MstCom&a=f.

Bradsher, Keith. “China Said to Widen Its Embargo of Minerals.” The New York Times, October 19, 2010. Accessed April 23, 2011. http://www.nytimes.com/2010/10/20/business/global/20rare.html?_r=1.

Bradsher, Keith. “China Seizes Rare Earth Mine Areas.” The New York Times, January 20, 2011. Accessed March 27, 2011. http://www.nytimes.com/2011/01/21/business/global/21rare.html.

Bradsher, Keith. “Taking a Risk for Rare Earths.” The New York Times, March 8, 2011. Accessed March 30, 2011. http://www.nytimes.com/2011/03/09/business/energy-environment/09rare.html?ref=science.

Bush III, Richard C. “China-Japan Security Relations.” Brookings Institution Press, October 9, 2010. Accessed March 30, 2011. http://www.brookings.edu/~/media/Files/rc/papers/2010/10_china_japan_bush/10_china_japan_bush.pdf.

Center for Strategic and International Studies. “Rare Earth Elements: A Wrench in the Supply Chain?” Accessed March 10, 2011.

Detsch 19

http://csis.org/files/publication/101005_DIIG_Current_Issues_no22_Rare_earth_elements.pdf.

Crigger, Lara. “Jack Lifton: US Has Been ‘Foolish’ On Rare Earth Metals.” Technology Metals Research, September 4, 2010. Accessed April 16, 2011. http://www.techmetalsresearch.com/2010/09/jack-lifton-us-has-been-foolish-on-rare-earth-metals/.

Chang, Gordon G. “The Taliban: World’s Next Minerals Superpower.” Forbes Magazine, June 16, 2010. Accessed March 3, 2011. http://www.forbes.com/2010/06/16/taliban-minerals-afghanistan-asia-opinions-columnists-gordon-g-chang.html.

Das, Anil. “Facts of China’s rare earth reserves – Commodities and Futures.” International Business Times, March 3, 2011. Accessed March 30, 2011. http://www.ibtimes.com/articles/118284/20110303/rare-earth-minerals-china-u-s-geological-survey.htm.

The Economist. “The Difference Engine: More precious than gold.” Accessed March 30, 2011. http://www.economist.com/blogs/babbage/2010/09/rare-earth_metals.

Doss, Natalie, Tara Lachapelle, and Rita Nazareth. “Molycorp Surges as China Raises Rare Earth Deal Stakes: Real M&A.” Bloomberg, March 7, 2011. Accessed March 30, 2011. http://www.businessweek.com/news/2011-03-07/molycorp-surges-as-china-raises-rare-earth-deal-stakes-real-m-a.html.

Geology.com. “REE- Rare Earth Elements and their uses.” Accessed March 19, 2011. http://geology.com/articles/rare-earth-elements/.

Government Printing Office. “H.R. 1388.” Accessed April 24, 2011. http://www.gpo.gov/fdsys/pkg/BILLS-112hr1388ih/pdf/BILLS-112hr1388ih.pdf.

Great Western Minerals Groups Ltd. “Hoidas Lake, Saskatchewan.” Accessed April 24, 2011. http://www.gwmg.ca/html/projects/hoidas-lake/index.cfm.

Greenland Minerals and Energy Ltd. “Rare Earth Elements at Kvanefjeld.” Accessed April 22, 2011. http://www.ggg.gl/Rare-Earth-Elements/Rare-Earth-Elements-at-Kvanefjeld.htm/.

Hartke, Brett. “Racing for Heavy Rare Earths.” Resource Investor, December 30, 2010. Accessed April 20, 2011, http://www.resourceinvestor.com/News/2010/12/Pages/Racing-for-Heavy-Rare-Earths.aspx.

Hatch, Gareth. “Will China Become A Net Importer of Rare Earths By 2015?” Technology Metals Research, February 27, 2011. Accessed April 6, 2011.

Detsch 20

http://www.techmetalsresearch.com/2011/02/will-china-become-a-net-importer-of-rare-earths-by-2015/.

Humphries, Marc. “Rare Earth Elements: The Global Supply Chain.” Congressional Research Service, September 30, 2010. Accessed April 1, 2011. http://www.fas.org/sgp/crs/natsec/R41347.pdf.

Kingsnorth, Dudley J. “ ‘Rare Earths Supply: Alternatives to China.’ ” Presentation at SME Annual Meeting, Sydney, Australia, February 4, 2008.

Lamar, Mia. “Euro’s Collapse Is Not ‘Unthinkable’: Warren Buffett.” CNBC, March 24, 2011. Accessed April 17, 2011. http://www.cnbc.com/id/42248019/Euro_s_Collapse_Is_Not_Unthinkable_Warren_Buffett.

LeVine, Steve. “Is China’s rare earth power play really such a big deal?” Foreign Policy, October 21, 2010. Accessed April 1, 2011. http://oilandglory.foreignpolicy.com/posts/2010/10/21/is_chinas_rare_earth_power_play_really_such_a_big_deal.

Lifton, Jack. “ ‘A Rare Earth Crisis?’ ” Presentation at the American Enterprise Institute for Public Policy Research, Washington, DC, April 6, 2011.

van der Linde, Damon. “The Rise in Global Demand for Rare Earth.” International Business Times, March 24, 2011. Accessed March 27, 2011. http://www.ibtimes.com/articles/126245/20110324/the-rise-in-global-demand-for-rare-earth.htm.

Meckler, Laura. “Obama Outlines Energy Plan.” The Wall Street Journal, March 31, 2011. Accessed April 23, 2011. http://online.wsj.com/article/SB10001424052748703712504576232481675369892.html.

Miller, John W., and James T. Areddy. “Trade Judges See Flaw in China Policies.” The Wall Street Journal, February 18, 2011. Accessed April 20, 2011. http://online.wsj.com/article/SB20001424052748703561604576150301821467250.html.

Mills, Mark P. “Tech’s Mineral Infrastructure – Time to Emulate China’s Rare Earth Policies.” Forbes Magazine, January 1, 2011. Accessed April 21, 2011. http://blogs.forbes.com/markpmills/2011/01/01/techs-mineral-infrastructure-time-to-emulate-chinas-rare-earth-policies/.

Montgomery, Michael. “Rare Earth Market Trends 2010.” International Business Times, December 22, 2010. Accessed April 7, 2011. http://www.ibtimes.com/articles/94616/20101222/rare-earth-market-trends-2010.htm.

Detsch 21

Montgomery, Michael. “Rare Earth Prices Jump and a New Tax is Imposed.” Rare Earth Investing News, March 28, 2011. Accessed March 30, 2011.

Neuman, John. “ ‘Rare Earth Materials in the Defense Supply Chain.’ ” Paper presented at briefing for congressional committees, Washington, DC, April 1, 2010.

Rare Earth Industry and Technology Association. “Military Applications for Rare Earth Technologies.” Accessed April 6, 2011. http://www.reitausa.org/storage/downloads/Military%20Applications%20Pyramids.pdf.

Reigas, Anneli. “Estonia’s rare earth break China’s market grip.” AFP, November 30, 2010. Accessed April 10, 2011. http://www.google.com/hostednews/afp/article/ALeqM5itXbI57zv-lwfcaFdBdh7UZXuVuA?docId=CNG.a00f68010092a06189a0276c763e93a4.141.

von Reppert-Bismarck, Juliane. “WTO opens China to rare earth challenge—sources.” Reuters, March 1, 2011. Accessed March 30, 2011. http://af.reuters.com/article/metalsNews/idAFLDE72029E20110301?sp=true.

Reuters. “Canadian rare earth miners boosted by China cuts.” Accessed March 3, 2011. http://www.reuters.com/article/2010/12/29/us-rareearth-idUSTRE6BS2CL20101229.

Reuters. “Pentagon Warns on Big U.S. Defense Cuts.” Accessed April 7, 2011. http://www.reuters.com/article/2011/04/13/us-usa-budget-pentagon-idUSTRE73C6XG20110413.

Reuters. “Rare earth metals prices vs. gold.” Accessed April 7, 2011. http://graphics.thomsonreuters.com/F/10/CMD_RAREPRC1010.gif.

Roelf, Wendell. “Great Western sees S. African rare earth production.” Reuters, February 9, 2011. Accessed March 30, 2011. http://af.reuters.com/article/investingNews/idAFJOE7180ER20110209.

Scissors, Derek. “Rare Earths: The U.S. Government Should Not Manage Supply.” Heritage Foundation Web Memo 3201 (March 21, 2011). Accessed March 31, 2011, http://thf_media.s3.amazonaws.com/2011/pdf/wm3201.pdf.

Technology Metals Research. “TMR Advanced Rare-Earth Projects Index.” Accessed April 7, 2011. http://www.techmetalsresearch.com/metrics-indices/tmr-advanced-rare-earth-projects-index/.

U.S. Department of Energy. “2010 Critical Materials Strategy – Summary.” Accessed April 24, 2011. http://www.energy.gov/news/documents/Critical_Materials_Summary.pdf.

Detsch 22

U.S. Department of Energy. “U.S. Department of Energy FY 2012 Budget Summary.” Accessed April 4, 2011. http://www.gpoaccess.gov/usbudget/fy12/pdf/BUDGET-2012-BUD-10.pdf.

U.S. Geological Survey. “Rare Earths Factsheet 2011.” Accessed April 6, 2011. http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2011-raree.pdf.

U.S. Geological Survey. “United States – A Summary of Domestic Deposits and a Global Perspective.” Accessed April 1, 2011. http://pubs.usgs.gov/sir/2010/5220/.

The Wall Street Journal – Washington Wire. “Transcript of the Obama-Hu News Conference.” Accessed April 20, 2011. http://blogs.wsj.com/washwire/2011/01/19/transcript-of-the-obama-hu-news-conference/.

Weisenthal, Joe. “China’s Trade Surplus Tumbles in December as Export Growth Collapses.” Yahoo! Finance, January 10, 2011. Accessed March 17, 2011. http://finance.yahoo.com/tech-ticker/china's-trade-surplus-tumbles-in-dec.-as-export-growth-collapses-535792.html?tickers=FXI,PGJ,EPP,EEM,EWH,EWT,EWY.

The White House. “Blueprint for a Secure Energy Future.” Accessed March 31, 2011. http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf.

Yamaguchi, Mari. “China rare earth exports to Japan still halted.” Bloomberg Businessweek, October 21, 2010. Accessed April 7, 2011. http://www.businessweek.com/ap/financialnews/D9J02PF01.htm.

Yen Kuan, Gan. “Malaysia Bars Rare-Earth Imports, Starts Review of Lynas Plant.” Bloomberg, April 22, 2011. Accessed April 23, 2011. http://www.bloomberg.com/news/2011-04-22/malaysia-bars-rare-earth-imports-starts-review-of-lynas-plant.html.

Detsch 23