On July 11, Chairman of the Senate Select Committee on Intelligence Mark R. Warner (D-VA) and Vice Chairman Marco Rubio (R-FL), joined by U.S. Sens. Angus King (I-ME), Chris Coons (D-DE), Bill Cassidy (R-LA), John Hickenlooper (D-CO), Thom Tillis (R-NC), and Mark Kelly (D-AZ), introduced legislation to develop a strategy and global approach to ensure that the U.S., its allies and global partners can count on a diverse and secure end-to-end supply of critical minerals.
Critical minerals, such as lithium, nickel, cobalt, and rare earth elements, are necessary inputs for technologies that play critical roles in our national security, including military equipment and defense systems, as well as emerging technologies such as electric vehicles and storage for our power grid. However, the People’s Republic of China (PRC) currently dominates the mining, processing, and manufacturing of the majority of these minerals.
Gallium crystals in the labVisual China
U.S. dependence on the PRC for the procurement of these critical minerals raises substantial economic and national security concerns. To combat the dominance of the PRC, this legislation would ensure a secure supply of these minerals.
Specifically the legislation would enhance diplomatic and financial tools to support public and private sectors in securing and processing these minerals by:
Streamlining diplomatic efforts for securing minerals;
Establishing diplomatic support for private sector investments abroad;
Enhancing financial tools of the U.S. International Development Finance Corporation (DFC) the Export-Import Bank of the United States (EXIM);
Creating a fund to assist investments in critical minerals;
Enhancing public-private information sharing on manipulative adversary practices;
Creating a public website to assist private sector companies in navigating government resources and financial support; and
Expanding allied partnerships to secure critical minerals.
The legislation would also work to increase U.S. procurement of critical minerals in order offset China’s ability to manipulate and monopolize the market, including by:
Requiring a report on the use of and need for new or expanded authorities to increase domestic production and procurement;
Requiring an assessment on imposing duties on imported minerals, in particular from China; and
Requiring a whole-of-government effort to develop workforce training programs to advance end-to-end critical mineral capabilities.
“The global demand for critical minerals continues to grow at exponential rates, and it is crucial that the U.S. identify secure sources of these minerals so that we can count on them for national security and critical infrastructure applications,” said Chairman Warner.
“Currently, China dominates the critical mineral industry and is actively working to ensure that the U.S. does not catch up. The U.S. must, alongside allies, take meaningful steps to protect and expand our production and procurement of these critical minerals. This legislation will serve as a roadmap for the U.S. to counter China’s dominance in this sector.”
“Our national security interests are heavily dependent on critical minerals, which are vital for modern technology and national defense. The U.S. must have a comprehensive response to China’s dominion over the global critical mineral industry. With our consensus package, Senator Warner and I hope to free our nation's supply chains from China’s industrial monopoly,” said Vice Chairman Rubio.
This is latest step that the Senate Intelligence Committee leaders have taken to counter China’s dominance in this key sector. Last year, Chairman Warner and Vice Chairman Rubio hosted government officials and domestic industry leaders for a roundtable discussion on access to critical minerals. During that roundtable, industry leaders asked for more robust government support in identifying unfair and corrupt practices by foreign adversaries. Specifically, private sector companies attempting to secure critical mineral projects abroad have faced PRC efforts to spread disinformation to foreign host governments about U.S. companies, steal U.S. company IP, and sabotage U.S. company contracts. As a result of that meeting, earlier this year, Chairman Warner and Vice Chairman Rubio introduced legislation to improve information sharing between the Intelligence Community and U.S. companies in order to mitigate foreign adversaries’ efforts to thwart U.S. involvement in projects relating to energy generation and storage, including in the critical minerals industry.
Chairman Warner and Vice Chairman Rubio have also led efforts to secure supply chains and reduce U.S. reliance on the PRC for critical minerals through increased government support to U.S. private sector companies that are investing and operating in critical mineral projects.
Gallium and germanium, important raw materials for chip manufacturing; graphite and lithium, important materials for battery production; and rare earths, essential for the manufacture of electric cars and wind turbines, are all key minerals. From basic consumer goods, clean energy-related products to the production of defense and military products, there are key minerals everywhere.
U.S. financial services institution JP Morgan Chase Group said on June 10, China 2022 produced 68% of the world's rare earths, 70% of the graphite, but China's real advantage lies in the processing of minerals - 2022, China processed 100% of the world's graphite, 90% of the rare earths and 74% of the cobalt. Key minerals could be the next battleground between the U.S. and China, JPMorgan said.
In recent years, the United States has often "hit" Chinese goods for various reasons, such as theft of intellectual property rights, unfair trade and threats to supply chain security. According to the U.S. magazine "Fortune," the U.S.-China trade war began in 2018, when then-U.S. President Donald Trump imposed tariffs on Chinese goods such as solar panels and steel for intellectual property rights theft and unfair trade practices. Since then, Biden has largely continued the approach of his predecessor's administration as economic and trade tensions between the two superpowers have escalated.
According to U.S. media reports, the United States has long been committed to aligning with its allies to reduce its dependence on China. One of the biggest pushes has come from the Inflation Reduction Act (IRA) signed by Biden in 2022. The law provides tax credits for energy transitions, but excludes governments that have not signed free trade agreements with the United States. Last year, the United States signed a major minerals trade agreement with Japan that allows Japanese companies to receive subsidies under the IRA. In addition, the United States is reportedly negotiating with countries such as the United Kingdom and Indonesia to push for similar agreements, seeking to bring in other countries.
The United States also wants to involve the European Union. Last March, in fact, the United States and the European Union made progress in establishing a "key minerals club": if agreed, the European Union will be able to buy or process key raw materials "like U.S. raw materials" in the U.S. market. In addition, Brussels also intends to establish a key minerals procurement agency.
China is also moving. In fact, Beijing recently issued the "Regulations on Rare Earth Management." Over the past decade, Beijing has introduced new environmental regulations, enforced existing ones, and innovated some extraction and refining processes, making them cleaner.
Rare earth procurement: strategic error of the U.S.
The rare earth elements (REEs) and critical minerals are a group of 17 metals: 15 elements from the lanthanide series and two chemically similar ones, scandium and yttrium. Each with unique vital properties, they underpin the production, development, delivery and support of essential services such as telecommunications and information technology, food and agriculture, finance, health care health care, education, transportation and public safety. In the civilian sectors of the economy, strategic and critical materials and related supply chains are essential to countless artifacts, ranging from personal electronics (an i-Phone, for example, contains eight REEs) to consumables for fuel, food, and medical supplies, to housing construction and critical infrastructure support. In the defense industrial sector, the strategic and critical materials ensure the expansion of production and development of military items (an F-35 fighter jet contains about 420 kilograms of REE and these are essential for guided missiles) and the conduct of armed forces operations. Their demand is expected to increase over the next two decades, particularly as the world acts to eliminate net carbon emissions by 2050.
China, although it has only about 30 percent of global rare earth reserves, controls 50-60 percent of their global extraction and 80-90 percent of the market at the intermediate processing stage. Currently, 98% of the EU's supply of rare earths comes from China. In contrast, US dependence is estimated to be around 80%.
The United States was the major global player in rare earths from World War II until the early 1990s. Beginning in the 1980s, however, government investment ceased and basic research came to a halt. By the 1990s, the public-private investment mechanism disappeared, while China had begun to effectively use very similar policies to facilitate the growth of its domestic sector.
Today, China holds a commanding position in the global rare earth supply chain, from mining to processing to end uses.
Beijing uses numerous tools to preserve its dominance, such as export controls, production quotas, state investment in basic research, nationalization of the industry, and, more recently, state consolidation into an integrated mega-enterprise.
Rare earth mining is highly polluting and incurs high environmental and health costs for local communities. After they are removed from the ground, they must be separated, refined into oxides and then processed into metals and alloys before they are ready for industry. The secondary process is also highly damaging to the environment.
Although the shift in control of the global chain from the United States to China was initially enabled by Beijing's looser environmental and regulatory standards, it is not true that China now maintains its advantage because of this. Over the past decade, Beijing has introduced new environmental regulations, enforced existing ones, and innovated some extraction and refining processes, making them
cleaner.
Chinese dominance in the rare earth industry is a matter of politics, not geography.
Insert REEs into the national security perimeter
In November last year, the WeChat public website "Ministry of National Security" published an article titled "How to keep the "vitamins" of strategic industries firmly in their hands?" an article that stressed that rare earths are strategic mineral resources "directly related to national security.
The South China Morning Post and the United Daily News both mentioned that in recent years, in order to consolidate its leading position in the rare earth industry, and also in response to the suppression of high technology in China by the United States and Europe, China has successively introduced new policies related to rare earths.
Since last year, to safeguard security and national interests, China has imposed export controls on two key metals, gallium and germanium, and graphite.
On Dec. 21, the Ministry of Commerce and the Ministry of Science and Technology issued an announcement on the publication of China's Catalogue of Banned and Restricted Technologies for Export. In the part of the export ban, "rare earth refining, processing, use of technology" was included, specifically regarding the technology of rare earth extraction and separation process; the technology of rare earth metals and alloys production; the technology of preparing samarium cobalt, neodymium iron boron, cerium magnets; and the technology of preparing rare earth calcium borate oxygen.
This catalog adjustment attracted the attention of the U.S. media. Bloomberg said that as the world's largest supplier of rare earths, China will place rare earth metals and rare earth magnet production technology on the list of banned or restricted exports, which could increase the difficulty for the U.S. and other Western countries to supply strategic raw materials.
Although this new regulation does not affect the export of rare earth products per se, it could still have an impact on the development of the rare earth industry in other regions.
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