After all, China just announced new restrictions on rare earth exports. This move could have big consequences for the United States, particularly in high-tech and defense industries. Rare earth elements are 17 chemically similar elements that play important roles in the development and advancement of high-tech products. These elements are essential in the manufacturing of loudspeakers, computer hard drives, EV motors, and jet turbines. The ongoing turmoil illustrates both the complicated realities of global supply chains and the geopolitical significance of these necessary materials.
Today, the United States is no longer the world’s largest producer of rare earths. China has a virtual monopoly even on the extraction and especially the refinement of these strategic materials. The U.S. now depends on Chinese sources for about 70% of its imports of each of the 15 different rare earth compounds and metals. This strong dependence deeply worries American manufacturers and policymakers —especially as relations between the two countries sour.
China’s monopoly status in the rare earth marketplace was developed starting from the late 20th century. The U.S. brought major focus on building up its domestic mining and processing capacities. It frequently did this by picking poorer environmental regulations and workforce wages than other countries. This strategic priority enabled China to get well ahead of their competitors abroad. In doing so, it created a de facto monopoly throughout the entire value chain from mining to refining to the production of advanced magnets.
Neodymium, one of the most important rare earth elements. It plays an essential role in manufacturing high-performance magnets that have widespread applications including electric motors. In the same way, yttrium and europium are vital to producing the displays on computers and televisions. With this heavy reliance on rare earths, supply chain disruptions present serious hazards for U.S. industries.
Currently, the United States is down to just one working rare earth mine based out of California. Therefore, this facility is not capable of separating the heavy rare earths. As a result, the U.S. has to send its ore all the way to China for processing. This dependence directly highlights the fragility of the U.S. supply chain, especially for industries—like manufacturing—that depend on these materials to create and innovate.
As the new restrictions in China on rare earth exports take effect, those restrictions will have an increasingly deep impact on the U.S. defense industry. Industry experts warn that manufacturers in defense and high-tech sectors might face shortages and production delays due to halted shipments and dwindling inventories.
“The impact on the US defence industry will be substantial,” – Thomas Kruemmer
America stands at a crossroads. To prevent future shortages like those seen during the Covid pandemic, analysts urge diversifying supply chains and increasing domestic processing capacity, especially in response to threats from China.
“Manufacturers, particularly in defence and high-tech, face potential shortages and production delays due to halted shipments and limited inventories,” – Dr Harper
The geopolitical landscape complicates matters further. With China’s status as a signatory to the international treaty on the Non-Proliferation of Nuclear Weapons, any atomic trade bolsters their standing. This influence reaches especially to “dual-use products,” which have both civilian and military uses. This scenario puts China in a position to dominate on a number of critical materials necessary for defense applications.
Dr. Harper notes, “The challenge the U.S. faces is two-fold. On one hand it has alienated China who provides the monopoly supply of rare earths, and on the other hand it is antagonizing many nations that have previously been friendly collaborators through tariffs and other hostile actions.”
See below for our full comment regarding China’s export restrictions and their strong ramifications for supply chains. They might change the United States’ diplomatic relations with other countries.
“Whether they will still prioritise collaboration with America remains to be seen in the turbulent policy environment of this new administration,” – Dr Harper
The fiscal costs of these limitations are just as damaging. Experts already project that prices of key rare earth materials are going to take off as the demand doesn’t stop but the supply starts drying up.
“Prices for critical rare earth materials are expected to surge, increasing the immediate costs of components used in a wide range of products, from smartphones to military hardware,” – Dr Harper