China’s Rare-Earth Leverage Is Paying Off

China, U.S. Agree to Rare-Earth Deal

Last Friday, China signaled that it would approve a new deal allowing the export of its rare earths to the United States, marking a breakthrough following earlier U.S.-China talks in Geneva and London.

U.S. manufacturers need rare earths for a wide range of products, from computer screens to lasers. And China produces roughly 60 percent and processes more than 90 percent of the global rare-earth supply. Beijing’s decision to exercise this leverage over Washington in recent months has paid off, as China analyst Scott Kennedy writes in Foreign Policy.

But will Beijing’s pressure give it a permanent hold over Washington, or will it finally prompt the United States to rebuild a long-neglected supply chain at home?

China’s dominance of the rare-earth sector is not a result of geological fortune but of economic advantage. Rare earths, despite the name, are abundant worldwide. But following China’s opening up and modernization in 1978, Chinese rare-earth firms soon became the cheapest and most popular option. From 1978 to 1995, China’s production of rare earths grew by roughly 40 percent each year.

Early on, this growth was mostly bottom-up, but it was later encouraged by the government. Chinese scientists filed for their first international rare-earth patent in 1983, and by the mid-1990s, Chinese technology was competing with cutting-edge products in the United States.

Chinese firms acquired foreign assets, such as the U.S. firm Magnequench in 1995. Meanwhile, the spread of personal computing and then the mobile phone created massive demand for rare earths from the 1990s onward.

The United States has long been aware of the problems posed by Chinese preeminence in the sector. After China temporarily slowed the export of rare earths to Japan in 2010, it prompted the reopening of California’s Mountain Pass rare-earth mine to provide an alternative to Chinese companies amid rising demands.

For more than a decade, pundits and strategists have called to revive the U.S. rare-earth industry to reduce reliance on China. But such a large-scale project will be difficult to pull off. In 2010, the U.S. Government Accountability Office estimated that it would take up to 15 years to rebuild a domestic rare-earth supply chain.

In the 15 years since then, Mountain Pass—whose previous owners went bankrupt in 2015—is still the only facility producing and refining rare earths in the entire country.

U.S. President Donald Trump’s past efforts to rebuild the industry flopped, and in his second term the president seems more committed to dismantling his predecessor’s energy legacy than rebuilding anything.

Though China doesn’t have to fear a restoration of U.S. rare-earth production anytime soon, it’s not taking any risks. A key part of any industry is personnel, and China has leveraged its lack of political freedoms to maintain its dominance in this respect.

As the Wall Street Journal reported last week, Chinese rare-earth experts are being tracked and monitored closely. Some are having their passports confiscated and held by their employers—an increasingly common practice in China today.

Why if Washington wants to destroy them