Statement on China Rare Earth Materials Policy

Eileen Appelbaum, a senior economist at the Center for Economic and Policy Research issued the following statement regarding China's decision to end the export of several classes of rare earth materials:

"China's decision in July to reduce the world's supply of rare earth materials followed by its decision this week to halt the export of some of these materials to the U.S. is a wakeup call that should not be ignored. In 2007, Dean Baker and I called attention to the threat posed to America's capacity to innovate and to manufacture technologically advanced products by China's dominance of rare earth materials production and application.

"The U.S. has gone from self sufficiency before 1990 in all the stages of the rare earth material supply chain - mining and processing of rare earth materials into alloys and the advanced manufacturing applications that use these materials - to importing more than 90 percent of rare earth materials from China directly or indirectly by 2000. Today, China dominates the industry, producing 97 percent of the world's supply of rare earth materials. According to a recent GAO report, China's near monopoly poses a potential threat to both the military and many key civilian industries. This is in spite of the fact that the United States has 13 percent of the world's known deposits of rare earth materials.

"Rare earth materials play a key role in high technology applications through their use in computers, lasers, and telecommunications. Rare earth magnets are among the world's strongest and are important in the miniaturization of high-tech applications such as miniaturized multi-gigabyte disc drives, cell phones and iPods. They are used in TV, computer and other screens that employ liquid crystal or plasma display panel technology, in super alloys for aerospace, in superconductors and in lasers. They are important in environmental technologies, including rechargeable batteries in hybrid vehicles, energy efficient fluorescent lights, magnetic refrigeration (which is more efficient than gas compression and does not deplete the ozone layer or contribute to global warming), and for safe storage and transport of hydrogen for the post-carbon economy. They are key inputs used in electric cars, solar panels and wind turbines.

"The use of rare earth materials in defense systems, according to the GAO report, is equally widespread. Defense system uses include precision-guided munitions, lasers, communication systems, radar systems, avionics, night vision equipment, and satellites. Traveling wave-tubes used in defense systems to amplify radio frequency signals use rare earth permanent magnets. In addition, defense systems make extensive use of commercial products such as computer hard drives that use rare earth materials.

"The country needs a real industrial policy that ensures we are not dependent on a single supplier for essential industrial inputs. In the case of rare earth materials, H.R. 6160, the Rare Earths and Critical Materials Revitalization Act of 2010, introduced by Rep. Kathleen A. Dahlkemper (D-PA), would help to ensure the country a stable supply. However, the bill faces an uncertain future in the Senate after being passed overwhelmingly by the House. More generally, we cannot have a trade policy in which lowest cost is the sole criterion determining production decisions."