The 92% Conundrum or "China, My China"

 

They’re comin’ for our patents. They’re aimin’ at our elections. They’re supportin’ our biggest military enemies. They’re claimin’ international waterways. They tell us that Taiwan has always been their exclusive territory. And they’re buildin’ a military that is seriously larger than our own based on an assumption that the United States is unraveling. And still, our defense industry, our high-tech sector and even our telecommunications capacity depend on a resource that China currently almost totally controls. As Jon Emont explains in the May 4th Wall Street Journal: “The American war machine depends on tiny bits of metal, some as small as dimes. Rare-earth magnets are needed for F-35 jet fighters, missile-guidance systems, Predator drones and nuclear submarines.

“The problem: China makes most of the world’s rare-earth magnets, with 92% of the global market share… Now, Washington is doling out hundreds of millions of dollars in grants and tax credits to revive magnet-making in America. Defense manufacturers are on a clock… A U.S. law in 2018 restricted the use of made-in-China magnets in American military equipment, shriveling the list of potential suppliers to a small number in Japan and the West. By 2027, the curbs will extend to magnets made anywhere that contain materials mined or processed in China, covering nearly all of the current global supply.

“After three decades of post-Cold War deindustrialization, rebuilding the industry—against China’s market heft—is an uphill battle, even with government help. Only one company in the U.S. is in production of the dominant type of rare-earth magnet.” To say our relations with China are severely strained – despite close to $700 billion in trade – is an understatement. Notwithstanding a recent telephone call between Joe Biden and Chinese President Xi Jinping and a visit by Department of State Secretary Anthony Blinken with high-ranking PRC officials, our battle against China is only ramping up.

In addition to recent legislation supporting tens of billions of dollars for Ukraine, Israel and Taiwan, Congress’ bill (signed by Biden) contained a provision mandating that TikTok be divested from its Chinese corporate owner within a year… and our sanctions were also increased. “The Biden administration on Wednesday [5/1] announced nearly 300 new sanctions on international suppliers of military equipment technology that the administration said have been helping Russia restock its arsenal as it carries out the war in Ukraine.

“The sanctions represent a broadening of U.S. efforts to disrupt Russia’s military industrial complex supply chain. They include more than a dozen targets based in China, which the United States says has increasingly been helping Russia arm itself. The Biden administration has expressed growing alarm about the weapons technology alliance between China and Russia. Top U.S. officials have voiced those concerns to their Chinese counterparts in recent weeks.” New York Times, May 1st. But sanctions and tariffs are in fact a consumer tax, and that includes the US government when it buys products and services on the open market.

“The Defense Department in the past few years has committed more than $450 million toward rare earths and the magnets they power. The Energy Department is offering its own incentives because the magnets are also critical for electric vehicles… The funding is helping a German magnet-maker set up its first North American factory, which broke ground in March, two decades after its last U.S. factory shut down. The facility, in Sumter, S.C., will buy rare earths locally. Those supplies could come from other projects that are receiving government funding—such as processing plants coming up in California and Texas, owned by American and Australian miners, respectively.

“Their highest hurdle is low Chinese prices. A U.S. Commerce Department probe in 2022 found that China’s dominant position enabled it to set prices low enough to make production unsustainable for competitors… In the West, mines and processing facilities face more regulations. There are only a small number of experts left in the field, requiring pricey workarounds such as importing foreign talent, sending Americans abroad for training and automating.

“‘If you want it to be commercially viable, how are you going to accomplish it, because there’s a reason we don’t do it domestically anymore,’ said Moshe Schwartz, a senior fellow for acquisition policy at the National Defense Industrial Association, a trade group representing the defense industry… Pushing defense suppliers to buy more-expensive magnets that are made in the U.S. would raise costs and have a knock-on effect, potentially affecting how many defense systems such as submarines and jet fighters the Defense Department is able to buy, Schwartz said…

“The breakdown in supply chains during the Covid-19 pandemic rang alarm bells. Pandemic-era funding enabled the government to back Texas-based Noveon Magnetics, a startup that had begun small-scale magnet production in 2018. The company received around $29 million to boost production at its San Marcos, Texas, facility.

“Magnets made there are used in cruise missiles, missile-defense systems and helicopters… As tensions with China rose, the Defense Department between 2020 and 2022 announced $45 million in funding for MP Materials—America’s dominant rare-earth miner—to set up facilities to process minerals in the U.S. The first such facility came online last year. The company plans to start making magnets in Texas by next year.” WSJ. At a much higher price!

In a world of diatribes promising simplistic solutions based on conspiracy theories and populist rhetoric, if reelected, Donald Trump threatens even higher tariffs on Chinese imports. In the end, as our profound polarization and the unwillingness of a large number of voters to make decisions based on empirical facts derail our global influence and credibility, China is getting increasingly more effective at finding viable workarounds to all our attempts to hobble her aspirations and limit her ability to thwart our national goals. Sorry, isolationists, your simplistic answer to each of these issues is completely a falsehood that will bite us badly in the very near term.

I’m Peter Dekom, and we will either incite conflict that fulfills none of our self-interests or figure out a modus vivendi with those with whom we must deal with who are anything but allies.