By John T. Bennett - 03/27/11 07:33 PM EDT
Lawmakers should avoid enacting legislation intended to accelerate U.S. production of a special family of minerals because market forces already are responding to China’s dominance, several experts say.
“Rare earth minerals are the flavor of the week” in Washington, said Robert Jaffe, a physics professor at the Massachusetts Institute of Technology (MIT). “The sky is not falling, and [America] is not going to run out of them any time soon.
If the U.S. “is open to a model of trade” with other nations, it could “buy these minerals cheaply,” Jaffe said Wednesday during a forum sponsored by the Heritage Foundation.
In contrast, mining and producing them in the United States could prove costly due to labor standards and environmental regulations, Jaffe and other experts said.
A government-run stockpile would “disrupt the market,” he said, because companies would have little incentive to seek innovate substitutes.
Derek Scissors of the Heritage Foundation said the Pentagon might want to build “a small stockpile” of rare earths. But even that brings challenges because the Department of Defense “has trouble selling from its current [mineral] stockpiles,” he said.
“A stockpile just to shut up Congress is not an answer,” Scissors noted.
China now controls nearly 100 percent of the world’s supply and production of rare earth minerals. The U.S. Geological Survey (USGS) has said the United States imports nearly all of the rare earth minerals it needs.
The minerals are used to manufacture a list of parts that find their way into U.S. combat platforms like unmanned aircraft, radars, night-vision goggles, missiles, jet engine turbines and electronics systems.
The rare earths family is composed of 15 lanthanoid elements, as well as scandium and yttrium. Last year, lawmakers – particularly ones from states with rare earth deposits or a large mining industry presence – introduced several bills aimed at boosting U.S. rare earth production. None of those bills ever became law.
Part of the fervor was created when experts began warning the Pentagon would soon face a crisis if Beijing began restricting its exports, or drove its prices through the roof because needed combat hardware relied so much on the family of minerals.
But Scissors said rare earths are not used because they are “indispensable – they’re used because they’re cheap.”
In short, Scissors called for caution and patience. The market got the U.S. into this, and the market will get the U.S. out, he said.
“We use rare earths because China dropped the price and drove its competitors out of the market,” Scissors said. “Now, China is increasing the price, so we’ll use less.”
He highlighted rare earths mining and production projects started in recent years “all over the world” that eventually will blunt China’s advantage.
“The market is working here,” Scissors said, adding there is no need for Congress to get involved. “The market is going the right way … unless government gets involved and messes it up.”
What’s more, Scissors said he doubts “this is an area where China wants to start a trade war” because American and Western retaliation “would be too easy and too devastating for China.”
Pentagon and industry sources say a closely held Defense Department report concludes Beijing’s monopoly will soon end.
DoD’s study is expected to conclude that steps underway in the U.S. and other nations should be enough to eventually combat China’s current dominance, giving the Pentagon new suppliers and driving down market prices.
"I wouldn't run out and buy a bunch of rare earths," Pentagon industrial affairs chief Brett Lambert said late last year during a conference in New York. The U.S. may experience problems “in the near term,” he said, but over the long haul, "I think we'll be fine."
This post was updated at 10:33 a.m. on March 28.