Report: U.S. has a mining problem while China has the answer

Report: U.S. has a mining problem while China has the answer
  • High tech industries rely on rare earth materials for production.
  • China holds a major share of the world's rare earth mines.
  • Beijing is willing to use rare earth materials as a political weapon against the U.S. and the

Advanced technologies, high-tech weapons, electric vehicles, among many other industries rely on mined rare earth materials for their production. The problem? China is a clear global leader in the key mining category and the government can use it as a political weapon against the U.S. and the West, The Wall Street Journal reported.

‘Threatens the entire global system’

A report by consulting firm Horizon Advisory argued in a report China’s mining industry benefited from many years of subsidies from the government. The government offered subsidies worth around $175 million a year from 2015 to 2018. Back in 2015, the rare earth mining industry in China recorded a total profit of around $170 million.

The industry can easily be used by Beijing as a geopolitical weapon that “threatens the entire global system,” according to WSJ. Horizon’s report even cites a Chinese-government funded report that specifically states it “will not rule out using rare earth exports as leverage.”

Horizon’s researchers are led by ex-Pentagon contractors with particular expertise in gathering intelligence from open-source Chinese documents. The group also relied on academic research, either funded by government grants or directly from Chinese experts with knowledge of the country’s inner workings, according to WSJ.

Beijing is even prepared to sacrifice profits from exports as a “path to win” against the West. The government may have signaled its intentions when President Xi Jinping accompanied the country’s top trade negotiator to a region in China dubbed a rare-earth kingdom, according to WSJ.

Washington takes note

The topic of China and its easy access to rare earth mines was raised during a Senate Energy and Natural Resources Committee hearing.  Simon Moores, an expert panelist from Benchmark Mineral Intelligence, said China’s move to cut off the U.S. from its valuable resources “would just be disastrous for the U.S. economy.”

As each day passes, there are more signs that China poses a greater economic threat, even during the COVID-19 pandemic, Moores also said.

Washington is taking steps now to mitigate downside if escalations with China worsen and it uses economic resources as a fighting tool. So far, the U.S. Defense Department announced grants meant to help a processing facility at the country’s only rare earth mining facility in Mountain Pass, California. A new plant is proposed for Texas and the government agency will be offering money as well.

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.
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