Digging a deep hole: rare earths debacle puts U.S. trade policy under scrutiny

January 11, 2011 — While the recent controversy surrounding China’s almost complete control over rare earth elements may seem to some like an arcane debate over minerals with hard-to-pronounce names, for many experts and economists it represents a concrete example of a broader long-term failure of United States trade and industrial policy.

Rare earth elements are a set of 17 minerals, some of which are crucial to producing a wide array of high-tech products. They are used in iPads and in flat screen TVs, in wind turbines and in hybrid electric car batteries. These minerals are also needed for the tracking systems of missiles and military drones. Until about 1984, the U.S. mined the majority of the world’s rare earth supply; today it produces almost none. Nearly all of the mining now occurs in China.

From the mid-60’s to the mid-80’s, global rare earth mining was dominated by the Mountain Pass mine in California. The mine closed in 2002, after a series of radioactive wastewater leaks raised environmental concerns, and after increased Chinese production — partially due to state intervention and partially due to a lack of environmental controls — had begun to undercut U.S. prices.

Meanwhile, U.S. manufacturers that relied on rare earths found it easier to be closer to the source, and also relocated. In 2004, a company called Magnequench — a huge producer of permanent magnets that require rare earths and that are crucial components in the guidance systems of cruise missiles — closed its plant in Indiana and moved its facilities to China.

The issue largely escaped the notice of the public, and was not treated as a serious problem by the U.S. government (see sidebar).

Indeed, for many years, China supplied rare earths to U.S. and other manufacturers at a low price. In the middle of last year, however, to fulfill its domestic demand, China cut its export quota of rare earths by 40 percent. The move drove up prices for manufacturers in other countries.

That got some attention. The U.S. Trade Representative’s office quickly denounced China’s actions and threatened to file a complaint with the World Trade Organization. Last year, two proposals were introduced in the House and one in the Senate which focus on jump-starting U.S. production of rare earths and funding research and development to search for alternatives. More recently, some petroleum refiners have expressed concern that the rising cost of rare earths will lead to higher gas prices, because the minerals are also used as catalysts in the process of refining crude oil to produce gasoline.

But why was a vulnerability, now seen as requiring quick and decisive action, not addressed for so many years? Some experts argue that the free-market trade policies the U.S. has pursued did exactly what they were meant to do, and the current U.S. predicament shows that those trade policies may have been misguided.

“The failure of the United States to promote a much more aggressive stance on rare earth [elements] is indicative of the degree to which we are willing to stand idle while our manufacturing industries are stolen from us,” said Robert E. Scott, senior international economist at the Economic Policy Institute. “There’s no doubt that the promotion of free trade agreements has been tremendously destructive to U.S. manufacturing.”

Abundant, altogether essential, but traditionally messy

The minerals called “rare earths” are not actually rare; in fact they’re quite abundant. According to a recent report by the U.S. Geological Survey, there are nearly 100 million metric tons of rare earths in the earth’s crust, 13 million of which are in the U.S.

The report also identifies 28 sites in 15 states where rare earths might be mined domestically, including the Mountain Pass Mine in California, though it says that its unclear how much of them can be mined profitably.

Other agencies have recently chimed in to show how important rare earths are for a range of manufacturing industries. The Congressional Research Service issued a report last September outlining a number of commercial applications, and the Department of Energy followed in December, listing a range of green technologies that are dependent on rare earths.

Essential as rare earths are, however, the process of extracting them has often been environmentally damaging. Rare earth mining is usually done in open pits, which can leave a large ecological footprint. Wastewater from the operation of a mine can also contaminate groundwater if not properly treated and disposed of. In addition, because rare earths are often found with the element thorium, which is slightly radioactive, the dust from mining must be prevented from blowing into communities and sensitive areas.

The Mountain Pass Mine was notorious among environmentalists for its bad practices, especially its wastewater disposal. In 1998, after several warnings, a wastewater pipeline ruptured, spilling hundreds of thousands of gallons of radioactive waste into the desert surrounding the mine.

Mountain Pass closed down a couple of years later, and still continues the process of cleaning up the spill.