China Monopolizes Crucial Rare Earth Minerals

We Once Controlled Our Own Technology….No More

Victoria Bruce, Sellout
Victoria Bruce, author of Sellout: How Washington Gave Away America’s Technological Soul, and One Man’s Fight to Bring it Home. Photo credit: Twitter / Bloomsbury USA

Crucial technologies developed in the United States, from smart phones to advanced weapon systems, can only be produced with rare earth minerals from China. How did the US get to a point where it has to rely on a strategic adversary to build its high tech products?

The US once mined and produced these minerals. No more. It has now handed China an almost total monopoly on the industry. In this week’s WhoWhatWhy Podcast, Victoria Bruce talks to Jeff Schechtman about how this came to be, and how one man, a whistleblower by the name of Jim Kennedy, embarked on a journey to try and bring the industry back.

Bruce, the author of Sellout: How Washington Gave Away America’s Technological Soul, and One Man’s Fight to Bring it Home, discusses several important questions. How is the production of high tech components being threatened by China? How does the Asian superpower manipulate the price of essential products and commodities to drive all other manufacturers and countries out of the market? Why has Congress failed to examine or address the critical rare earth supply problem?


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As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to resource constraints, we are not always able to proofread them as closely as we would like, and we hope that you will excuse any errors that slipped through.

Jeff Schechtman: Welcome to radio WhoWhatWhy. I’m Jeff Schechtman. Most of you have heard all the bellicose talk about the possibility of a trade war with China — saber rattling between China and the U.S. The next step is that the stock markets react to the impact that it might have with respect to China, as our largest market and as a supplier of so many goods coming into the U.S.
  What we don’t hear talk of, is the fact that virtually all of our technology that we depend on — from the phones in our pockets to the fighters, carriers, and missiles that keep us safe — are all totally dependent on what’s called rare earth minerals from China. Without them, we become technologically paralyzed. And the funny thing is that right now we have no alternative. How did this happen? Does it matter? And what if anything are we going to do about it?
  We’re going to talk about this today with my guest Victoria Bruce. She holds a master’s degree in geology from the University of California, Riverside. She is a recipient of the Alfred DuPont-Columbia University Award for excellence in broadcast journalism. She’s the author of the previous book, No Apparent Danger. And it is my pleasure to welcome her here to talk about Sellout: How Washington Gave Away America’s Technological Soul and One Man’s Fight to Bring it Home. Victoria Bruce, thanks so much for joining us.
Victoria Bruce: Thanks, Jeff. Thanks for having me.
Jeff Schechtman: It’s great to have you here. Let’s begin by talking about what these rare earth materials, rare earth minerals are — other than perhaps the things that we never really learn very well from the periodic table.
Victoria Bruce: Well, they’re definitely that because even as a geologist they were obscure to me. I first learned about rare earth elements when I was in undergraduate school as a geologist in southern California. And we went to a mine called Mountain Pass and we were given a tour by the geologist there. They were saying, “Here are these rare earth elements.” This was in the ’90s, right, the mid ’90s. “They’ve become very important to magnets, to making very small magnets. All of our technology was able to become smaller and faster because you can make a tiny rare earth magnet. This is one of the mines that can do that, but we just invited some Chinese geologists here and they came here and they went home and found a deposit a hundred times bigger. And now we’re going out of business.” And I thought, “Well, that’s pretty bad strategy,” you know, even back then when no one was talking about it.
  The minerals themselves are very obscure. They’re tiny. They’re not a huge economic product. You don’t find them traded like steel, like gold, like iron, but they’re absolutely essential. So that’s where we are now. Like you said, with China holding all the cards.
Jeff Schechtman: Talk a little bit about how that happened. Was the U.S. in this business? Did the U.S. cede the business? I guess there was a company that was doing this that got bought by the Chinese.
Victoria Bruce: Right. So what happened was, in 1985 a man named John Croat, he was a magnetic specialist, his job … General Motors said, “Listen, we want to make cars lighter. We have these heavy motors everywhere, from the window motors to the starter motors, and we need to make these cars lighter. Fuel economy’s a big thing. John, Dr. Croat, can you look into this?”
  He discovered rare earth magnetism, like the fact that you can have a magnet ten times stronger than a regular magnet that is safe at all temperatures, right. So a lot of things would get magnetic, then lose their magnetism. So he found this. This company ended up, at that point, not able to use them for cars because they were highly rusted, they would rust really bad in situations with cars.
  The company started selling them to Japan. Japan was like, “This is awesome. We can make everything faster and smarter and we can make little tiny headphones.” And then the defense contractors got hold of him and they said, “We can make little fins on these bombs and make smart bombs that have directional capabilities.” So they became ubiquitous. It was an entire technological revolution that you really didn’t hear but that’s what was really fueling it all, was this new invention called rare earth magnets, rare earth lasers, and things like that.
  So that company ended up, 10 years later, being bought by the Chinese because America started selling off everything. And that was post-1991 when Clinton came into office.
Jeff Schechtman: Why didn’t we hear more about it? I mean, certainly this was a giant leap in terms of technology.
Victoria Bruce: Right. I think what happened at the time is that so many products were being developed and things were happening exponentially that … We look back at the makers of the atomic bomb technology and we celebrated them independently and the science behind it. But that was really about creation of sort of the war product and one big project, the Manhattan Project.
  This was more piecemeal, everything being created by lots of different companies and it was all about the economics of it; we’re making money off these products. It wasn’t about celebrating the science. So it’s kind of like we’ve gone forward and moved and this great explosion that’s been wonderful for the economy and for science. But I think that we sort of lose the science and we just expect our technology to be moving at a thousand miles an hour.
Jeff Schechtman: Talk a little bit about the interface with China, how that’s worked so far with respect to American companies that need these materials.
Victoria Bruce: What my book Sellout talks about is that we’ve put ourselves in a terrible position as Americans. Our government used to control the technology. They used to say, “Okay, if this can be used in military technology, then we won’t export it. We won’t let you guys know about it because that’s how we keep our national defense.” But after the Cold War ended, 1991, the idea in Washington was that we can sell everything; it’ll be fine because everybody wants to be like Americans.
  China at the same time realized, after Desert Storm, that they were way behind in technology and they were going to do everything they could to get a hold of it. All of a sudden, they see America is willing to sell everything. So all these companies that are going over there, China’s luring them and saying, “Come over here. We’ll give you cheap labor. We’ll give you tax breaks. We’ll give you access to this huge market. And guess what, Apple, GE, General Dynamics, Raytheon, all you have to do for us, is give us your intellectual property.” And they did. And our government let that happen.
  Today, China is really holding all the cards because they know how to make everything, they’ve got our patents, they have American defense contractors in China. If we were in any kind of conflict that China didn’t like, they can absolutely shut us down and paralyze our national defense, but also our economy.
Jeff Schechtman: Right. The other side of that coin in fact is that to the extent that the world is globalized and that all of this trade is so important, it makes peace more possible, arguably.
Victoria Bruce: And that’s absolutely agreeable. I don’t think that China wants any kind of military … I don’t really think they want any kind of war or anything like that. I think that their main goal is to have successful trade partners, but successful in their world. It’s sort of, China’s very nationalistic. They’re looking for China’s best interest. The U.S. has kind of let go of ours.
  So what if, globalization’s great, but if it’s so unbalanced with China having what they call mercantilism economy looking out for their best interest with Chinese government subsidizing when needed and the U.S. doesn’t do that, it’s very unbalanced. We’re going to have some kind of asymmetric warfare at some point where China has everything they need, and then we try to order our parts from China and China says: Sorry, we’re not giving you anything.
  What Jim Kennedy, the lead character in my book, he argues is that without bringing that back on U.S. soil, without having all of the mines and the end users come together, we don’t have any way of going up against China in a trade war or in an actual military conflict.
Jeff Schechtman: Where else in the world are these materials available?
Victoria Bruce: Well, that’s an interesting question, Jeff, because the material, they’re called rare earth elements, but they’re actually everywhere. You find tons of them associated with other mining projects — phosphate mining, titanium mining, iron mining. The problem with getting them out of the ground in a lot of the western countries is that they’re associated with thorium. And thorium is considered mildly radioactive and therefore could be a weapon product. It’s not, and it has never been, but because it was classified as that there’s a lot of regulations against it. So it makes it very hard to make it profitable for a mine to mine rare earth.
  In China they don’t have that constraint. So China can take ore and minerals from everywhere around the world and process them in China, make the magnets, sell them to the defense contractors when they want to. They have cut off defense contractors in the past because they testified in congress against … in trying to pressure China to release more.
  It’s kind of like a very strong-armed system that we really don’t want to be in, especially when Trump is tweeting about trade and tweeting about North Korea. I mean, we’re in a bad situation right now in the U.S. and we need to get Washington to wake up. That’s why I wrote the book, and that’s why Jim Kennedy has been on this mission to go to Washington and say, “Defense Department, what are you going to do? This is crazy. How is America here?”
Jeff Schechtman: Talk a little bit about who Jim Kennedy is and how he got involved in this.
Victoria Bruce: Jim Kennedy was a securities analyst. He was working on Wall Street, and he just got really tired of what he calls a Ponzi scheme. He didn’t believe that Wall Street was what it was, what he learned in school, sort of Adam Smith’s free market type of systems where you bet on companies that were doing well. He wanted to leave and he wanted to do something else.
  He ended up buying an abandoned iron mine that was bankrupt. It wasn’t functioning, but he found out … he found these files that said rare earth elements. When he did all this research, he found out that he had like $1.3 billion worth of just rare earth elements in his tailings. And he’s like, “Yeah, this is awesome.” So he goes to find out how he can sell them. He’s really smart and he knows how markets work, and he realizes that he can’t sell them anywhere except to China because China’s the only place that now just has a lock on the entire value stream — from mine to magnet. He thought, “Well, this is a really, really, bad situation.”
  The book tells the story of him going to Washington and how dysfunctional our government is. And the Department of Defense, who’s essentially denying there’s a problem even though all of these companies are wholly dependent on China for the fighter jets, for smart bombs, for all the high-tech munitions. At one point, somebody in the book … I tell the story of Jim going to the Department of Defense and one of the guys there saying, “Oh, we don’t need that technology. Our systems will operate without that.” Well, we’re talking about systems that will melt. They’ll work for 15 minutes before the temperature’s too high. If you want to have a military with 1980’s technology, that’s true, we don’t need rare earth elements, but that would be a really bad place for America to be in.
Jeff Schechtman: I guess there’s two sides of the coin at this point. One: the degree to which we can bring some of this back to America. Or, discover a technology that will leapfrog this.
Victoria Bruce: Well, and that’s been something that there’s been a little bit of government money put into, is trying to find sort of substitutes to rare earth. Unfortunately, you can’t create new things on the periodic table. As far as everyone knows at this point, only the rare earths have this special ability because of the way that the electrons spin around the atom to have this sort of magnetism that’s needed. And also for lasers … work with rare earth magnets as well, or rare earth elements as well. People have gone into labs and trying to discover new things. But you’re talking about 10, 15 years of studying in labs. It’s something that …
  Here we have a bunch of materials, we have the materials, they’re there. We know how to process them, and we know how to make the magnets. But it can’t be done without some sort of government help. And that’s the bottom line is that our military, our Department of Defense should not have to operate by free market principles when China has a monopoly. Because that falls apart anyway, right. If there’s one person with a monopoly, there is no free market.
  Jim’s argument is that these kind of things where you’re saying, “Oh, let’s do something else,” I mean, you’re talking … could be decades away and could be never that you’re gonna find something that can work as well as what we have, what we really have at our fingertips. And it only takes the will of Washington. Right now, what they’re looking for is for Trump to sign an executive order that brings this consortium of rare earth users, high-tech users together so that we have access without going through China.
Jeff Schechtman: Talk a little bit about why given all the potential uses and all the users here in the U.S., why this can’t be something that the marketplace alone makes happen.
Victoria Bruce: Well, the problem is, is that because of the market and because of Wall Street and our defense contractors working by a system of quarterly profits, being in China was where they wanted to be. Now that these companies are in China, okay … So let’s say you’re General Dynamics and you have parts that are made in China, some pieces are made in the U.S., but mostly they put a stamp because they do a little tweaking in the U.S., but all these parts, all their things come from China. Now China can just say, okay … Like a company that says, “Okay, I’m going to make rare earth magnets in the U.S.” As soon as they do, China drops the price completely and puts them out of business. That’s what they did to 400 mining startups that happened in response to rare earth prices going up. China saw that happen, dropped the prices and put them all out of business. So that’s why the market’s not working, and that’s why the market’s not working for this situation.
Jeff Schechtman: Are these made anywhere else in the world other than the U.S. and China? I mean, the U.S. that did make it and China now, is there anywhere else in the world where this can be accessed?
Victoria Bruce: Right now, no. Japan is … and this is very, very frightening for Japan because of course they’re still manufacturing, Toyota’s still big there. Although, Toyota is now also moving to China ’cause China has this carrot they’re dangling and saying, “Yeah, you can have all the rare earth you need. Just move your manufacturing here.” And that’s still going on. Now they’re even doing that with Japan, Germany, Siemens went over there, Westinghouse, which was UK nuclear reactor company and now it’s partly U.S., but all these companies … They’re dangling this carrot saying, “Yeah, come on over.”
  The companies really are kind of being held hostage like that. There are smaller companies that are dying to work here. One was called Crystal Photonics in Florida, and they just kept getting letters and the Chinese were saying, “I’m sorry, we can’t supply you, but you can feel free to move here. Move your manufacturing here, and we will supply you.” It’s a very scary game and Chinese are winning. And so it really, I think, it will take some kind of … our government to wake up and play a part.
Jeff Schechtman: Talk a little bit more about the reaction that Jim Kennedy has gotten as he has made this case in Washington.
Victoria Bruce: Right. So it’s been an uphill battle for Jim. And John Kutsch is his partner, who is working on the thorium angle to try to bring back thorium energy at the same time as part of the plan. The two of them actually have had great success. If you don’t know Washington, they’ve been working on it nine years. They’ve had several bills introduced, several senators introducing bipartisan legislation to try to get a rare earth cooperative together. It ends up not going through. It’s almost impossible to get legislation, single legislation. They almost got it into the National Defense Act a couple times.
  The final act in this play is really going to Donald Trump and saying, “Look, you can do this. You can be the hero of bringing back tech manufacturing. Because if you don’t sign this, there’s no tech manufacturing that can happen. If China doesn’t want it to, we can’t get the parts if we don’t make them ourselves.” We do have the opportunity and I think because Trump was so strong on China, bringing back jobs, and trade deficits, and things like that, I think the time is right.
  Right now, Jim and John Kutsch and JJ Brown, who’s from Think Policy in Washington, D.C., they are very close to the administration as well as there’s a general, John Adams, who wrote a 500-page report on how many things the Department of Defense is dependent on China for. So he’s working with the team. He’s a former general. They’ve got a really good posse of guys that are there right in Washington talking to the Commerce Department, talking to the Defense Department, and talking to the White House and saying, “This is imperative. We cannot go up against China. We need to have our own secure sources of our own weapons system.”
Jeff Schechtman: And what’s the pushback? Why hasn’t it happened?
Victoria Bruce: Well, the pushback is what we talked about before. Japan wants this, North, or sorry, South Korea wants this, Brazil, all the … Germany, they want to be part of this consortium with America. The pushback is that these companies … At one time, I called Boeing to get a statement and then I emailed and then went through all the journalistic things that you have to do to try to get an interview, no one would talk to me. But Jim had talked to one of the people from the defense contractors and they said, “We’re terrified. Yeah, we would love to have a secure source, but if we say anything against China, we can absolutely be cut off. It would paralyze our industry. It would paralyze our one company.”
  As of now, inside the Pentagon we are using Chinese-made computers from a Chinese company, it’s not even an American company, it’s called Lenovo. Once all of our defense products become Chinese-made, I mean, I don’t even know if you could write a worse science fiction book about this situation.
Jeff Schechtman: Talk a little bit about what you can gather in terms of how the Chinese view this. And the degree to which they continue to, as you alluded to, exploit this.
Victoria Bruce: Right. I was in China researching the book, and I went to one of these meetings about rare earths and strategic materials. Now China for a long time, they have a lot of scientists that are in their legislature, right. Instead of a bunch of lawyers like we have, they have a lot of scientists, engineers that are absolutely well-versed in science and the idea that the economy is based on scientific discovery and exploration. So they’re very into it. What they believe is that they want to capture and control all of the world’s resources.
  I don’t know if you saw recently, but in Afghanistan the U.S. actually found one of the world’s largest copper deposits. The DOD paid for the exploration, and once it was found, they said, “Okay, here Afghanistan, you should probably sell this and make some money.” And who came in and bought it? China. I mean, you can’t even get on the ground because it’s so dangerous, but they have a 30-year lease on the biggest copper deposit in the world. So rare earths are just like the canary in the coal mine, China wants to dominate everything. They’re very clear about it. At this meeting, a guy put up a slide in his PowerPoint presentation, and the slide said: He who controls the resources, controls the conversation.
Jeff Schechtman: And China has been extremely aggressive over the past really 10, 15 years in seeking resources in Africa as well.
Victoria Bruce: Absolutely. All over the globe, including the U.S. As a matter of fact, that last rare earth mine that I was talking about, China has made a bid for that two or three times. And that’s just kind of … They don’t even need it. It’s almost like a joke to shut other mines down around the world and have no competition.
Jeff Schechtman: Is there an inexhaustible supply of this rare earth material?
Victoria Bruce: At this point, I would say yes. If you’re talking 50, 100 years down the road will we be using different things, will we have … probably. But it’s kind of like iron, we’re not running out of iron. In fact, iron price’s lower than it ever has been. Iron recycling is also a big thing. So maybe someday rare earth recycling will be a big thing. It’s not now because if you can imagine taking apart your iPhone and finding these little tiny things, it would cost a thousand fold what it would to come out of the ground. But right now there’s no … Rare earth aren’t running out.
  I think China said they had something like 500,000 tons. I mean, just huge amounts. Sometimes you’ll hear … I have my Google alert on rare earths and you’ll see: Oh, mine ABC wants to have investors because they’re going to have a rare earth mine. It’s preposterous. It’s preposterous to try to open a rare earth mine when really they’re just laying around in piles in existing mines. And because you can’t compete with China who has 500,000 tons of this stuff every year coming out of existing mines.
Jeff Schechtman: What are the environmental issues in terms of getting this stuff out of the ground?
Victoria Bruce: In some instances, it’s already out of the ground, right. Like I said, these are byproducts of mining. So you’re mining iron, you’re throwing away what they call a tailing, a pile on the side. And so you have … it’s almost … It’s there. It’s out of the ground, so that’s not the really environmental issue. The environmental issue about rare earth is: how do you separate them? Because rare earths don’t come as metal. Most metals on the Earth’s surface that we use, they come with oxygen attached to them. Iron comes as iron oxide. Aluminum comes as aluminum oxide. And the energy and the chemicals that it takes to break them apart, that’s where you have an environmental problem.
  In a lot of places in China, and you can look online and say “heavy rare earth mines in China,” people are actually just throwing acid into the ground to separate these chemicals. It’s a very toxic process. There are a lot of ways to do this a lot more cleanly, but at this point … China is working on that. China, I think, is very aware of their environmental footprint, but not at the expense of moving forward. Sort of like we were in … before environmental regulations took hold in a lot of industries here.
Jeff Schechtman: What’s been happening with respect to the pricing of these materials? You’ve mentioned that they have the ability to dump it on the market if they have competition. What’s been happening in terms of the pricing and the stability or lack of stability of pricing?
Victoria Bruce: Well, yeah, exactly, that’s what happens. When Jim looked at the price, he said there’s no real rare earth Wall Street place to go. So he figured out how to find these prices. They’re sold as oxides, right. If you have the rock, you still haven’t even processed it yet into a metal. And then that’s a different price. It doesn’t make any difference. Let’s say for Boeing or any of these companies, whether it’s a dollar a pound or $10 a pound, you use so little of it that it doesn’t really matter. When the price goes up, it’s more like speculators that are looking at it as a way to do startup rare earth mines, which are totally unnecessary. We don’t need rare earth mines. Like I said, they’re byproducts. So there’s been a lot of that.
  I don’t think that the price of rare earths has anything really to do with this except for that it’s thrown like a mask over this for Washington because as these little rare earth startups go around … There’s one in Alaska, and the Alaskan senator, Murkowski, who’s on the Energy Committee, that’s her constituent. And so you hear a lot about this Alaskan rare earth mine. It can’t do anything against the Chinese monopoly. There’s no way it can function economically. And so a lot of these companies will ask for money from the government, subsidized loans, but it’s impossible.
  So that’s why Jim Kennedy’s plan to get all of the mines together that already have rare earth and get them into a cooperative. It was the same type of thing that was done for silicon chips in the 1990s. We were falling behind. The DOD in Washington realized it was a national security issue that Japan was way ahead of us. We couldn’t get silicon chips. So we put together Intel, we put together a government consortium and we went zooming ahead and got completely secure and became number one in the world. And that’s what we need to do now.
Jeff Schechtman: Is this something the Department of Energy should be monitoring? Or where in the government should this fall?
Victoria Bruce: That is one of the things that I think made Jim and John and JJ’s work really complicated is that it’s commerce, right, because it has to do with trade. It’s energy because you have the thorium side of it. The nuclear side is under the Department of Energy. And then you have the Department of Defense. So this is really all three. They’ve tackled it from all three aspects. And now they’re saying, “Okay, look, this needs to come from the executive office, and this needs to be an executive order.” Because independently, these agencies all need this but don’t operate together as a whole. And so it’s been very difficult to sort of break through the wall of everybody-is-independent in Washington.
Jeff Schechtman: If this cooperative or consortium should come together, how would you anticipate or how would Jim anticipate the Chinese reacting?
Victoria Bruce: That’s a good question, Jeff. I think there could be a little bit of backlash. I have seen it before, like I said, in these other companies. China wants complete control. I think it needs to be handled very diplomatically. It’s not against China. I think China has done a great job. They’re playing a great strategic long game. We need to recognize that, and we need to be obvious about what our needs are.
  Well, China’s great, but we also need to be a power player in our own right. We need to be able to create new technology. It’s come to the point, it’s so bad in America that in all our national labs, as soon as something’s created, the patent’s out the door and they’re being made in China. Things aren’t even being made here. We need to completely change the tune. This is our last sort of chance to do this, I believe, before things get completely lost.
Jeff Schechtman: Victoria Bruce, thank you so much for spending time with us here on radio WhoWhatWhy.
Victoria Bruce: Thank you, Jeff. Thanks for all the great questions.
Jeff Schechtman: Thank you. Thank you for listening and joining us here on radio WhoWhatWhy. I hope you join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you like this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to WhoWhatWhy.org/donate.

Related front page panorama photo credit: Adapted by WhoWhatWhy from rare earth oxides production rare (USGS / Wikimedia) and earth oxides (USGS).

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