- The U.S. Rare Earth Industry:Its Growth and Decline
On March 16, 2010, Professor Karl A. Gschneidner Jr., Mr. Mark A. Smith, Dr. Stephen W. Freiman, Dr. Steven Duclos, and Mr. Terence Stewart, Esq. offered testimony at a U.S. congressional hearing, “Rare Earth Minerals and 21st Century Industry,” about the grave state of the domestic rare earth industry and its dire implications.1 Smith, the CEO of Molycorp Minerals LLC, which operates the largest rare earth mine in the Western hemisphere, underscored the urgency of the situation. “On its face it may not seem any more disconcerting than any other material dependency. However, it is the combination of three key factors that make this situation of urgent concern to policymakers.” He explained that rare earths figure critically in the clean energy and defense industries; that one country, China, controls their production; and they are actively developing their own consumptive capabilities, “leaving the rest of the world without a viable alternative.”2 Gschneidner lamented that not long ago the United States had been the world’s leader in rare earth production, refinement, and use, but over just the last two decades, the domestic industry has virtually dissolved. He further warned that the concomitant decline of the intellectual infrastructure underlying rare earth technologies frustrated any attempts to resuscitate the industry. Gschneidner testified that “some of these [rare earth] experts have moved on to other industries, others have retired, and others have died, basically leaving behind an intellectual vacuum.”3 [End Page 139]
The United States and much of the rest of the world dropped the “rare earth ball” in the 1990s, when China developed the technology to extract and refine rare earths, and then sold the materials cheaply on the international market. Unable or unwilling to compete with the Chinese, U.S. companies, and virtually all international concerns, simply ceased mining and refining rare earths. By the end of the twentieth century, China essentially held a monopoly on the rare earth industry, an industry that the world had grown increasingly dependent upon. After 2000, China began to raise its prices for rare earths to some markets, while limiting exports to others, sending shock waves through the industry, particularly in the West. As Gschneidner explains, “There are two potential problems. One, a lot of rare earth materials go into computers—practically all our U.S. weapons systems depend on computers. So if the Chinese act a little belligerent, it could have a very serious impact. And two, they’ve started quotas because they don’t want to export rare earths; they want to use them internally.”4
His concerns are not merely hypothetical. In 2010, the Chinese temporarily cut off supplies of rare earths to the Japanese in retaliation for a maritime incident, demonstrating China’s willingness to use its rare earth stockpile for persuasion.5 In the fall of 2010, the state-owned China Daily reported that after already cutting rare earth exports by 40 percent, the Chinese would further reduce exports by another 30 percent the following year.6 Though the government officially denied this schedule, it did admit to be in the process of developing a plan to conserve its resources for domestic development.7 In response to these policies and potentially even more devastating ones, in March 2012, the Obama administration, together with Japan and the European Union, appealed to the World Trade Organization in an attempt to force the Chinese to reduce its “export duties, quotas and other practices to control the production and supply of these materials” and end the practice of “creat[ing] pressure on U.S. and other foreign companies to move operations, jobs and technologies to China,” so far with little success.8
This article considers the history of the domestic rare earth industry and the critical role that the U.S. government has played on its growth and decline. In his seminal essay, Carter Goodrich’s “state-in/state-out” model explores the variety of ways that government support stimulates industrial development.9 Economic, political, social, and patriotic concerns prompt “the state” to invest in an industry and it does so in a variety of ways: making...