How China's Export Restrictions on Rare Earths Could Impact the US Economy

Concerns Rise Over Rare Earth Supply

Omaha: Following China's recent decision to limit exports of rare earth minerals in response to tariffs imposed by President Donald Trump, companies across the United States are expressing their concerns. These minerals are crucial for military applications and various high-tech devices.

Matt Sloustcher, a spokesperson for MP Materials, which operates the Mountain Pass mine in California, noted that the influx of inquiries from businesses has been immediate.

The ongoing trade conflict between the US and China raises fears of a significant shortage of rare earth elements if China continues or expands its export restrictions. The Mountain Pass mine alone cannot fulfill the entire US demand for these minerals, prompting Trump to advocate for the establishment of new mining operations.

Rare earth elements are vital components in electric vehicles, advanced fighter jets, smartphones, and many other technologies. Despite their name, these 17 elements are not particularly rare; however, they are challenging to extract in sufficient quantities to justify mining investments.

Impact of Tariffs on Supply and Costs

MP Materials, which took over the dormant Mountain Pass site in 2017, announced that it would cease sending its ore to China for processing due to the new export restrictions and the 125% tariffs imposed on US imports by China. The company plans to process nearly half of its mined materials on-site while storing the remainder as it works to enhance its processing capabilities.

In a statement, MP Materials emphasized that selling critical minerals under such high tariffs is neither economically viable nor in line with national interests.

Experts predict that manufacturers relying on rare earth elements will face rising costs, although there appears to be enough global supply to keep production running for the time being.

The Mountain Pass mine produces neodymium and praseodymium, essential light rare earths used in permanent magnets for electric vehicles and wind turbines. However, it also produces limited quantities of heavy rare earths like terbium and dysprosium, which are crucial for high-temperature applications.

Since late March, the price of terbium has surged by 24%, reaching $933 per kilogram.

China's Dominance in the Rare Earth Market

China wields significant influence over the global rare earth market, having produced 270,000 metric tonnes of these minerals last year, compared to just 45,000 tonnes from the US. The country accounts for nearly 90% of the world's rare earth supply, largely due to its processing capabilities.

New restrictions implemented by Beijing on April 4 require exporters of seven heavy rare earths and certain magnets to obtain special licenses. These retaliatory measures underscore the urgent need for the US to develop additional mining operations and reduce its reliance on China.

Trump has attempted to persuade Greenland and Ukraine to increase their rare earth exports to the US. Recently, he signed an executive order aimed at expediting permit approvals for new mining projects and encouraging investment in these initiatives.

Developments in US Mining Projects

Two companies are currently working to establish mines in Nebraska and Montana. Officials from NioCorp and US Critical Minerals are optimistic that support from the White House will help them secure funding and necessary approvals to commence operations. NioCorp has been striving to raise $1.1 billion to develop a mine in southeast Nebraska.

NioCorp's CEO, Mark Smith, emphasized the need for the US to produce its own heavy rare earths to mitigate China's leverage over these critical minerals.

MP Materials is actively working to enhance its processing capabilities, aided by approximately $45 million in funding from the previous Trump administration. Despite investing nearly $1 billion since 2020, the company currently lacks the capacity to process the heavy rare earths restricted by China, but it is making efforts to address this gap.

Major US automakers and defense contractors like Boeing and Lockheed Martin have refrained from commenting on their dependence on rare earths and the implications of China's export restrictions.

Preparing for Price Increases

Some battery manufacturers may soon face shortages of essential elements, according to Steve Christensen, executive director of the Responsible Battery Coalition, which represents battery manufacturers and automakers.

The price of antimony, a critical mineral used to enhance the lifespan of traditional lead-acid batteries, has already more than doubled since China imposed export restrictions last year. Although antimony is not classified as one of the 17 rare earths, it is among the minerals that Trump aims to produce domestically.

Initially, automakers may absorb the increased costs of batteries without raising vehicle prices, but this strategy may not be sustainable if China's restrictions persist. A 25% tariff on all imported automobiles and auto parts is already expected to drive up costs, although Trump hinted at a potential temporary reprieve for the industry.

The US managed to meet its rare earth needs through domestic sources until the late 1990s, when production declined following an influx of low-cost Chinese ores into global markets. The demand for raw materials has surged due to advancements in technology, including robots and drones.

NioCorp has recently signed a contract for exploratory drilling at its site this summer to demonstrate to the Export-Import Bank that sufficient rare earth minerals are present underground to justify an $800 million loan for financing.

However, establishing a new rare earth mine in the US will take years. NioCorp estimates that if fundraising goes smoothly, its site for mining and processing niobium, scandium, titanium, and various rare earths could be operational by the end of Trump's presidency.

US Critical Minerals plans to extract several tons of ore in Montana this summer to test processing methods it has been developing. Although the Sheep Creek project is not as advanced as the Nebraska project, the site shows promise with high concentrations of rare earths.