Can the U.S. compete on rare earths?

US Department of Agriculture

These rare-earth oxides are used as tracers to determine which parts of a watershed are eroding. Clockwise from top center: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium.

Rare earths are critical components in many applications. Fighter jet engines, satellite communication systems and underwater mine detection equipment all require rare earth elements. So do medical devices, hybrid-vehicle engines and wind turbines.

"China's recent suspension of shipment of rare earths shows that it is willing to flex its monopolistic muscles to ensure that it is the world's biggest high-tech manufacturer and exporter."--Kenneth P. Green

Fighter jets and high-tech equipment are necessary for us to preserve our national and economic security, but wind turbines, solar-power farms and electric cars aren't.

What should America do? First, let's not panic. As long as China is selling us the products we need, the location of manufacturing isn't really that critical to the economy. And China has to keep selling us things if it wants to maintain its own economic rise. As a number of economists have noted, the American transition from a manufacturing and agricultural economy to a service economy, while being painful for certain sectors, has generally been beneficial.

And even if China causes a shortage of rare earths, it will be a temporary shortage, since the rising prices for rare earth elements will serve as an incentive for others to enter the market, leading to greater supply. The United States, for example, has 13 percent of known rare earth reserves and could get back into the production and refining business.

Fighter jets and high-tech equipment are necessary for us to preserve our national and economic security, but wind turbines, solar-power farms and electric cars aren't.

Still, there will be a lag before new production becomes available, and it could easily come from an equally troubling source. After China, Russia has the next largest reserves (19 percent), and it is at least as likely (if not more so) to play games with export restrictions, and have more lax safety and environmental standards as well. And, in countering monopolists exerting restraints over exports, the victims of export quotas can legitimately intervene to step up incentives for domestic production, perhaps with loan guarantees to would-be producers and refiners, along with regulatory streamlining to cut through the green tape that has been laid over all forms of mining and refining in recent decades.

Finally, our government could pull back on its fetish for wind and solar development. Fighter jets and high-tech equipment are necessary for us to preserve our national and economic security, but wind turbines, solar-power farms and electric cars aren't. All they'll do is swap an oil dependency for a rare earths dependency.

Kenneth P. Green is a resident scholar at AEI

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