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Despite China’s emergence as an economic power and all the talk about how America has become a service economy, U.S. manufacturing is alive and well.
Judging by impressive gains in productivity and America’s high-tech advantage, manufacturing in the United States has shown surprising resiliency. While the nation’s overall economy grew only 1.7 percent last year, the manufacturing sector of U.S. industrial production increased at almost three times that rate, rising 4.7 percent.And manufacturing output in the Midwest rose by a robust 8.4 percent last year, indicating that America’s manufacturing heartland is leading the industrial comeback.
But there is a fly in the ointment.In recent years, the United States has become dangerously dependent on imports of raw materials that are needed to keep our economy moving.U.S. manufacturers are now more than 40 percent dependent on imports of many commodity and rare earth metals.For example, import reliance on gallium is at 94 percent, cobalt and titanium 81 percent, chromium 56 percent, silicon 44 percent and nickel 43 percent. These minerals are critical for defense and energy technologies and many high-tech consumer products.
“There is really only one foolproof remedy available that would effectively reduce our dependence on rare-earth imports.” - Mark J. PerryConsider nickel, which is needed in the manufacture of stainless steel and electricity storage batteries, among other things.Oregon has the only U.S. mine producing nickel.Almost all of the domestic nickel comes from recycling alloys containing nickel.Now, thanks to a $100-million-plus investment by Rio Tinto, the Eagle nickel mine in Michigan’s Upper Peninsula is expected to open in 2014, producing 16,000 tons of nickel and 10,000 tons of copper.
Rio Tinto’s investment is a promising and important start toward mineral security for U.S. manufacturers.
But we are also heavily dependent on foreign countries for 19 minerals, mainly rare earth minerals.Few of us are familiar with rare earth minerals, such as neodymium, samarium and dysprosium, but they are crucial in the manufacture of jet fighter engines, antimissile defense systems, night vision goggles and smart bombs, among other advanced military systems.And they have many other high-tech applications — computers, cell phones and flat-panel televisions, for example.Additionally, they are essential to petroleum refining, automotive catalytic converters, wind turbines and electric vehicles.Fortunately, a rare earth mine in California is now producing some minerals.But it alone can’t meet the fast-growing demand for the metals.
This foreign dependency presents a conundrum for policymakers, because unlike the 12-member multinational OPEC cartel that supplies much of our oil, the foreign production of rare earth minerals is concentrated almost entirely in a single country with its own rising industrial demand: China.
China’s leverage on the global market for rare earth minerals has unnerved many of its neighbors and trading partners: American manufacturers — including many in Michigan — are understandably worried about supply disruptions like the one in 2007 when China halted shipments of rare earth metals to a U.S. petroleum refining company for so long that it led to concerns that the cutoff might cause a nationwide gasoline shortage.In 2010, following a skirmish over fishing rights in the East China Sea, China cut off shipments of certain rare earth minerals to Japan.
And our industries pay a steep price for China’s near monopoly position on many critical resources. Costs soared two years ago after China reduced its export quotas for the minerals.For example, the price of lanthanium oxide, a mineral used in refining petroleum, rose from $5 per kilogram in early 2010 to $35 per kilogram by mid-year and $140 per kilogram in June 2011.Such market power, if not addressed soon and effectively, could harm the U.S. economy and national security.
To ensure reliable access to critical minerals, the U.S. government needs to alter its domestic policies so that our country can become more self-reliant and prevent the export of production and jobs overseas.We could produce more of our commodity and rare earth minerals here at home if not for a cumbersome permitting process that requires redundant reviews at federal and state levels, often by multiple agencies. In fact, it now takes five to 10 years to obtain a mining permit.
An estimated 13 percent of the world’s rare earth reserves are in the United States, mainly on government land in the Western states that’s overseen by the Bureau of Land Management.By one estimate, North American rare earth deposits could produce more than double the amount U.S. industries use today and enough to allow self-sufficiency even as the demand for rare earth metals continues to grow.
Today, by controlling much of the rare-earth mineral production, China is able to place U.S. industries at a disadvantage.Predictably, this has forced a number of U.S. manufacturers that are heavily dependent on rare earth minerals to move their operations to China, driving production and jobs abroad.
There is really only one foolproof remedy available that would effectively reduce our dependence on rare-earth imports: we need to streamline the U.S. permitting process so that it accomplishes the dual objectives of minimizing the environment impact of mining and at the same time meeting our nation’s advanced manufacturing and defense needs.
Congress can help get the process started by approving legislation to spur investment in our nation’s vast mineral resources.
Mark J. Perry is is a professor of economics at the Flint campus of the University of Michigan and a scholar at AEI.
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