The background here is entirely true, the Trump Administration’s tariffs on products coming in from China are killing the ability to mine rare earths in the United States. This isn’t, perhaps, quite what you would think should be happening. However, the solutions here are twofold and really rather simple. The situation itself should, in fact, make the situation easier. I would note, in passing, that I’ve extensive experience of the rare earth business and even called the last China trade war on the subject right.
So, you know, we might find lightning striking twice here, I could be right again. That proof of getting the last one right:
Bonus points to Tim Worstall, economist blogger and rare earth dealer, who in 2010 at the height of the crisis pointed out that rare earths were neither rare nor earths and China’s monopoly had been won only by low prices that accrued to our benefit. “If Beijing wants to raise its prices and start using supplies as geopolitical bargaining chips,” he wrote, “so what? The rest of the world will simply roll up its sleeves and ramp up production, and the monopoly will be broken.” Nailed it.
So, the problem today:
Two Trump-administration policies have put a “rare earth” minerals mine in California between a rock and a hard place.
Six months after a hedge fund controlled by 40-year-old financier James Litinsky became majority owner of the Mountain Pass mine and brought it out of bankruptcy, President Trump announced an executive order that would seem like its golden ticket: The U.S. should stop buying key minerals overseas, and instead promote domestic supplies, as a matter of national security.
It’s not working like that. Why?
However, most of the world’s rare-earth processing facilities are in China, which also produces more than 90 percent of the world’s rare-earth minerals. To develop its metals as cheaply as possible, Mountain Pass has first been shipping its ore to China, where the processed metals are then sold on the world market to makers of smartphones, laptops, and magnets that go into electric car motors and giant wind turbines. But in September, President Trump placed a 25 percent tariff on Chinese goods entering the US, and China reacted by placing a tariff on US goods entering China. That means Mountain Pass is paying much more to have its ore made into useable products. Now, the WSJ writes, the tariffs are eating into Mountain Pass’ profit margins. “And that eats into the money Mountain Pass would be reinvesting into upgrading the facility so that it can actually process the rare earths itself, the only way to lessen dependence on the Chinese processors.”
So, they’ve got to pay tariffs both ways, coming into the US and going into China. Bad deal, that’s no fun at all. So, first lesson, tariffs maybe aren’t a good idea.
However, now note something interesting. This idea that the US might be more self-reliant by getting Mountain Pass up and running. Nope. And the reason why is that rare earth mining is easy and simple and pretty cheap too. I could give you 5 other places in the US where the same minerals are just lying around above ground. Easy enough to extract too if you’re prepared to spend a little – tens of millions perhaps – money. And tens of millions is small money in mining.
The problem is that to build a processing plant it costs at least a billion. Which is pretty big money. And it’s rather difficult to see why you would – it’s not economic to spend that much just to process rare earths. They’re just not that valuable in the sort of quantity you’d need to pay for such a plant. In fact, the last people who did this went bust as a result.
So, the US cannot be self-reliant in the metals however much money is spent on mining for that’s not the point. Solve the processing problem and then we wouldn’t need this mine either.
But it’s that last bit which grates. The eating into the money to reinvest. Nope. It’s easy to get money to invest as long as you can show a clear path to returning that with a profit. And given the tariffs now applying it’s much easier to show a profit on a processing plant investment than it used to. The reason why they’re not borrowing or selling stock for such an investment is that no one can see, even now, it being profitable or worthwhile.
There is actually a solution to this which is to change the processing method. Vacuum distillation of halides would be a good one to try. But Mountain Pass and a traditional processing plant just isn’t going to do it.