Specifically, to buy rare earth and other minerals that are crucial to the U.S. defense industry, and whose supply is currently at the mercy of China and its opaque political system. Japan, for example, was starved of rare earth elements during a maritime dispute with China in 2010. The United States wants to hedge that risk, given the damaging consequences an abrupt clampdown could entail.
The DoD has in previous years noted China’s near-monopoly on global rare earth metal production, but the present report, delivered to the House Armed Services Committee in late March, describes the risks in stark terms, and sketches out a range of scenarios.
One scenario has China embargoing exports of some key rare earth elements, and notes that currently the U.S. would be hamstrung.
Daniel McGroarty, principal of American Resources, a policy group, and president of U.S. Rare Earths, a mining company, referred to a reflection made by Adam Smith, the ideological father of free markets, over two hundred years ago: that when it comes to strategic items like sailcloth and gunpowder, “it might not always be prudent to depend upon our neighbors for the supply.”
Rare earth metals are to the the modern world what gunpowder and sailcloth were to 18th century Britain, McGroarty says, which explains the DoD’s concern.
“I think we lost sight of the geopolitical or strategic element that might cause countries to intervene in industry for reasons of advantage that are not just economic,” McGroarty said in a telephone interview. “I think we just didn’t see that. And now when we do see it, the situation has changed drastically.”
In a strategic risk assessment given in Appendix 12, the possibility of China cutting off rare earth exports was assigned a mean probability of only 4 percent, though with dire consequences. “Gross domestic product losses would be high, and the consequences would extend over a significant timeframe,” the report said.
It continued: “Economic consequences of war with China are high based on the mutual dependence between the two countries. Militarily the conflict would be violent, but quick; and we would get the better of it, at least in the next ten years. Politically, there would be some loss of credibility on both sides, due to the failure to prevent the war. Trade disruptions would also have major Chinese domestic political consequences.”
A scenario where China cuts off exports of some key minerals for a year “in an effort to coerce or punish the United states… as well as to drive up commodity prices,” was also considered. There would be a $1.2 billion shortfall for the 72 minerals considered.
Full article: Rare Earths Rouse Pentagon Fears (The Epoch Times)