President Trump’s tariffs on rare earths from China should have been a boon to the only US rare earth mine in California. But a recent one Wall Street Journal article illustrates that, given the complex nature of the global economy, those rates have actually put the Mountain Pass mine in a difficult position.
A hedge fund recently bought Mountain Pass out of bankruptcy after several companies tried to profit from it. Six months later, the WSJ Trump announced tariffs that should have helped the mine supply more domestic rare earths at a higher price.
However, most of the world’s rare earth processing facilities are located 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 first shipped its ore to China, where the processed metals are then sold on the global market to makers of smartphones, laptops and magnets that go into electric car engines and giant wind turbines.
But in September, President Trump placed a 25 percent tariff on Chinese goods entering the US, and China responded by imposing a tariff on American goods entering China. That means Mountain Pass pays a lot more to turn its ore into usable products.
Now the WSJ writes, the fares eat into Mountain Pass’s profit margins. “And that eats into the money Mountain Pass would reinvest in upgrading the facility so it can process the rare earths itself, the only way to reduce dependence on China’s processors.”
For years, China’s dominance in rare earths has been a concern for countries like Japan and the US, whose economies depend on products that rely on rare earths. In 2014, China exercised its market power and restricted trade in rare earths, causing prices to skyrocket. Australia has recently entered the rare earth market, with some significant finds suggesting it could play a bigger role in the coming years. But until then, China holds the keys to minerals that enable much of the technology we use today.
Industries outside of China have been working to eliminate or reduce the need for rare earths in their products. Toyota is an example of this and recently announced a permanent magnet motor that uses less neodymium than before.
Yet the US is highly dependent on other countries for important materials. Earlier this year, the US Geological Survey identified 35 minerals as critical to the economy and national defense WSJ writes. “The US is almost half dependent on imports.”