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"The Economics Show": Breaking China’s rare earths chokehold · Trumponomics

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
• 0:08
  Speaker 2: This week we're doing something a bit different. We're giving
• 0:10
  Speaker 2: you an episode of a podcast we think you'll enjoy
• 0:13
  Speaker 2: cover some of the same issues as this one, The
• 0:16
  Speaker 2: Economics Show with Samaya Kanes from the Financial Times, And
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  Speaker 2: in this show, Samaya looks into Beijing's ultimate trade trump card,
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  Speaker 2: rare earth metals. The crucial metals that we're learning go
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  Speaker 2: into everything from fighter jets and cruise missiles to computers
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  Speaker 2: and electric vehicles. Beijing is by far the biggest global producer.
• 0:37
  Speaker 2: As we've discussed on Trumpnomics before as well. The US
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  Speaker 2: and its allies are desperate to break their reliance on
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  Speaker 2: China for those crucial inputs. But are they succeeding. So
• 0:48
  Speaker 2: search for the Economic Show wherever you listen to podcasts
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  Speaker 2: and enjoy this episode on us.
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  Speaker 1: The Chinese have honed a fearsome economic weapon. At the
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  Speaker 1: stroke of a pen, they can shut down manufacturing around
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  Speaker 1: the world, which is exactly what happened last year.
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  Speaker 3: These high param magnets, they're all processed in China and
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  Speaker 3: they go in your speakers, in your autosystem, They go
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  Speaker 3: in your motors for your wipers, and your seeds.
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  Speaker 1: That's Ford CEO Jim Farley sound in the alarm in
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  Speaker 1: June of twenty twenty five, after China imposed export controls
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  Speaker 1: on seven rare earth metals and the magnets that contain them.
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  Speaker 3: We're educating the administration, We're educating the Chinese leadership about
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  Speaker 3: how important these jobs are. We have had to shut
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  Speaker 3: down factories. It's hand to mouth right now.
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  Speaker 1: Farley wasn't the only one panicking. The Chinese were squeezing
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  Speaker 1: manufacturers around the world withholding the materials they needed in
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  Speaker 1: response to trade aggression from the Trump administration. Ultimately, the
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  Speaker 1: weapon proved so potent that the Americans climbed down and
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  Speaker 1: enough trade resumed that the carmaker's production lines restarted. But
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  Speaker 1: that wasn't the end of it. Today, China's trading partners
• 2:03
  Speaker 1: are racing to make sure that a crisis like that
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  Speaker 1: doesn't happen again. This is the Economics Show with Semya Kanes.
• 2:14
  Speaker 1: In this special episode, I am looking at rare earth Metals.
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  Speaker 1: China spent more than thirty years becoming their dominant supplier.
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  Speaker 1: Now the US, Europe and their allies are in a
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  Speaker 1: race to reduce their dependence on Chinese supplies over a
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  Speaker 1: year after the starting gun was fired, how much progress
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  Speaker 1: have they made? There are three main ways to reduce
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  Speaker 1: China's chokehold over rare earth supply chains. Number one, build stockpiles.
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  Speaker 1: Number two, build alternative supply chains, and number three innovate
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  Speaker 1: your way out of needing Chinese supplies. I'll get to
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  Speaker 1: each of those, but let's start with the quickest, buying
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  Speaker 1: up existing supplies and hoarding them for when the Chinese
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  Speaker 1: use their trade weapon and cut you off. Now, given
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  Speaker 1: the complaints you just heard from Jim Farley, you might
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  Speaker 1: think it would make sense for the private sector to
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  Speaker 1: be building stockpiles of their own. Then they wouldn't have
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  Speaker 1: to educate policymakers on what they need to make their
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  Speaker 1: supply chains work.
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  Speaker 4: We're dealing with a capitalist society where ultimately the quarterly
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  Speaker 4: earnings calls for these companies need to show kind of
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  Speaker 4: the best possible outlooks. So keeping a ton of raw
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  Speaker 4: materials magnets more so than you actually need for your
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  Speaker 4: manufacturing system does not make economic sense for you.
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  Speaker 1: That's Abigail Hunter. She's executive director of a nonprofit advocacy group,
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  Speaker 1: the Safe Center for Critical mineral strategy based in Washington, DC.
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  Speaker 1: As she explains, the private sector isn't going to stockpile
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  Speaker 1: enough on its own. Companies tend to run lean operations
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  Speaker 1: that don't build in a lot of redundancy. If not,
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  Speaker 1: they risk being undercut by their competitors and pressured by
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  Speaker 1: their sholders. And there's another factor.
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  Speaker 4: You know, these are highly complex supply chains. Not everybody
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  Speaker 4: has total visibility in what they need and where they're
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  Speaker 4: sourcing from.
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  Speaker 1: The private sector isn't going to fix this, which is
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  Speaker 1: why the government has had to step in. Here's President
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  Speaker 1: Donald Trump announced in just that in February twenty twenty six.
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  Speaker 5: For years, American businesses of risk running out of critical
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  Speaker 5: minerals during market disruptions. Today we're launching what will be
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  Speaker 5: known as Project Vault to ensure that American businesses and
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  Speaker 5: workers are never harmed by any shortage.
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  Speaker 6: We don't want to ever go through what we went.
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  Speaker 5: Through a year ago.
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  Speaker 1: Project Vault is a strategic critical minerals reserve, including all
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  Speaker 1: but one of the rare earth elements. It sounds like
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  Speaker 1: a good idea, but a complicated one. Building a rare
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  Speaker 1: earth stockpile isn't quite as straightforward as holding bags of
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  Speaker 1: powdered food for when the apocalypse comes. Manufacturers need very
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  Speaker 1: specific materials in very speci forms, at very specific purity levels.
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  Speaker 1: Building a stockpile means matching exactly what industry needs.
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  Speaker 4: And so the way that it's supposed to function is
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  Speaker 4: it is supposed to be designed for the private sector,
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  Speaker 4: with the private sector, and governed by the private sector.
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  Speaker 4: So manufacturers say, I need this thing in this amount,
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  Speaker 4: at this quality, at this cost, and then work with
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  Speaker 4: the trading agencies to go out and get it and
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  Speaker 4: then house it until they need it. And so you're
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  Speaker 4: leveraging the in house expertise and the logistics infrastructure knowledge
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  Speaker 4: connections that trading agencies have trading houses, and then you're
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  Speaker 4: making sure that you're actually getting things that our manufacturers
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  Speaker 4: truly need.
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  Speaker 7: Right.
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  Speaker 1: Several big companies have already signed up to Project Vault,
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  Speaker 1: including General Motors, Lockheed Martin, and Alphabet. It all sounds
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  Speaker 1: very promising, that we shouldn't get too excited.
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  Speaker 8: It's very much still in the design phase. I think
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  Speaker 8: they haven't made any purchases.
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  Speaker 1: My FT colleague Camilla Hodson has been following this story
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  Speaker 1: of Project Vault, so still in the design phase. Do
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  Speaker 1: you get the sense that they're making progress. Is the
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  Speaker 1: buying pot of this imminent?
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  Speaker 6: I think so.
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  Speaker 8: We spoke to XM Bank quite recently and it sounded
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  Speaker 8: like they're gearing up for first purchases maybe this year. Also,
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  Speaker 8: some of the trading houses that are involved have been
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  Speaker 8: getting their act together, talking to potential suppliers and I
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  Speaker 8: think trying to figure out what they might be able
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  Speaker 8: to buy and from who.
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  Speaker 1: Okay, so now now tell me what's happening in other countries.
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  Speaker 1: So what's the EU doing. The EU is slower on this, surprise, surprise, they.
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  Speaker 8: Are definitely talking about stockpiling. It's a conversation. I think
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  Speaker 8: they're still at the point of some quite complex logistics,
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  Speaker 8: like if the EU is stockpiling, is that a central
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  Speaker 8: EU pot of metal or is that member states stockpiling?
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  Speaker 8: And if it's all in Germany, what happens if France
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  Speaker 8: has a crisis. So like, this is a messy thing
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  Speaker 8: to sort out. I think the big pig is similar
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  Speaker 8: that they want reserve stocks and they recognize that that's important,
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  Speaker 8: But in terms of the mechanics, I don't think that's
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  Speaker 8: been thrashed out.
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  Speaker 1: Some buyers are worried that when stockpiling does start, given
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  Speaker 1: supply is already constrained, it will just push up prices.
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  Speaker 1: And there's an awkward detail. Much of the material that
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  Speaker 1: is supposed to go into the stockpiles comes from China,
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  Speaker 1: and funnily enough, China isn't rushing to help out. As
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  Speaker 1: part of its export restrictions, the Chinese are watching out
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  Speaker 1: for unusually large orders and demanding information on what any
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  Speaker 1: exports of rare earths will be used for. Stockpiling isn't allowed.
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  Speaker 1: This came up when I was researching my book How
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  Speaker 1: to Win a Trade War, and I have some advice.
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  Speaker 1: Don't write build stockpile to reduce dependence on China on
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  Speaker 1: the form, and once you do build a stockpile, don't
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  Speaker 1: shout about it, Otherwise the Chinese might ask why they
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  Speaker 1: should keep selling you more. The stockpiling strategy has a
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  Speaker 1: long way to go, but even when completed, it won't
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  Speaker 1: be enough to eliminate dependence on China. It's a backstop
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  Speaker 1: in case of an emergency, but stockpiles run out. If
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  Speaker 1: countries really want to reduce China's dominance, they need to
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  Speaker 1: do something much harder. Build new supply chains all together,
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  Speaker 1: constructing a full mind to magnet supply chain is hard.
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  Speaker 1: Stage one involves finding a mine. If you're the EU,
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  Speaker 1: bad news, you don't have any active rare earth mines.
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  Speaker 1: The UK has never had one, but the US does
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  Speaker 1: a big one called Mountain Pass.
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  Speaker 7: It's one of the most traveled stretches of freeway in
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  Speaker 7: the entire country, Interstate fifteen from La to Las Vegas.
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  Speaker 7: To get there, drivers head through Mountain Pass. But what
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  Speaker 7: most drivers probably don't notice is the mining operation just
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  Speaker 7: off the freeway.
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  Speaker 1: Mountain Pass produces somewhere between ten and fifteen percent of
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  Speaker 1: the world's rare earths neodymium and praseodimium, key components of
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  Speaker 1: the strongest industrial magnets are used in consumer electronics, cars,
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  Speaker 1: and wind turbines.
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  Speaker 7: The massive five hundred foot deep pit of the site
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  Speaker 7: one of the largest rare earth mines in the world.
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  Speaker 1: Mountain Pass is owned and operated by the US company
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  Speaker 1: MP Materials. All this sounds very promising. The US has
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  Speaker 1: a massive mine. That's stage one. Now we can move
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  Speaker 1: to the next stages or mining the rare earths and
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  Speaker 1: turning them into home made magnets without risk of Chinese coercion. Unfortunately,
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  Speaker 1: rare earths don't come out of the ground ready to use.
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  Speaker 1: The rocks containing them have to be crushed. The ore
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  Speaker 1: is separated from waste rock, broken down, dissolve. The oxides
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  Speaker 1: are isolated, converted into pure metals, formed into alloys, pressed
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  Speaker 1: into shapes, fused into blocks, shape coted, and finally put
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  Speaker 1: into a strong magnetic field until they become magnets themselves.
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  Speaker 1: That's a lot, which is why right up until twenty
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  Speaker 1: twenty four, MP Materials was digging up rare earths in California,
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  Speaker 1: putting them on a ship, and sending them for processing
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  Speaker 1: to China. It's the processing stage where the Chinese are
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  Speaker 1: really dominant, with over ninety percent of the world's capacity.
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  Speaker 1: Creating new processing capacity in the US is difficult, and
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  Speaker 1: the private sector hasn't exactly been champing at the bit
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  Speaker 1: to do it. Margins are thin, buyers are wary of
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  Speaker 1: committing to pay for new supplies of unknown quality and
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  Speaker 1: capacity to scale, and there's always the risk that China
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  Speaker 1: floods the market, sends prices crashing and wipes out your investment.
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  Speaker 1: The US government has been trying hard to stimulate that
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  Speaker 1: new capacity anyway with deals including price floors and guaranteed
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  Speaker 1: demand or off take agreements, as they're known in the industry.
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  Speaker 1: These deals offer certainty to companies that their large upfront
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  Speaker 1: investments will pay off. Now, these deals are very unusual,
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  Speaker 1: but they're a sign of just how much of a
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  Speaker 1: strategic priority rare earths have become. They also raise the
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  Speaker 1: obvious question are they working Camilla Hodson again?
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  Speaker 8: So MPY Materials, for example, used to send everything that
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  Speaker 8: it mined to China to be processed. That doesn't happen anymore.
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  Speaker 8: It now produces much of what it minds domestically. It's
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  Speaker 8: not going to China. Its production is domestic, and the
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  Speaker 8: amount that it's producing is also growing. The kind of
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  Speaker 8: weird quirk there is that now what it produces largely
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  Speaker 8: goes to other Asian countries, career in Japan because that's
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  Speaker 8: where magnet manufacturing, for example, is. So the whole supply
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  Speaker 8: chain is not in the US, and that is going
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  Speaker 8: to take. While it's not quick to build a magnet factory,
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  Speaker 8: but I think that our material change is happening is
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  Speaker 8: just slow.
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  Speaker 1: What about companies other than mp Materials, though, I mean,
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  Speaker 1: my inbox seems to be a mix of press releases
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  Speaker 1: announcing some new funding deal or breakthrough that would revolutionize
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  Speaker 1: US capacity to create that mind to magnet supply chain.
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  Speaker 1: I think they want me to be excited. Should I be?
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  Speaker 8: Yeah, it's a bit of a soup at the moment,
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  Speaker 8: an announcement soup. You have to be careful. A lot
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  Speaker 8: of these announcements are very conditional. So we might give
• 12:28
  Speaker 8: you a million dollars if you do these things at
• 12:31
  Speaker 8: some big point in time, and maybe it will never happen. Equally,
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  Speaker 8: there are some companies that do seem to be getting
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  Speaker 8: real money, but they're in the very early stages, and
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  Speaker 8: mining is difficult at the best of times, and even
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  Speaker 8: companies with great plans and great people fail to make
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  Speaker 8: the mind that they said they were going to make.
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  Speaker 8: So I think there are a lot of risks. So
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  Speaker 8: there's a lot of uncertainty around what will actually happen.
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  Speaker 1: Even if that uncertainty is resolved in a good way,
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  Speaker 1: US production can only deliver so much. If the American
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  Speaker 1: government really wants to reduce dependence on China, it's going
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  Speaker 1: to have to look further afield. That's mostly because of
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  Speaker 1: basic geology. The US only has proven supplies of some
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  Speaker 1: kinds of rare earth, the light ones, the heavy rare earths,
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  Speaker 1: which are just as important for high end manufacturing. It's
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  Speaker 1: almost certainly got to go elsewhere.
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  Speaker 9: Rare earths are often not located at scale in the
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  Speaker 9: countries where refineries are being built.
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  Speaker 1: That's Gracelynn Baskern, director of the Critical Minerals Security Program
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  Speaker 1: at the Center for Strategic and International Studies in Washington, DC.
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  Speaker 9: So rare earth we financed in Brazil, while the refining
• 13:42
  Speaker 9: facility might be in the United States, or the ars
• 13:45
  Speaker 9: might be Nanngola, but the closest processing facility might be
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  Speaker 9: in Saudi Arabia.
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  Speaker 1: Governments and companies around the world have recognized that building
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  Speaker 1: new supply chains not centered on China is a good idea.
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  Speaker 9: Global cooperation was motivated by the fact that every corner
• 14:00
  Speaker 9: of the globe was impacted by China's rare earth export restriction.
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  Speaker 9: We know that Ford stopped manufacturing in Chicago, Suzuki stop
• 14:08
  Speaker 9: manufacturing the Swift model in Japan. The European Vehicle Manufacturers
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  Speaker 9: Association raised the alarm in Europe. So what happened was
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  Speaker 9: the rare earth restrictions and permanent magnet resturtions were not
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  Speaker 9: targeted at the United States. They were very global in nature.
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  Speaker 9: So for all of these countries that relied, whether it
• 14:24
  Speaker 9: was on the midstream or the manufactured end good, they
• 14:28
  Speaker 9: were impacted. So all of a sudden, at a time
• 14:31
  Speaker 9: when countries were deciding how to engage with the US,
• 14:34
  Speaker 9: after President Trump's selection, it mobilized that coordination and cooperation
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  Speaker 9: at scale.
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  Speaker 1: Let's just say that America's relationships with many of its
• 14:44
  Speaker 1: allies have become complicated, though when it comes to cooperating
• 14:48
  Speaker 1: on rare earth that's not necessarily a deal breaker.
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  Speaker 9: So there's a reduction in trust, but there's also an
• 14:56
  Speaker 9: increase in the acknowledgement that we are in an era
• 14:58
  Speaker 9: of transactional form and policy.
• 15:00
  Speaker 6: And the benefit of.
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  Speaker 9: Transactional foreign policy is that you know what you're going
• 15:05
  Speaker 9: to get out of this deal, and I know what
• 15:07
  Speaker 9: I'm going to get out of this deal. So we
• 15:09
  Speaker 9: have deployed financing aligned to our critical mineral security goals,
• 15:14
  Speaker 9: and in exchange, countries are getting investments in infrastructure and
• 15:19
  Speaker 9: energy and other benefits.
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  Speaker 1: That said, America's allies aren't all running at the same speed.
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  Speaker 6: Some countries are investing more into rare earths than others.
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  Speaker 9: We've seen Japanese investment in rare earth, whether you go
• 15:33
  Speaker 9: to the loft All mine in Damibia, the separation facility
• 15:36
  Speaker 9: in Malaysia, so.
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  Speaker 6: On and so forth. But you have other countries.
• 15:38
  Speaker 9: I mean, the United Kingdom in total has allocated fifty
• 15:42
  Speaker 9: million dollars to critical minerals, not rare earth, but critical
• 15:46
  Speaker 9: minerals at large, and that is a woefully inadequate amount
• 15:49
  Speaker 9: for a country that has sectors like automotive manufacturing that
• 15:53
  Speaker 9: still rely.
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  Speaker 6: On those rarers.
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  Speaker 9: So countries are certainly not carrying their weight in equal amount,
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  Speaker 9: but we are starting to see more and more capital
• 16:03
  Speaker 9: allocated to the sector globally.
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  Speaker 1: The US is plowing ahead as well as working to
• 16:10
  Speaker 1: stimulate new supply chains in the US, work is happening
• 16:13
  Speaker 1: to form and strengthen them elsewhere. In April, USA, Rare Earth,
• 16:18
  Speaker 1: a company in which the US government has a ten
• 16:20
  Speaker 1: percent stake, spent almost three billion dollars buying Brazilian mining
• 16:25
  Speaker 1: company Sara Verde. In doing so, it effectively bought the
• 16:29
  Speaker 1: world's most important heavy rare earth mine outside of China,
• 16:34
  Speaker 1: heavy rare earths that the US mine Mountain pass can't
• 16:37
  Speaker 1: help with the range of policies being deployed to expand
• 16:41
  Speaker 1: rare earth supply chains is extraordinary, with US government departments
• 16:46
  Speaker 1: taking equity stakes in mining companies, offering financing, and also
• 16:51
  Speaker 1: those off take agreements to guarantee demand. It may have
• 16:55
  Speaker 1: to go even further when.
• 16:57
  Speaker 9: We're talking about developing rare earth projects in places like Africa,
• 17:01
  Speaker 9: which actually four of the top ten jurisdiction for rare
• 17:04
  Speaker 9: earth exploration last year. Or in Africa, we're not just
• 17:07
  Speaker 9: talking about building online We're talking about building ports, rail, water, energy.
• 17:12
  Speaker 9: You're talking about building permanent magnet miss facilities in the
• 17:15
  Speaker 9: global North.
• 17:16
  Speaker 6: So it's not enough.
• 17:17
  Speaker 9: It's to start, but we have to acknowledge that China
• 17:20
  Speaker 9: has been putting billions every year into this strategic goal
• 17:24
  Speaker 9: for thirty five years.
• 17:26
  Speaker 1: As the US and allies tried to create new mind
• 17:29
  Speaker 1: to magnet supply chains. They still face the challenge that
• 17:32
  Speaker 1: the Chinese don't really want that to happen.
• 17:35
  Speaker 9: People don't always realize that China is acquiring rare earth
• 17:38
  Speaker 9: minds all around the world at rapid speed, so they're
• 17:41
  Speaker 9: not going to give up this fight very easily. China
• 17:44
  Speaker 9: also just established a single entity to manage its mine
• 17:49
  Speaker 9: acquisitions globally.
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  Speaker 6: So while the US largely operates reactively.
• 17:54
  Speaker 9: You know, we find out there's an acquisition, and then
• 17:56
  Speaker 9: we try to try to intervene, often too late. China's
• 17:59
  Speaker 9: making it very aggressive play in a coordinated manner to
• 18:02
  Speaker 9: use diplomatic pressure, strategic financing, et cetera to secure these assets.
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  Speaker 9: So when you take it in hall, they're ahead of us.
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  Speaker 1: China is ahead on technology, human capital with its many
• 18:14
  Speaker 1: mining engineers, and even infrastructure, having been honing its critical
• 18:19
  Speaker 1: mineral operations for a long time, and today it's trying
• 18:23
  Speaker 1: hard to sustain its lead.
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  Speaker 9: So people don't realize that, you know, some of these
• 18:28
  Speaker 9: minds while it's Western financed and Western own. The only
• 18:32
  Speaker 9: railroad going into that mine is Chinese, right, and I'm
• 18:35
  Speaker 9: particularly thinking about Sarah verning in Brazil where the railroad
• 18:38
  Speaker 9: is Chinese. And so you don't want a single point
• 18:41
  Speaker 9: of failure where these refining capabilities have one mind feeding
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  Speaker 9: into that that if that's disrupted owing to government problems
• 18:50
  Speaker 9: or infrastructure problems, it stops for years.
• 18:53
  Speaker 1: China has restricted exports of the equipment and technology required
• 18:57
  Speaker 1: to set up alternative supply chains. I asked my colleague
• 19:01
  Speaker 1: Camilla whether there were any other examples of strategic behavior.
• 19:06
  Speaker 7: Yeah.
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  Speaker 8: Completely. I think this is very well thought through and planned.
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  Speaker 8: I don't think this is reactionary end. I think there
• 19:12
  Speaker 8: are a few different things going on. The licensing system
• 19:16
  Speaker 8: enables China together an enormous amount of data on who
• 19:19
  Speaker 8: wants what metals and what for. So it enables China
• 19:23
  Speaker 8: to sort of map out the rest of the world's
• 19:25
  Speaker 8: supply chains, which is obviously interesting information in terms of
• 19:29
  Speaker 8: thwarting the West. Talking to people in recent months, what
• 19:35
  Speaker 8: it has sounded like is that it's been easier to
• 19:38
  Speaker 8: get finished things, finished products like magnets exported from China
• 19:43
  Speaker 8: as opposed to the rare earths the component materials, and
• 19:47
  Speaker 8: so the goal there obviously is to keep the rest
• 19:50
  Speaker 8: of the world buying from China and to minimize the
• 19:54
  Speaker 8: generation of an industry that uses the reords themselves. I
• 19:58
  Speaker 8: think also China is being lever in how the licensing
• 20:01
  Speaker 8: system works in the sense that yes it's a headache,
• 20:05
  Speaker 8: Yes companies are not getting everything they need, but it's
• 20:07
  Speaker 8: not so impossible to get the stuff that it's triggered
• 20:11
  Speaker 8: global crisis and meltdown of supply chains.
• 20:14
  Speaker 1: China has an interest in keeping supplies of rare earth
• 20:17
  Speaker 1: and permanent magnets just high enough that it doesn't seem
• 20:21
  Speaker 1: worth it to build alternatives.
• 20:23
  Speaker 9: The principal challenge that we have is economics. So it's
• 20:26
  Speaker 9: about how do you make these supply chains economic. And
• 20:31
  Speaker 9: you know what the US and our allies have done
• 20:33
  Speaker 9: over the last year is primarily supply side efforts more
• 20:37
  Speaker 9: rare earths from more places.
• 20:39
  Speaker 6: However, if we don't find a way to get.
• 20:41
  Speaker 9: The demand for these minerals up, what's going to happen
• 20:45
  Speaker 9: is the market is going to continue in di equilibrium. However,
• 20:48
  Speaker 9: what people don't realize is there's no consensus globally on
• 20:50
  Speaker 9: who's going to pay for that price floor.
• 20:52
  Speaker 6: Is it coming off of the fiscal balance sheet of
• 20:55
  Speaker 6: a country.
• 20:56
  Speaker 9: Is it the end user who goes to buy the car,
• 20:58
  Speaker 9: but then that distance into is buying the car. At
• 21:01
  Speaker 9: the end of the day, we have to find a
• 21:04
  Speaker 9: way to get the demand for these rare earths up
• 21:07
  Speaker 9: or we're not going to keep these assets open.
• 21:11
  Speaker 1: By now, you've spotted the pattern escaping China's rare earth
• 21:15
  Speaker 1: tote cold is very difficult. Trump's detractors have been super
• 21:19
  Speaker 1: cynical about whether the US government is going.
• 21:22
  Speaker 6: To do it.
• 21:23
  Speaker 1: But I've heard that there will be more progress than
• 21:26
  Speaker 1: those critics say. I asked Gracelyn what she thought.
• 21:30
  Speaker 9: When China imposed the rare earth and permanent magnet expert restrictions.
• 21:33
  Speaker 6: There are no facilities outside of China, and if you look.
• 21:36
  Speaker 9: At where we are now, Linus's facility in Malaysia can
• 21:41
  Speaker 9: separate heavy rarers.
• 21:42
  Speaker 6: It became the first facility to do that outside of China.
• 21:45
  Speaker 9: You see that MP Materials has commissioned its ten X
• 21:48
  Speaker 9: permanent magnet facilities. You see that Novion Magnetics has started
• 21:51
  Speaker 9: making those permanent magnets. So while we remain highly highly
• 21:56
  Speaker 9: reliant on China, those facilities are now in reduction and
• 22:00
  Speaker 9: ramping up. These are massive steps that can't be understated.
• 22:04
  Speaker 9: How are going from one hundred percent reliance to twenty
• 22:08
  Speaker 9: five in two years is also unrealistic. So we have
• 22:11
  Speaker 9: to acknowledge that we made a lot of progress in
• 22:14
  Speaker 9: terms of getting these facilities online, but that ramp up
• 22:17
  Speaker 9: sourcing new sources of feedstock will take some time.
• 22:21
  Speaker 1: There seems to have been a shift in the industry's mood.
• 22:24
  Speaker 1: Camilla again I.
• 22:26
  Speaker 8: Think there is progress. I think the speed at which
• 22:30
  Speaker 8: financing decisions are being made is different, and executives are
• 22:34
  Speaker 8: saying it's much easier to get meetings with lawmakers. It's
• 22:38
  Speaker 8: not the case that suddenly the US is mining way
• 22:40
  Speaker 8: more than it used to, and partly that's just because
• 22:43
  Speaker 8: it takes a decade or more to open a mind
• 22:46
  Speaker 8: and to scale stuff up. But I think that the
• 22:48
  Speaker 8: sentiment is different. People feel encouraged, and even if some
• 22:52
  Speaker 8: of the bets don't pay off, I'm sure some of
• 22:53
  Speaker 8: them will. I think it's just very hard to know
• 22:56
  Speaker 8: which will work and which way.
• 23:00
  Speaker 1: Progress, but nothing fast, all while China is doing its
• 23:04
  Speaker 1: best to fight back after the break. What if the
• 23:08
  Speaker 1: answer to Western dependence on Chinese rare earths is to
• 23:11
  Speaker 1: use less of them. I've looked at two ways of
• 23:24
  Speaker 1: reducing China's ability to weaponize its dominance in rare earths,
• 23:28
  Speaker 1: stockpile and build alternative supply chains. A third option is
• 23:33
  Speaker 1: to innovate and either find new ways of accessing supplies
• 23:37
  Speaker 1: or simply using less of them. So what about instead
• 23:40
  Speaker 1: of using Chinese rare earths, reusing the ones embedded in
• 23:44
  Speaker 1: used motors, consumer electronics, wind turbines and medical equipment. That
• 23:50
  Speaker 1: allows firms to recoup crucial materials without the need to
• 23:55
  Speaker 1: rely on China.
• 23:56
  Speaker 10: And so you see some tech companies who sort of
• 23:58
  Speaker 10: recycling programs for earths, et cetera. And that's a way
• 24:01
  Speaker 10: to really cut to the source of the problem and
• 24:03
  Speaker 10: find a new source of supply.
• 24:04
  Speaker 1: That's Corey Coombe's head of critical mineral and supply chain
• 24:08
  Speaker 1: research at the policy advisory Group Trivium China. Now, this
• 24:12
  Speaker 1: recycling business sounds great.
• 24:15
  Speaker 10: But it's also very, very expensive, and most companies just
• 24:18
  Speaker 10: can't pay for it even if they wanted to. Sharholder
• 24:21
  Speaker 10: certainly wouldn't tolerate it in the West as well, which
• 24:23
  Speaker 10: is another issue.
• 24:25
  Speaker 1: There are other options. It is also possible to get
• 24:28
  Speaker 1: rare earths from the byproducts of industrial processes. There are
• 24:32
  Speaker 1: various projects happening right now at various stages of development.
• 24:36
  Speaker 1: The US government is throwing money at promising ventures, but
• 24:40
  Speaker 1: in general, recycling and recovery are still early stage technologies.
• 24:45
  Speaker 1: Getting high enough volumes at high enough purity so that
• 24:49
  Speaker 1: a project is commercially viable, it's just very challenging. So
• 24:54
  Speaker 1: rather than innovating to find new ways of extracting rare earths,
• 24:58
  Speaker 1: what about innovating to use less of them.
• 25:00
  Speaker 10: One of the challenges with the technological supply diversification side
• 25:05
  Speaker 10: is that a lot of the close uphand technologies are
• 25:08
  Speaker 10: pioneered in China by Chinese labs when it comes to
• 25:11
  Speaker 10: rare earth. So I think the major case in point
• 25:13
  Speaker 10: is something called grain boundary diffusion. It reduces the content
• 25:17
  Speaker 10: of heavier earths required to get a similarly performing high
• 25:20
  Speaker 10: end magnet, which is great because heavyer earths are the
• 25:23
  Speaker 10: critical chip point in terms of processing. So the less
• 25:26
  Speaker 10: you need of it, the better, generally speaking. So that's
• 25:28
  Speaker 10: an example of a technological innovation, and it's been described
• 25:31
  Speaker 10: in many policy discussions I've had where it's like, great,
• 25:34
  Speaker 10: this is our way out. It's like, that would be
• 25:36
  Speaker 10: true if China hadn't already done that a decade ago,
• 25:41
  Speaker 10: the best in the world working on it, and we're
• 25:44
  Speaker 10: already using grain boundary interfusion in a lot of the
• 25:46
  Speaker 10: magnets that we're getting that are now being export controlled
• 25:49
  Speaker 10: in one way another. So it is important, but it
• 25:53
  Speaker 10: is not a solution per se.
• 25:55
  Speaker 1: What about instead of using less, stripping out the rare
• 25:59
  Speaker 1: earths all together.
• 26:00
  Speaker 10: A number of entities are looking at magnets that don't
• 26:02
  Speaker 10: contain verts at all, and it makes sense on paper,
• 26:05
  Speaker 10: it's been very difficult engineering wise to actually get the
• 26:07
  Speaker 10: same performance. There are different requirements for different applications. Right,
• 26:10
  Speaker 10: You're not going to use the same magnet in a
• 26:13
  Speaker 10: hard dish drive if anyone still to use those, compared
• 26:15
  Speaker 10: to your missile guidance system, obviously, but it gets a
• 26:19
  Speaker 10: little bit trickier when you're talking about high ends electric vehicles. Right,
• 26:22
  Speaker 10: you could use a less you know it's sophisticated magnet,
• 26:26
  Speaker 10: You're not going to get the same performance out of it.
• 26:27
  Speaker 10: So part of it's a choice, do you want to
• 26:29
  Speaker 10: sacrifice quality for a slightly worse magnet that has a
• 26:32
  Speaker 10: lower supply risk, And that's not something that most companies
• 26:35
  Speaker 10: are doing right now. Stop trade off, they're chosen. A
• 26:38
  Speaker 10: number of ritors are used in a lot of applications
• 26:40
  Speaker 10: that they're simply not replaceable. We will absolutely need some
• 26:42
  Speaker 10: supply of especially the heavy rierts beyond magnets that we
• 26:45
  Speaker 10: just can't replace.
• 26:46
  Speaker 1: On the military side, there's no choice.
• 26:49
  Speaker 10: No military is going to sacrifice the best performance for
• 26:51
  Speaker 10: a little bit of cost cutting. They will just build
• 26:53
  Speaker 10: a new supply chain if they have to, and that's
• 26:54
  Speaker 10: what we're seeing. So I don't think you'll see magnets
• 26:57
  Speaker 10: that don't have any ERTs in them in some of
• 26:59
  Speaker 10: the more important military uses. Possibly.
• 27:02
  Speaker 1: Ever, it's worth remembering that while some manufacturers might be
• 27:06
  Speaker 1: able to engineer their way out of using so much
• 27:08
  Speaker 1: of these rare earths, demand for robotics and semiconductors that
• 27:13
  Speaker 1: use them is projected to rise a lot over the
• 27:16
  Speaker 1: next few years. So Western governments are going to need
• 27:19
  Speaker 1: to do a bit of everything. They're going to need
• 27:22
  Speaker 1: to stockpile, build new supply chains, and foster innovation. Reducing
• 27:27
  Speaker 1: dependence on China's supply chains will take time, but how
• 27:31
  Speaker 1: much exactly. It's easy to find people to explain how
• 27:35
  Speaker 1: hard it all is, and harder to find concrete answers
• 27:39
  Speaker 1: to that question. Gorey managed my expectations.
• 27:43
  Speaker 10: There are the couplers who want to see the US
• 27:46
  Speaker 10: using basically no rare earths from China. That timeline is
• 27:51
  Speaker 10: I don't even have an assessment for that timeline. On
• 27:54
  Speaker 10: the other hand, if you want to get any supply
• 27:56
  Speaker 10: to st reducing China's complete dominance of this space. It
• 27:59
  Speaker 10: definitely uncertain, but there are various reasons we thought technically
• 28:03
  Speaker 10: and bureaucratically and technologically that it would take at least
• 28:06
  Speaker 10: five years, and it looks to be about that.
• 28:08
  Speaker 1: The timelines depend on how much independence from China you
• 28:12
  Speaker 1: are aiming for. Here's Gracelynn.
• 28:14
  Speaker 9: The likelihood that we go from being nearly one hundred
• 28:17
  Speaker 9: percent reliant to zero in the next five to ten
• 28:20
  Speaker 9: years is unrealistic. However, to go to a point where
• 28:23
  Speaker 9: we are saying fifty percent relyant on China can certainly
• 28:27
  Speaker 9: be done within the next decade. So realistically, it's it's
• 28:31
  Speaker 9: probably somewhere between twenty thirty and twenty thirty five that
• 28:36
  Speaker 9: we get to a point where we are not being
• 28:39
  Speaker 9: economically coerced into doing things just so we don't lose
• 28:44
  Speaker 9: access to these minerals and these magnets.
• 28:48
  Speaker 1: This clearly isn't the first time Abby has heard the
• 28:50
  Speaker 1: question are we there yet? Here's her take.
• 28:54
  Speaker 4: Everyone always asks, like, how long is this going to ask?
• 28:58
  Speaker 4: The honest answer is that eral supply chains do not
• 29:01
  Speaker 4: move on geopolitical timelines. They move on industrial timelines. It
• 29:06
  Speaker 4: took decades for us to de industrialize. It is going
• 29:08
  Speaker 4: to take decades to reindustrialize. Developing a new mind can
• 29:12
  Speaker 4: take ten to fifteen years in the United States, with
• 29:15
  Speaker 4: some studies saying, you know, there's an average of twenty
• 29:17
  Speaker 4: nine years even with permitting reform done. Projects need feasibility studies, financing,
• 29:23
  Speaker 4: surrounding infrastructure, construction, processing, design, commissioning, and then the refining
• 29:28
  Speaker 4: and processing facilities are also multi year undertakings. And then
• 29:32
  Speaker 4: in order to kind of take these minerals and put
• 29:34
  Speaker 4: them into advanced batteries, aircraft engines, semiconductors, weapons systems, they
• 29:39
  Speaker 4: have very very strict performance and safety reliability standards, so
• 29:44
  Speaker 4: qualification can take years. Geopolitical tensions are moving very rapidly,
• 29:49
  Speaker 4: and simultaneously, we are needing to replenish our advanced weapon
• 29:53
  Speaker 4: systems because we have ongoing conflicts that we are feeding
• 29:57
  Speaker 4: into with our munitions. We will hopefully have put somewhat of
• 30:02
  Speaker 4: a dent in this issue by the end of President
• 30:04
  Speaker 4: Trump's second term. But ultimately, the benefits of these investments
• 30:09
  Speaker 4: that this administration is making are probably going to be
• 30:12
  Speaker 4: felt in a next administration or probably one after that.
• 30:17
  Speaker 1: Whether five years, ten years, or more. This race is
• 30:21
  Speaker 1: going to last for a long time and through several
• 30:24
  Speaker 1: US administrations. It's a dynamic situation with the US and
• 30:29
  Speaker 1: its allies making moves and the Chinese making counter moves.
• 30:33
  Speaker 1: Winning is going to require a long, sustained effort. China
• 30:37
  Speaker 1: has shown that it can do that. Others still have
• 30:41
  Speaker 1: something to prove. They can and should celebrate pockets of progress,
• 30:45
  Speaker 1: but if this is a race, the US and Europe
• 30:48
  Speaker 1: are still pretty near the starting line. That is all
• 31:03
  Speaker 1: for this week. You have been listening to The Economics
• 31:06
  Speaker 1: Show with Samaya Kaines, and as you've noticed, this hasn't
• 31:10
  Speaker 1: been a normal episode, but a special one, building on
• 31:13
  Speaker 1: some of the research I did when writing my book
• 31:16
  Speaker 1: How to Win a Trade War with Chad Bound. If
• 31:19
  Speaker 1: you enjoyed the show, then do check it out, and
• 31:21
  Speaker 1: of course please do rate and review us wherever you
• 31:24
  Speaker 1: get your podcasts. This episode was produced by Misha Franco Duval,
• 31:29
  Speaker 1: with original music and sound design from Breen Turner. Manuela
• 31:33
  Speaker 1: Saragosa and Tofa Forehas were the executive producers. Flow Phillips
• 31:37
  Speaker 1: is the FT's head of Audio special thanks to Abigail Hunter,
• 31:41
  Speaker 1: Gracelyn Baskerin, Corey Coombs and Kamilla Hodson I'm Samaya Kaines.
• 31:46
  Speaker 1: Thanks for listening.