China sends warning it can cripple US defence system by turning off rare earths tap

Lockheed Martin and other US companies are reportedly being punished by China for supplying Taiwan with military hardware.

China is reported to be cutting off rare earth supplies to the United States defence manufacturer Lockheed Martin and other American companies in retaliation for the companies supplying Taiwan with military hardware.

But this move should not be read merely as a tit-for-tat against a few particular companies.

It is, however, a clear signal to the US defence establishment that China holds the whip hand.

Rare earths are crucial in the manufacture of advanced weapon applications.

Without them, the Chinese could hobble the US military (and the forces of its allies) while itself having full operational capacity in a time of conflict.

The US gets 80% of its rare earths from China. That is the officially quoted figure but with Australia’s Lynas Corp (ASX: LYC) the only non-China supplier of any considerable substance, the percentage is probably higher.

This latest sanction move must be sending chills down backs in the Pentagon.

US weapons depend on rare earths

According to one report this week, a Virginia class submarine (a nuclear powered fast-attack boat armed with cruise missiles) requires 4.2 tonnes of rare earth metals, a new Navy destroyer consumes 2.3t of rare earths and an F-35 fighter — the attack aircraft now being used by the Royal Australian Air Force — needs 450kg of the vital metals.

If China can cut off rare earths to Lockheed Martin and others, what is to stop them widening the export bans to other suppliers to the US military? Those same suppliers also provide equipment to key US allies, including Japan and Australia.

Lockheed Martin makes the F-35 fighter and Patriot missile.

The company is also working on a new tactical fighter, whose optical systems require the rare earth minerals erbium and neodymium.

Lockheed Martin
China has sanctioned military industrial complex companies including Lockheed Martin, Boeing Defense and Raytheon.

According to the Beijing mouthpiece Global Times, the Chinese sanctions also apply to Boeing Defence and Raytheon.

Interesting, this Chinese “news” service linked the decision to China commemorating the seventieth anniversary of its troops going to war against the US, Australia and New Zealand forces as an ally of North Korea, the Chinese crossing the Yalu River border signalling the real start of the Korean War.

It said the new sanctions will apply to any company involved in the recent sale of US weapons to Taiwan totalling US$1.81 billion (A$2.5 billion).

The sanctions were reported as covering rare earth sales as well as not allowing those companies to do business in China.

Sanctions come into force in December

According to Japanese reports this week, the new Chinese law goes into effect on 1 December.

It is believed in Tokyo that the moves are also part-related to Western government shutting out Huawei.

The Japanese fear that any of their companies supplying US defence manufacturers could also feel the brunt of Beijing’s wrath.

The Nikkei news service cites Shin-Etsu Chemical Co, which produces neodymium magnets, the strongest type of permanent magnet available.

And China is a source for much of the rare earth metal dysprosium, a key material used.

While Shin-Etsu has been trying to reduce its dependence on China, “there is concern that an export ban may influence stable procurement,” a Shin-Etsu representative reportedly said.

The sanctions against Lockheed Martin were first mentioned by China back in July.

China has already used rare earths as a political weapon

China has used rare earths as a political weapon before; in 2010, it stopped exports to Japan due to a dispute over the uninhabited Diaoyu Islands.

Since then, Japanese industry, with strong backing from government agencies, has been busy developing its own rare earths supply chain. It is not complete, but the Japanese have made a good deal more progress than the much more vulnerable US.

It was Japan’s state-owned Japan Oil, Gas and Metals National Corporation — usually known as Jogmec — that came to Lynas’ rescue when the Australian company was facing its own problems in 2016.

US face huge challenge to rebuild rare earths industry 

Molycorp, the former owner of America’s only operating rare earths mine, Mountain Pass, collapsed in 2015.

Mountain Pass has been re-opened but its rare earths concentrates have to be sent to China for processing because the US has lost its entire downstream rare earths industry.

Now, the challenge to rebuild is daunting. Unlike the Japanese, the Americans have not even got around to forging any substantial alliances with non-China rare earths mining hopefuls existing here in Australia, or elsewhere.

Not only does the US need to expand mining at home, but it has to develop its own refining, distribution and fabrication and have a network of downstream customers who need rare earth alloys and other related products.

Lynas has been involved in plans for a processing plant in the US, but this is making slow headway.

Meanwhile, the Chinese are not standing still.

In June, the Washington DC-based Horizon Advisory, which specialises in China issues, issued a report that said Beijing was pumping state subsidies into the six state-approved rare earths groups as it raised its ability to use the 15 elements as a weapon against the West.

Horizon founder Nathan Picarsic told the The Wall Street Journal that China is “not concerned with economic return …. They see controlling this type of industry as a path to win without fighting”.

It is not just rare earths, but the American economy is dependent upon key minerals where it is heavily reliant on imports.

Rare earths is one case where the US is 100% import reliant, but there’s also gallium (used in semiconductors) in that category.

The US relies on imports for 96% of its bismuth (medicine), 84% of its antimony (fire retardant), and 50% of its germanium (optical fibre).

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