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China's rare-earth power

Thursday, October 28, 2010; 7:41 PM

FOR MANY Americans the phrase "rare earth" calls to mind nothing more consequential than the 1970s band responsible for such hits as "Get Ready" and "I Just Want to Celebrate." But lately China has been teaching the United States, and the world, a new definition. Rare-earth metals are 17 elements vital to high-tech products ranging from the Toyota Prius to the cellphone to the American military's precision-guided munitions. The People's Republic controls 97 percent of the world's supply. And Beijing suddenly has slashed exports, causing near-panic in Japanese industry and exposing the United States' own vulnerability.

The cutoff, as Secretary of State Hillary Rodham Clinton said Thursday, "served as a wake-up call [about] being so dependent on only one source." Japan is especially concerned because it appears to Tokyo that China used rare-earth metals as a weapon during a flare-up of the two countries' long-standing dispute over maritime boundaries. China denies that, claiming it's limiting production to repair environmental damage and divert supply to its own industries. The truth, industry experts say, may lie somewhere in between. China cut export quotas before the territorial dispute with Japan erupted, but it may be using market power to force Japan and others to shift more lucrative rare-earth-based manufacturing to China.

China's rationale matters less than its conduct. Export quotas are hardly in the spirit of Beijing's responsibilities as a member of the World Trade Organization. And its sudden constriction of global supply raises the specter of the United States finding itself in the same position as, say, Ukraine, when Russia acquired a stranglehold over its natural gas supply - and used it for political purposes.

Fortunately, China's monopoly on mining may be temporary. As it happens, the United States dominated the market as recently as the early 1990s, but ore extraction, refining and manufacturing collapsed due to low-cost competition from China and environmental issues at America's principal mine in Mountain Pass, Calif. Now that mine has been cleaned up and modernized; the operator, Molycorp, says it can resume full-scale production within two years. Still, the Government Accountability Office estimated in April that it could take 15 years to rebuild the U.S. supply chain. Like the Obama administration, Congress has reacted; the House voted Sept. 29 to encourage rare-earth research and development, and to authorize loan guarantees to firms willing to rebuild the supply chain. It's not clear that taxpayers need to aid a business that has lately been attracting private capital. But Washington's focus is welcome and must be sustained.

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