Al Root

The U.S.'s problem with rare earths illustrates why President Donald Trump is right about some aspects of globalization that he doesn't like. It also highlights the ineffectiveness of his solution: blunt-force tariff policies.

It all stems from the trade war between the U.S. and China. The tit-for-tat has been going on for a while, but now, the U.S. is charging tariffs of 145% on most goods from China. Beijing is charging 125% on U.S. goods. And according to reports, China has also stopped taking deliveries of Boeing jets and will restrict exports of rare-earth metals.

Rare-earth export bans always set off alarm bells. The dozen-plus metallic elements are used in computer displays, lasers, electric motors, and missile guidance systems, among other things. China dominates mining and processing.

An F-35 has more than 900 pounds of rare earth metals in it.

It sounds dire. If there is good news, it is that the issue isn't a five alarm fire. It is more like a kitchen fire, where the homeowner doesn't have a fire extinguisher under their sink. In a scenario like that, a person can still save their home, but they would be wise to buy a fire extinguisher to keep it from burning down in the future.

The fix isn't so simple when it comes to rare earths, but there are a few reasons it isn't a five-alarm situation. For starters, there is inventory. "We're good through 2025 and probably beyond," says Michael Silver, CEO of American Elements, which supplies 35,000 products, including rare earths, for customers including Intel, RTX, and the U.S. Army.

American Elements has been operating in China for more than 30 years. That gives it an understanding of shortages and export scares.

There is also the possibility of substitution. While a lot of rare earths are used in magnets that end up in guidance systems or electric-vehicle motors, other magnets can be used in a pinch.

Research and development helps. In 2023, Tesla CEO Elon Musk said his company was using 25% less rare-earth metals per car than in 2017 and was designing motors that don't use any rare-earth metals.

Prior Chinese actions have also drawn a reaction. In 2011, China slashed export quotas on rare earths from 31,310 metric tons to 14,446. The U.S. didn't produce any rare-earth ores for processing at the time, but in 2024, output was 45,000 metric tons. (China mined about 270,000 tons.)

In 2024, the Defense Department published its National Defense Industrial Strategy, which includes a " mine to magnet" plan for rare- earth materials that aims to make the DOD self-sufficient by 2027. Both the government and private sector are taking action.

For the Pentagon, supplies of rare-earth metals are a matter of national security. It makes a lot of sense for the U.S. to be self-sufficient, or at least able to supply the defense industry in wartime.

It's tough to argue that the supply of critical minerals isn't an issue. Tariffs alone, however, won't fix the problem.

For starters, tariffs just make rare-earth imports more expensive for America, a burden not shared equally with non-U. S. buyers of Chinese material. The idea, of course, is that higher local prices will spur local production.

But the way the commodity markets work messes up that mechanism. "In the commodity world, if it costs me a buck to make something profitably and it costs you $2, you're not just a smaller player, you're out of business," says Silver. China has low-cost deposits and more than 80% market share in rare-earth processing.

That means China can put any foreign mine it chooses out of business.

MP Materials produces rare-earth ores in Nevada. Still, it's an unprofitable start-up, which makes it dependent on Chinese processing and pricing decisions. A lot of MP's material ends up there.

The U.S. might consider direct support for rare-earth production. Economists might shudder at the market distortions that would involve, but Americans live with farm subsidies that, essentially, try to take some of the price volatility out of farming.

The logic is that it is important farmers stay in business, just as it is arguably vital that the U.S. have its own rare-earth production. That is one nontariff idea.

There is also trade. "Plate tectonics" determined millennia ago where minerals ended up, says Silver, offering an advantage to certain producers. That could be hard to overcome, so negotiating, and living by, trade deals can give the U.S. access to needed minerals.

There are still other approaches. BofA Securities analyst John Murphy suggests additional tax credits for labor, which would shrink the advantage of some low-wage countries. Yale Budget Lab director Ernie Tedeschi says incentives for foreign investment and intellectual property sharing could attract local production. An automotive executive suggested to Barron's that credits for exporting from the U.S. would help boost production.

The bottom line is that there are less disruptive, more effective ways to achieve Trump's goals. "There got to be a bit of thinking rippling through the administration on 'wait a minute here, there's a way to do this right,'" says Silver. Maybe "we start to get more nuance, and that's what I'm hoping for."

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 17, 2025 12:24 ET (16:24 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.