As the Biden administration recently wrapped up its 100-day review of the United States’ commercial supply chains, it’s clear that our dependence on (and vulnerability to) China’s monopoly on rare earth elements was a critical focus. These materials are vital across many industries, including consumer electronics, medical equipment, and military hardware. But in a baffling move, the White House just revealed its intention to impose tariffs on China’s rare earths as a way to reduce U.S. dependence on them.
Sadly, this action would seriously harm American consumers and businesses already facing post-pandemic price increases on many goods and services.
The reliance on China’s rare earths is a legitimate concern; China threatened to cut off its supply to America at the height of the trade war in 2019. But closing off the U.S. economy even more isn’t a good solution. Instead, U.S. policymakers should learn from Japan’s experience in the last decade, when it successfully reduced its dependence on China by making its own rare-earth sector more open and agile.
Increasing the difficulty for American manufacturers to source materials does nothing to “protect” supply chains. It does, however, increase prices for businesses and consumers. Remember the food scare at the beginning of the COVID-19 pandemic? What if, just as you stocked up the pantry for the lockdown, the government levied a consumption tax on food in the name of somehow making your stockpile more resilient? Import tariffs on rare earths would do exactly that to every industry in the country that needs the materials.
The Biden administration’s reasoning is that the tariffs might encourage domestic production of rare earths. Of course, by that logic, a prohibitively high tax on food might also encourage some to raise livestock and grow vegetables in their backyards to survive. It’s one way to stand up to China — one that would shoot ourselves right in the foot.
Japan had the same problem after a contentious dispute with China 10 years ago, but its successful rare-earth strategy since then is a textbook example for other countries facing the “China challenge.”
In 2010, a Chinese fishing trawler deliberately collided with the Japanese Coast Guard’s patrol boats near the disputed islands known as Senkaku in Japan and Diaoyu in China. After the Japanese authorities detained the Chinese captain, Beijing blocked rare-earth exports to Japan, which sourced the materials almost exclusively from China at that time. The embargo was lifted only after Tokyo backed down in humiliation.
Soon after the embargo, Japan started to diversify its rare-earth sector in a few ways: It increased its strategic stockpile, encouraged domestic firms to invest in rare-earth companies around the world in exchange for prioritized supplies, raised government funding for exploration, and incentivized research to develop substitute materials. But imposing tariffs on China’s rare earths was not on the list.
A decade of efforts finally slashed Japan’s reliance on China’s rare earths from over 90% of imports to less than 60%. Its strategic stockpile is enough to meet domestic needs for six months, and its investment in Australia’s rare-earth mining company Lynas (now the world’s only significant rare-earth producer outside China) guarantees Japan priority supply through 2038. Japanese researchers also discovered a rare-earth deposit off the coast that could potentially supply the world for centuries. Moreover, some Japanese companies are already developing products to greatly reduce or even eliminate the need for rare earths.
The United States can and should emulate these measures of openness that have worked for Japan. The Pentagon is already stocking up six months’ worth of rare earths for defense purposes. Expanding the strategic stockpile to cover nondefense needs would enhance national security, and not imposing tariffs would help achieve that goal at a lower cost.
The White House’s supply-chain report called for producing more rare earths domestically. But the United States doesn’t “home-grow” enough rare earths because doing so is not just costly but also environmentally devastating.
Japan’s yearslong journey to rare-earth independence is a sobering reminder of how painstaking the process already is, even with good policies. Protectionist impulses like import tariffs would only make things worse for struggling Americans.