The U.S. needs to take steps to create one.

Some time ago, I wrote (in the context of the market for office property) about the “gray rhino,” a concept defined by policy analyst Michele Wucker as follows:

A “gray rhino” is a highly probable, high impact yet all too often neglected threat: kin to both the elephant in the room and the improbable and unforeseeable black swan. Gray rhinos are not random surprises, but occur after a series of warnings and visible evidence.

That summons up thoughts of the mess we are in as a result of China restricting exports of rare earths. That China’s domination of rare earth production, processing, and the supply of certain rare earth products (notably high-end magnets) has had the potential to cause severe trouble has been well understood for years, satisfying one key part of Wucker’s definition.

Here, for example, is Steve Hanke, writing in Capital Matters in early 2021:

As the Global Times, a state-owned Chinese newspaper, put it: Rare earths are “an ace in Beijing’s hand.” As far back as 1992, Deng Xiaoping stressed that “the Middle East has oil; China has rare earths.” Importantly, China knows that rare earths can be weaponized. In May 2019, China’s Natural Development and Reform Commission, a body that oversees Chinese policy shifts, pointedly brought up rare earths in a question-and-answer bulletin regarding the prospects of a rare-earths-export ban. The notice read: “Will rare earths become China’s counter-weapon against the US’s unwarranted suppression? What I can tell you is that if anyone wants to use products made from rare earth to curb the development of China, then the people of the revolutionary soviet base and the whole Chinese people will not be happy.” And now we learn from the FT that the Ministry of Industry and Information Technology is refining China’s rare-earths-weaponization strategy.

And, as we noted in an editorial yesterday, the effect of China restricting exports of rare earths (or rare earth products) could be devastating:

Rare earths matter. They are critical to the functioning of a vast range of today’s technologically advanced hardware, from smart phones to transportation (especially, but not only, electric vehicles) to medical devices. Perhaps most worryingly, they are indispensable elements in high-tech military equipment, from submarines to jets to guided missiles to satellites. Between 2019 and 2022, the U.S. imported more than 95 percent of the total rare earths it consumed, much of which was from China.

It would hit our ability to supply the military, eh?

Oh yes.

Gracelin Baskaran and Meredith Schwartz writing for CSIS in April:

REEs [rare earth elements] are crucial for a range of defense technologies, including F-35 fighter jets, Virginia- and Columbia-class submarines, Tomahawk missiles, radar systems, Predator unmanned aerial vehicles, and the Joint Direct Attack Munition series of smart bombs. For example, the F-35 fighter jet contains over 900 pounds of REEs. An Arleigh Burke-class DDG-51 destroyer requires approximately 5,200 pounds, while a Virginia-class submarine uses around 9,200 pounds.

As Baskaran and Schwarz note, in 2024 the Department of Defense set itself the target of developing a complete mine-to-magnet REE supply chain capable of meeting all U.S. defense needs by 2027. In the current international environment, 2027 is a very, very long way off, and even that, I suspect, will be a stretch.

But at least the U.S., well aware of this risk, built up a strategic rare earth stockpile.

Not really.

Wucker (my emphasis added):

A “gray rhino” is a highly probable, high impact yet all too often neglected threat.

But at least the U.S. can start to build up a strategic stockpile. Well, yes (and that seems to be beginning). And no.

The Financial Times (August 14):

China has told foreign companies not to hoard rare earths as fears about Beijing’s export curbs drive up demand for the metals vital in a range of critical technologies. Beijing is warning buyers they are at risk of greater supply restrictions if they stockpile rare earths and derived products such as magnets used in electric motors, according to two people familiar with the matter.

China “is telling companies they cannot go out and build huge inventories in rare earths, or they will face shortages”, one of the people said. The other person said Chinese authorities were deliberately limiting approved export volumes to prevent foreign stockpiling. “This will be a leverage point from now on,” they said.

Buckle up.