China is President Trump’s favorite whipping boy when it comes to blaming other nations for our chronic international trade deficits. Good economists – a category that assuredly does not include the president’s trade advisor Peter Navarro – don’t worry at all about the balance of trade with any single trading partner. We look for other logical reasons explaining why the United States buys more goods from one nation than we sell to it.
A case in point: the rare earth minerals purchased by the armed forces and critical to national defense. America’s supplies of those materials depend heavily on imports from China and other unfriendly countries.
As a matter of fact, the U.S. Department of Defense procures 750,000 tons of minerals and metals every year. Many of them are essential for manufacturing armaments ranging from bullets, turbine engines, advanced radar and electronic warfare systems, to missiles.
The United States imports half of 50 critical minerals and 100 percent of 21 of them. The imports are shipped from many countries in various corners of the globe – South America, Australia, Africa and Asia. But the largest share by far originates in China or from mines located elsewhere that are owned by Chinese companies.
You might think that the national defense posture of the United States depends on imports of minerals and metals to such a great extent because we’ve run out of them. But you’d be wrong. There is no domestic shortage. According to the U.S. Geological Survey, the United States is home to $6.2 trillion worth of minerals reserves. The problem isn’t a lack of resources, but a rather a burdensome regulatory policy toward mining that has pushed minerals production to other countries, most notably China.
Washington’s knee-jerk reaction to the trade imbalance in so-called rare earth minerals and metals is to amend the National Defense Authorization Act to forbid acquisition from China, Russia, Iran and North Korea of minerals used in the production of three of the most militarily sensitive products – tungsten components, samarium-cobalt magnets, and neodymium-iron-boron magnets.
The House approved the ban in an amendment to the defense measure that’s awaiting action by a House-Senate conference committee. The amendment, sponsored by Rep. Mark Amodei (R-NV), would also prohibit purchases by U.S. defense industries of eight other commodity minerals from adversarial nations. Copper, molybdenum, gold, nickel, lead, silver and certain fertilizer compounds would be added to a list of critical minerals.
Copper is essential in the production of jets, tanks, and warships; beryllium is used to enhance aircraft speeds and is vital for enemy surveillance technologies; rare earth minerals are used to manufacture night-vision goggles. The bill’s aim is to raise domestic prices and thereby stimulate investment in the domestic mining of these and other strategic minerals.
Trade protectionism always is a bad idea, although it would reduce imports and increase the quantities of minerals extracted here at home. But higher minerals prices caused by limiting supplies from overseas mines would add to an already bloated defense budget.
The good news is that Rep. Amodei’s amendment to the defense measure also would streamline the mine-permitting approval process from the 10 years it now takes to just two years, putting U.S. mining operations on the same regulatory footing as the requirements with which Australian and Canadian mines must comply. The Amodei plan includes formal review timelines and schedules for completing the permitting process, the goal being to lower the regulatory barriers that discourage domestic investment in critical minerals production.
Regulatory reform would help offset China’s comparative advantage in mining more effectively than banning imports from there or from any other country. U.S. dependence on imports of militarily critical minerals from unfriendly nations is less a problem of international trade policy than it is of domestic regulations that make it too costly to mine our own abundant domestic supplies.
Over-reliance on imported rare earth minerals, if it worries you, is our own fault. It can be fixed without inviting retaliation from our trading partners.
This article was published by The Beacon.
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