Biden can’t keep China out of ‘Made in America’

One of the biggest pillars of the Biden administration stresses "Made in America" as a way to remove U.S. reliance on other countries for critical needs, but it’s proving very difficult to cut China entirely out of the picture.

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Experts say one of the most pressing needs for a domestic supply chain is in rare earth minerals. Those minerals are used to make 5G equipment, semiconductors and magnets for fighter jets, and are considered a key ingredient for the future of electric car batteries. 

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"It's essential that we reshore these domestic industries and really stand up and invest in this sector that has been underinvested in. That is the U.S. mining sector," Rich Nolan, the CEO of the National Mining Association, tells FOX Business.

Estimates point to China currently controlling 70% to 80% of the rare earth industry, according to Australia’s Energy and Emissions Reduction Minister Angus Taylor. Australia has some of the world’s largest rare earth reserves and announced last month four projects to tap into those deposits. However, China still houses almost all the rare earth processing centers in the world.

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President Biden recently announced a plan to change that. It includes providing MP Materials, a rare earth company headquartered in the U.S., $35 million in taxpayer dollars "to separate and process heavy rare earth elements at its facility in Mountain Pass, California, establishing a full end-to-end domestic permanent magnet supply chain." The funds came from the Department of Defense’s Industrial Base Analysis and Sustainment program.

The company pledged to add a $700 million investment, which includes building a rare earth processing plant in Texas. This follows a $10 million award of taxpayer money from the Trump administration in November 2020 through the Defense Production Act, "...to add value-add processing and separation capabilities" to MP Material’s rare earth operations in Mountain Pass, California.

Ticker	Security	Last	Change	Change %
MP	MP MATERIALS	18.28	-0.29	-1.56%

MP Materials went public last year. Anyone can buy the stock listed on the NYSE as: MP. The Nuclear Regulatory Commission previously raised questions to MP Materials about its ownership by the partially Chinese state-owned Shenghe Resources Holding Co., according to emails obtained by FOX Business. After those questions were answered, the NRC approved mining licenses to be transferred to what is now the publicly-held MP Materials. Shenghe currently retains about 8% ownership of MP Materials through subsidiaries.

Previously, MP Materials had an exclusive agreement with Shenghe that allowed the Chinese mining giant to export to China all rare earth materials mined at MP Materials’ U.S. facilities for processing. MP Materials company executives say Shenghe essentially acted as a broker for the company to process materials and distribute the finished product around the world. SEC documents show MP Material’s rare earth concentrate accounted for about 15% of the global market.

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The exclusive export contract between MP Materials and Shenghe ended March 31. According to SEC filings, a deal made in February replaced this exclusive contract and ensured MP Materials would, "...continue to sell and Shenghe will continue to purchase our rare earth concentrate under an off-take arrangement. We may also enter into short- and long-term sales contracts with new customers for the sale of our rare earth concentrate."

At this moment, almost all the world’s processing of rare earth materials takes place in China. A company spokesperson tells FOX Business that MP Materials plans to start its own processing of light rare earth concentrate at the end of this year, which removes the need to export it to China. The company spokesperson says they will sell the processed product on the open market with not only a domestic focus, but also a focus on buyers in Japan and South Korea. China places import tariffs on certain rare earth minerals.

That will start once MP Materials’ Mountain Pass, California, processing center opens. However, the separated material will still need to be exported to China for refining until MP Materials’ new Fort Worth, Texas, magnets facility comes online the following year. That’s expected to start producing rare earth alloy and magnets sometime in 2023 and will be used by General Motors. The goal for the Biden administration is to cut China out of the equation, but experts say that has become hard to do with the amount of money the Chinese spend and investments in the sector the Chinese Communist Party has made.

An Administration Official tells FOX Business that MP Materials was fully vetted before giving taxpayer money. That Official added, "It is well-known that China dominates the rare earth supply chain and market, from mining to value-added manufacturing of magnets. Breaking this cycle will require consistent and long-term engagement with the private sector to build a domestic industrial ecosystem surrounding rare earth mining and manufacturing." The Official goes on to say, "DoD’s investment with MP Materials (CA) is a success story for supply chain resiliency and making it in America. It’s part of a much larger on-shoring investment plan, in which MP Materials is also deploying considerable private sector capital to help onshore the rare earth supply chain."

Sen. Marco Rubio, R-Fla., says the U.S. needs to kickstart its domestic rare earth sector faster and is co-sponsoring a bill to offer incentives to develop manufacturing facilities. "The United States is dangerously dependent on China’s rare-earth manufacturing industry," the senator added in a statement. 

It’s an issue that’s received bipartisan support before. A bill introduced earlier this year by Sens. Tom Cotton, R-Ark., and Mark Kelly, D-Ariz., pushes for a strategic reserve and the restriction of Chinese rare-earth metals from being used in U.S. defense systems. Cotton, who sits on the Senate Armed Services committee, argues this is a matter of national security. 

"The United States should continue to strengthen its oversight of inbound investment from China," he writes in his "Beat China" report from February 2021, adding the Committee on Foreign Investment in the United States' "scrutiny of inbound Chinese investment in key sectors – such as higher education, entertainment, semiconductors, advanced telecommunications, rare-earth elements, medical supplies and equipment, and artificial intelligence – should start from a presumption of denial."

Nolan, the CEO of the National Mining Association, says, "Minority ownership is one thing, controlling is what we certainly are concerned about. What gives me greater pause is that the processing is happening overseas."

The past two administrations have made moves to slowly start, "beginning to end," rare earth mineral supply chains inside the United States, but questions remain over when that goal will be completed. 

"It needs to happen here," Nolan adds. "I think MP Materials is trying to build that out. Other companies are trying to build that out. Certainly, the Defense Department is now tasked with building that out."

This story has been updated to include a statement from the Biden administration.