China currently controls 97 percent of the world’s rare earth production, including all stages of the supply chain for permanent magnets. China’s ability to dictate market terms to the rest of the world is particularly worrisome given its unwillingness to follow established international trade rules. To make matters worse, China is determined to retain much of the rare earth minerals it produces to meet growing domestic demand. Thus, American manufacturers are locked into a no-win scenario where the world’s sole supplier of rare earths is tightly controlling global supply. In fact, domestic Chinese demand is projected to consume nearly all the rare earth it produces, leaving nothing for the export markets.
From the 1960s to the 1980s, the U.S. was the global leader in production, research and development, and fabrication of rare earth elements and magnets. During this period, however, Chinese leaders strategically targeted the rare earth industry for export to China. Well, they succeeded. By using a combination of low labor cost and non-existent environmental standards, China gradually transferred the entire American rare earth industry overseas. In 2002, the sole remaining American producer of neodymium iron boron magnets, Magnequench, located in Indiana, was sold to the Chinese with full approval from the Committee on Foreign Investment in the United States (CFIUS). This was the last act in the American tragedy; with the sale of Magnequench, crucial American intellectual property was forever transferred to China. This is where we are today, and if not for entrepreneurs like Molycorp, we would never end our dependence on China for rare earths. That’s why we are holding this hearing.
