This post is the fifth in the series Raw Materials and Natural Resources in the Supply Chain, which explores the understudied and often misunderstood processes for sourcing natural resources used as raw materials by the industries that make the products we buy every day. Previous posts have focused on the dilemma farmers face for how to use their land, challenges with reshoring raw materials supply, how scientists are working to extract precious metals from toxic wastewater, and the renewability of apples and other agricultural products.
The business world has been buzzing with news about domestic mining initiatives and China’s recent announcement to require licensing (and possibly restriction) on the export of gallium and germanium, metals used as raw materials in technologies like semiconductors and computer chips, to the United States.
For people who aren’t familiar with these essential metals, gallium is used in semiconductors, radars, and solar cells for the computer, aerospace, energy, automotive, and defense industries, while germanium is used in computer chips, plastics, night vision devices, and satellite imagery equipment. Approximately half of the supply of gallium and germanium in the US is imported from China. Many have interpreted the recent announcement by China as a direct response to new US semiconductor and technology export restrictions on China, heightening technological competition between the two nations. However, industry and government leaders in the US may be okay with the change. Some believe the US will easily work around the restrictions; others see the restrictions forcing American companies to restructure and diversify their supply chains by looking for raw material sources closer to home or in friendlier nations like Norway. In a more strategic response, the Pentagon is already pursuing contracts to extract gallium from waste streams. Both gallium and germanium can be sourced as by-products from mining efforts for aluminum and zinc.
Regardless, the need for post-COVID supply chain resiliency and competition with China has triggered a wave of commercial exploration and mining startups in the US and Canada. There are rare earth projects in Texas and California, lithium projects in Nevada, and increased attention on the only germanium mine in the US near St. George, Utah.
Before getting overly excited about this, two factors must be understood, both of which will require significant action for these restructured supply chains to work.
The Environmental Impacts of Reshoring Mining
First, there is a reason that gallium, lithium, cobalt, and rare earth metals are mined mainly overseas. Extracting these metals by traditional methods produces pollution that is damaging to water, soil, and ecologies around the mines. In the early 1990s, the US was the leader in mining for rare earth metals. But because of environmental pollution, mining was restricted.
We offshored the pollution-generating parts of the raw materials supply chain to China and other nations, where the environmental restrictions and labor safety concerns were much lower. China became a global low-cost producer, developing the majority of the worldwide refining capacity and dominating the science around critical metals.
To bring back this type of mining to the US, we will have to develop and use more sustainable practices. Machine learning and biosurfactants are already being used domestically to increase yields. Decreasing energy usage and cleaning up the tailings and waste from old mines will be essential. The Mountain Pass mine in California, one of the nation’s oldest rare earth mines, was once criticized for failing environmental performance. It now employs a zero-waste system to reuse and clean mining wastewater, dramatically changing its environmental impact. These efforts in the US are a start. We must be cautious not to reshore the supply chain’s mining pollution problem. Our new initiatives will continue running the risk of being shut down by the Environmental Protection Agency and other environmentally conscious governments. But if we do the right thing, we can build a sustainable approach for new mining projects, where building resiliency in the supply chain also includes minimizing the environmental risks of mining these critical raw materials.
Government Support of Fledgling Mining Initiatives
This is not the first time China has placed restrictions on the exporting of rare earth metals. Since the last time, from 2010–14, the US has learned valuable lessons about starting a fledgling mining effort to compete with China.
It’s common for China to stand by and observe a foreign business or industry create a new capability and then respond by flooding the market with cheap inventory to drive the costs down. China has used the same tactic in the aluminum and global steel industries. This usually brings U.S. start-up efforts to the point of bankruptcy. And while it sounds like a dirty pool, it is the reality of dealing with countries that employ state-sponsored capitalism and use their commercial companies to achieve political and strategic goals.
The only way to successfully restructure the supply chain for gallium and germanium is if the US government is willing to provide long-term support and protection to the mining industry to make our supply chains more resilient.
The passing of the Inflation Reduction Act last year encouraged domestic production of valuable metals and minerals. But many of them may be years or decades away from actual production. Without continued protection and support, China and other nations will dump cheap inventory on the US every four to five years and undercut our new mining initiatives. This would force US manufacturing companies to go back to the only remaining source for their metals: China.
To summarize, we are seeing a renewed interest in finding domestic sources for metals and minerals, such as gallium and germanium, that are essential for hi-tech industries. But the US government needs to ensure new mining efforts popping up nationwide are environmentally sound and that inventory dumping by China doesn’t destroy our ability to build up the raw materials portion of our supply chain from domestic sources.
These actions are needed to ensure fair competition, resilient supply chains, and our nation’s military and technological security. Yes, it would be nice for the government not to regulate our industries, letting classic equilibrium economics work. But when the competition is state-backed and has political motives, our government has no choice but to oversee, protect, and safeguard the strategic raw materials portion of our supply chain.
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