Readers of the Lexington Institute’s blog are familiar with our concern about the deindustrialization of the United States. The loss of manufacturing capability and hundreds of thousands of generally well-paying jobs means lower national economic performance, a deepening trade deficit, reduced government revenues from which to pay for all national priorities including defense and a declining ability to surge defense production should the need arise. No nation can remain a great power without a great economy. Many observers see America’s economic decline and China’s rise as foreshadowing a fundamental shift in the balance of power between these two nations and the beginning of the end of the post-World War Two international order.
Yes, it will take a long time for China to develop an economy that can actually rival that of the United States. China’s per capital GDP places it far behind such world powers as Iceland, Armenia and Jamaica. China also faces a host of challenges including population aging, the absence of even a minimum social safety net, massive corruption and the eroding legitimacy of the ruling Communist Party.
A near-term asymmetric economic threat to U.S. national security can be found in China’s effort to corner the market in the production of critical specialty or “rare earth” metals. These metals are critical to the production of a wide range of advanced military systems. They are also vital to the production of many of the most important clean energy products including wind turbine generators and hybrid-electric batteries. Today, China produces 95 percent of the world’s rare earth metals. This is a more powerful position than that of Saudi Arabia in the global oil market. China is attempting to expand its control over these specialty metals by buying foreign sources of supply. In September the Australian government blocked a bid by a Chinese company to acquire a majority stake in one of that country’s few significant rare earth mines.
China recently announced that it was considering cutting off exports of specialty metals in order to ensure that its own growing manufacturing sector had adequate supplies. While this threat has spurred international interest in identifying and exploiting alternative sources of rare earth ores, there is no reason to expect China to halt its attempts to corner the market in all the “feed stocks” of an advanced industrial economy. The United States could reduce its dependence on foreign oil only to find itself even more vulnerable to foreign control of vital rare earth metals. China’s position in this sector is a threat to both U.S. national security and our future energy economy.
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