A high percentage of many raw and semi-finished materials critical to U.S. manufacturing are imported. China is the controlling producer of 11 of these materials and has instituted export restrictions that have led to two-tier pricing, creating pressure to move manufacturing to China. This report suggests the need for actions to mitigate the impact of such market distortions on the global manufacturing sector.

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Critical Materials

Present Danger to U.S. Manufacturing

by Richard Silberglitt, James T. Bartis, Brian G. Chow, David L. An, Kyle Brady

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Research Questions

  1. Are the sources of the imported materials on which U.S. manufacturers are dependent reliable?
  2. What are the effects of an individual producer commanding a majority market share of a critical material's supply?
  3. How can these effects be prevented or counteracted?

The United States economy, and especially its manufacturing sector, is dependent on the supply of raw and semi-finished materials used to make products. While the United States has extensive mineral resources and is a leading global materials producer, a high percentage of many materials critical to U.S. manufacturing are imported, sometimes from a country that has the dominant share of a material's global production and export. This report specifically identifies 14 critical materials for which production is concentrated in countries with weak governance, as indicated by the World Governance Indicators published by the World Bank. China is the controlling producer of 11 of these critical raw materials, nine of which have been identified as having high economic importance and high supply risk. As its market share and domestic consumption of critical materials has grown, China has instituted production controls, export restrictions, mine closings, and company consolidations that have led to two-tier pricing, which creates pressure to move manufacturing to China and contributes to strong price increases for these materials on the world market. To mitigate the impact of these market distortions on the global manufacturing sector, this report suggests the need for actions that (1) increase resiliency to supply disruptions or market distortions and (2) provide early warning of developing problems concerning the concentration of production.

Key Findings

China Is the Controlling Producer of 11 Raw and Semi-Finished Materials Critical to U.S. Manufacturing

  • China is responsible for at least 60 percent of global production of eight of the nine materials for which a single country has the highest share of global production.
  • For some materials, China's share of global production is even higher, including 97 percent of rare earth elements, 90 percent of antimony, and 86 percent of magnesium and tungsten.

China's Export Restrictions Have Major Ramifications for Global Manufacturing Trends

  • The two-tier pricing system resulting from China's export restrictions has hindered the international competitiveness of U.S. manufacturers and provided motivation for moving U.S. manufacturing operations to China.
  • China's export restrictions have contributed to large price increases for raw and semi-finished materials and, in some cases, volatility on the world market.

Actions Are Needed to Counter the Impact of Export Restrictions on Global Manufacturing

  • Actions are needed to increase resiliency to supply disruptions or market distortions and to provide early warning of developing problems associated with the concentration of production.
  • Actions to increase resiliency should be aimed at the diversification of production and processing, as well as the improved efficiency of the use and recovery of materials from waste and scrap.
  • Actions to provide early warning could be based on the benchmarking of market activity with diversified commodity markets.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Concentration of Production of Critical Raw Materials

  • Chapter Three

    China's Role as a Controlling Producer

  • Chapter Four

    Tungsten: Case Example of a Critical Raw Material

  • Chapter Five

    Conclusions and Response Options

  • Appendix A

    Top Three Producers of the 41 EC Critical Raw Materials

  • Appendix B

    The World's Largest Tungsten Deposits

Research conducted by

The research described in this report was prepared for the National Intelligence Council. The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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