Far beyond the land of the Fiscal Cliff, events continue to provide clues on the world awaiting us in 2013. Will the U.S. be able to avoid recession and revive its faltering economy -- and what role will other countries play in our success, or lack thereof?
Take China, which in addition to being a major buyer of U.S. T-Bills, is a major seller of metals and minerals the U.S. uses in what remains of the American manufacturing sector. The question is for how much -- and for how long?
Consider China's rare earths sector, for instance, the arcane elements that are critical ingredients in everything from electric car batteries and wind turbines to smart phones and smart bombs.
Like Kremlinologists of old, who once poured over grainy photos of Red Army generals on reviewing stands for clues on the direction of Soviet policy, current-day resource analysts pick over one-paragraph reports in Chinese media, tracking each new turn in rare earths production. One day it's a no-warning edict that China's major rare earth elements (REE) mine will shutter production for another month, with the goal of stabilizing REE prices during the global economic downturn. The next, it's a report that China has decreased by half the number of permits it grants its rare earths miners. Another day we hear China will maintain a REE trading platform - adding to its near-monopoly over production a means of controlling market price. Then there's word that China will commence its own REE stockpile, sopping up near-term supply during the downturn, and building leverage -- economic and geo-strategic -- when global growth revives. Finally, this week, it's the new REE export quotas for the first half of 2013: Will China export more or less heavy rare earths than in 2012, and what hints can we see behind the numbers?
Even for all the efforts to develop non-Chinese rare earths supply in the U.S., Canada, Australia, India and elsewhere, in the analysts' unintentionally alarming shorthand, ROW production -- that's for Rest-of-World -- tells the tale. As we end 2012, the score is a lopsided China 95 percent, ROW 5 percent. For now at least, China remains a one-country OPEC for rare earths elements.
Nor does China's resource dominance end there. As the U.S. Geological Survey reports, the U.S. continues to be 100 percent import-dependent on 18 metals and minerals beyond the rare earths. For 11 of 19, China is a top 3 supplier.
It needn't be this way. While industrialized economies like Japan, South Korea and many European nations are resource-poor in terms of their geology, the U.S. is, by any measure, remarkably resource-rich. Our American Resources Policy Network study (PDF), co-authored with Sandra Wirtz, shows that of the 46 metals we found to be "at-risk" in terms of national security and defense applications, the U.S. possesses known resources for 40.
In other words, to an overwhelming degree, our present metal and mineral dependency is self-inflicted.
The dangers of that dependency are clear and present. Consider news that the U.S. Department of Defense has contracted for the refurbishment of the aging B61 warhead, a critical element in our strategic nuclear deterrent -- and one, once refurbished, that might allow the U.S. to reduce its overall inventory of nuclear warheads. While details of the refurbishment remain buried deep within Washington's black budget, reports suggest the B61 modernization will be patterned after the guidance kit that makes "dumb" gravity-bombs into JDAMs "smart bombs" -- utilizing the unique properties of rare earths, and likely other metals on our current "risk list."
In fact, according to a study by the Congressional Research Service, rare earth elements are critical to five functional areas that collectively encompass every major war-fighting capability used to project power via ground, sea, air and space: Guidance & Control, Electronic Warfare, Targeting, Electric Motors and Battlefield Communications. And the rare earths are just one example of several dozen rare metals U.S. weapons designers use to create the "killer apps" of the modern military.
In a different century and a different conflict, Lenin quipped that capitalists would sell his Bolsheviks "the rope to hang them with." Is it our strategy in the 21st Century to expect the world's rising power to sell us the resources we may confront them with on the battlefields of tomorrow?
