The Defense Industry Needs to Get Serious

O bservers of the U.S. defense industry were hit with unwelcome news earlier this week when Greg Hayes, the CEO of Raytheon, announced that the company cannot fully decouple from China. Raytheon is the nation’s second-largest defense contractor in terms of contract revenue from the federal government. One reason Hayes cited for his company’s reliance on China is that nation’s dominance in rare-earth metals, which have become integral to many military technologies, from lasers to missile flight systems.

China currently accounts for more than half of the world’s rare-earth mining and around 90 percent of rare-earth processing. Whether or not Raytheon is ready to decouple, China might soon force its hand: China has already threatened to cut American businesses off from rare-earth elements.

It wasn’t always this way. In the decades before China began seriously developing its ability to mine and process rare-earth elements, the United States was the world’s largest supplier of these metals. American production came, however, from a single mine in California. That mine eventually closed after its parent company, Molycorp, went bankrupt in 2015, taking the American rare-earth industry down with it.

Fortunately, the Mountain Pass mine is reopening. Per Gizmodo:

In 2021, the company [MP Materials, which purchased the mine in 2017] began upgrading the refinery at Mountain Pass to restore its processing capabilities, including rare-earth separations. According to the company’s earnings call for the first quarter of 2023, the facility will begin separating NdPr oxide this quarter. With the help of a $35 million contract from the US Department of Defense, or DOD, the company is planning additional upgrades to separate the 11 elements classified as medium and heavy rare earths, focusing on the magnet elements dysprosium and terbium. Once these capabilities exist, MP Materials will ship processed rare earths from California to a new facility under construction in Fort Worth, Texas, where they will be used to make alloys and magnets for General Motors EVs.

Yet it may be too early to celebrate the revival of Mountain Pass. Shenghe Resources, a “partially state-owned” Chinese mining company, owns a minority stake in MP Materials. The recent developments to the Mountain Pass facility are, to be sure, an improvement on the status quo ante: The rare-earth minerals that aren’t processed on-site are sent to China for processing by Shenghe. While it maintains a financial interest in Mountain Pass, Shenghe’s role in operating the mine creates unnecessary risk for our defense industry. If war does break out between the United States and China, Shenghe’s knowledge of the mine could be a vulnerability, as it may be used to disrupt the mine’s operations. Until then, MP Materials’ profits will be subsidizing the continued expansion of the Chinese rare-earths industry.

The story of the Mountain Pass mine offers important lessons for strengthening our military supply chains. While a laissez-faire approach to the economy is often best, our national defense cannot afford the interruptions in service sometimes imposed by the natural expansions and contractions of private businesses. The Pentagon should have either ensured that the Mountain Pass mine stayed open, even if that would have meant operating the mine at a loss, or located alternative domestic sources of rare earths.

It should still do the latter. Even if the Mountain Pass mine proves successful, a single missile could destroy our capacity to produce the metals. So could a simple industrial accident. According to a recent Wall Street Journal report, a June 2021 explosion at a black-powder mill in Louisiana, the Pentagon’s only domestic source of the explosive, has hampered our ability to build “mortar shells, artillery rounds and Tomahawk missiles.” While the Defense Production Act includes provisions designed to “alleviate the problem of having critical resources produced in far-flung, sometimes unreliable places,” the Pentagon does not systematically track such disruptions. Introducing redundancies into our supply chains might be inefficient from an economic perspective, but it would ensure that American military production continues no matter what.

This is not to say that the defense industry needs to abandon the world economy, but both the Pentagon and its private contractors need to be prepared for the separation that a major conflict would require. We should certainly try to draw on military technologies developed by our allies when their innovations outpace our own, but there is no guarantee that we will be able to rely on resources from abroad when we are next called to war. We must be ready for a time when an autarkic approach to military production is not merely a policy preference but a necessity.