SHANGHAI – The only operating rare earths mine in the US - and once the world’s biggest -- is caught up in the crossfire of the Trump administration’s trade war with China.

Rare earths, an esoteric group of materials used in everything from Tesla Inc. automobiles to high-tech military equipment, were dropped this week from the US’s final $200-billion catalog of tariffs on Chinese goods, but China didn’t reciprocate on its own hit list.

For MP Mine Operations, the US consortium that owns the Mountain Pass mine in California, that’s a problem because it ships semi-processed output for refining in China, which plans a 10% tariff on these imports, rising to 25% next year.

“The ten-percent tariffs provide a real challenge, and the prospect of 25% is daunting,” James Litinsky, CEO of JHL Capital Group, the majority owner of the Mountain Pass consortium, said by email. “We believe that we can compete without tariffs, and we don’t understand why there would be tariffs on us, when there are no tariffs on Chinese producers.”

TOP SUPPLIER
The rare earths trade between the world’s top two economies is largely one-way, with America reliant on China for about 80% of its supply, according to the US Geological Survey. The Asian nation’s control of rare earths has long been flagged as a risk for advanced manufacturers in developed nations. Countries, including the US, took China to the World Trade Organization earlier this decade to force the nation to ease export restrictions.

In the case of rare earths, observers have speculated that China’s reaction to US trade measures could extend beyond the simple imposition of tit-for-tat import duties to cutting sales outright. It could use “targeted export restraints” to disrupt US corporate supply chains as part of its response to Trump’s broader push on tariffs, Macquarie Group analysts wrote in a recent note that cited previous rare earths export restrictions as a precedent.

In the US, the Trump administration has pushed for measures to promote domestic mining of what it calls critical minerals.

Under current plans, the Mountain Pass owners ultimately aim to process rare earths domestically for use in electric vehicles, wind turbines and other clean-energy sectors. “Our self-sufficiency will serve as a foundation for an American-based rare earths industry,” Litinsky said. The mine restarted in January this year and MP Materials employs about 175 people directly, he said.

‘UTMOST IMPORTANCE’
JHL Capital owns 65% of the Mountain Pass venture, which does business under the name MP Materials. New York-based QVT Financial has a 25% share, while Chinese firm Leshan Shenghe Rare Earth holds the rest.

The owners want Mountain Pass to build processing capacity in the US in about 18 months, Litinsky said. The mine restarted this year after being mothballed in 2015 when its previous owners Molycorp entered bankruptcy.

Asked if his company has consulted with the US on the tariffs, Litinsky said: “We’ve had a number of discussions with people in government and we believe they are certainly receptive to us. There’s a strong bipartisan view that creating an American rare earths industry is of utmost importance.”