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Study Finds Manufacturers at Risk for Supplies of 11 Critical Materials

RAND Critial mass manufacturing

The World Trade Organization has been fielding complaints about China's export restrictions on raw and semi-finished materials for several years. Despite losing an earlier case involving nine separate materials, China continued to implement export restrictions, leading to China's domestic manufacturers paying a lower price than the export price.
 
This two-tier pricing structure was at the heart of a second complaint filed last year by the United States, the European Union and Japan, and continues unabated. A new study from the RAND Corporation, a nonprofit research organization, found that China produces more than 50 percent of 11 materials, nine of which were identified in one or more previous government and other organizations’ reports as having high economic importance and high supply risk.
 
These key materials are: antimony, barites, fluorspar, gallium, germanium, graphite, indium, magnesite, magnesium, rare earths and tungsten. The study also found that China is the only country that produces more than 50 percent of more than one critical material, with only four other countries  – Brazil, Chile, Congo and South Africa – besides the United States that produce more than 50 percent of one critical material each.

For three of the nine materials - rare earths, antimony and tungsten - it is extremely difficult for U.S. manufacturers to substitute without significantly increasing the cost, or decreasing the performance of the products. The United States is heavily dependent on imports for all three, importing nearly 100 percent of the rare earths and 90 percent of the antimony it uses.
 
China’s strategic actions to protect its market dominance have included obtaining controlling interests in mines outside of China, and establishing production quotas and export restrictions.
 
The RAND study identifies two courses of actions that may diminish the vulnerability of U.S. manufacturers. First, actions taken to increase resiliency or robustness such as diversifying sources of production and processing may limit the damage from supply disruptions or market distortions. Second, monitoring diversified commodity markets may provide early warnings of developing problems with a concentration of production.
 
Access the RAND study, “Critical Materials: Present Danger to U.S. Manufacturing.”

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