US Should Subsidize America Not China

US Should Subsidize America Not China
Chinese shipping containers are stored beside a U.S. flag after being unloaded at the Port of Los Angeles in Long Beach, Calif., on May 14, 2019. (Mark Ralston/AFP via Getty Images)
Anders Corr

The United States should better secure key industrial resources, including through subsidies where necessary, in case an adversary like communist China attempts to weaponize them against us. And we must stop subsidizing China’s key industries, including electric vehicles (EVs) and solar panels, from which it draws the economic strength to fund its military.

Two rare metals, called gallium and germanium, are examples. In July, Beijing said it would start restricting its supply to the United States within a month, and it did so in August. That gave us little time to adapt. The United States does not refine these specialized metals domestically. In the case of gallium, China produces approximately 98 percent of the world’s supply.

Gallium and germanium are used in a wide variety of critical electronic products and components necessary for national security, including computer chips, radar, missile systems, and NASA space rovers. They are also used in solar panels and EVs.

While the United States has the raw materials to make these two metals, building refinement capacity could take years. Neither do many of our allies make them. Allied supply chains, and ours, are being disrupted because China suddenly decided to suspend U.S. access.

Despite months of the U.S. supply of gallium and germanium restricted by the Chinese Communist Party (CCP), the U.S. government has done little to secure additional refining capacity. This is left to private companies, which typically only consider short-term profits in their investment calculus rather than longer-term national security issues. They are, therefore, ill-equipped and unincentivized to take the risks entailed in the significant additional investment necessary for gallium and germanium refining, especially considering that after making the investment, China could suddenly reverse its export bans and again dump cheap supply of the two metals into American markets.

One company considering the investment is Nyrstar, which runs a zinc smelter in Tennessee. Refining zinc produces the byproduct from which gallium and germanium can be refined, so Nyrstar is a perfect candidate to solve the lack of supply in the United States.

Nyrstar is a Dutch company, but that doesn’t matter. What matters from a national security perspective is that Nyrstar is from a country that is part of the U.S. alliance system. It wants to produce gallium and germanium in the United States, which would make it a fully secure part of the U.S. national security supply chain.

However, the U.S. government is not facilitating Nystar’s investment in new refining capacity, which will cost an estimated $190 million over two years. Despite the obvious national security benefits, there has been no guarantee of federal or state subsidies.

The United States could guarantee purchases of the elements over a certain number of years as one approach to decreasing Nyrstar’s risks to the point of making the new capacity profitable. Or, it could directly subsidize the company’s investment costs to reach a minimum level of expected profitability.

Gallium and germanium refinement would support “a couple dozen” more jobs, according to The Wall Street Journal, along with more production of zinc, which is so unprofitable at current rates that Nyrstar had to close down Tennessee production in October. The economy of Tennessee would benefit from the greater predictability and volume of combined zinc, gallium, and germanium production, so the state should pitch in.

Texas and Wyoming are good candidates for federal and state subsidies for mining rare earth elements (REE). The CCP has tried to get a monopoly on REE refinement and could use export controls to tie U.S. national security industries in knots, as it attempted with an REE export ban on Japan in 2010. According to the Journal, the U.S. Geological Survey deems 50 minerals as “‘critical,’ meaning they are essential to the economic or national security of the U.S. and have a supply chain vulnerable to disruption.” All 50 are good candidates for U.S. national security subsidies.

But instead of helping secure these obvious national security needs with minor subsidies in places like Tennessee, Texas, and Wyoming, the Biden administration focused billions of dollars of industrial assistance on EVs and solar, which play to China’s comparative advantage. That strengthens China’s economy, from which its military draws strength while weakening U.S. oil and car industries, whose comparative advantages arise from gas engines.
In February, the Biden administration even waived “Buy American” requirements for EV chargers. They can be made in China and get a U.S. subsidy. The misnamed “Inflation Reduction Act” allows cars assembled in Mexico with 60 percent of the battery made in China to still qualify for subsidies paid by American taxpayers. Many Chinese companies are moving to Mexico to get around any remaining China tariffs and Buy American rules.
“The stark reality is the average EV costs at least $53,000 more over 10 years than conventional vehicles, effectively doubling the price of the average new car,” according to the Heritage Foundation. “But $22 billion in government handouts to EV owners and manufacturers absorb the extra expense at every stage of the vehicle’s life, from raw-material sourcing to battery charging.”

Loopholes in Buy American laws and China tariffs are subsidizing our adversaries or letting them off easy to the tune of billions of dollars of lost tax revenues, when we can’t even subsidize companies that solve U.S. national security problems and provide jobs to Americans in Tennessee, Texas, and Wyoming. That money instead goes to fund companies in China that pay taxes that the CCP uses to build nuclear weapons aimed at the United States and our allies. That must change.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Anders Corr has a bachelor's/master's in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. His latest books are “The Concentration of Power: Institutionalization, Hierarchy, and Hegemony” (2021) and “Great Powers, Grand Strategies: the New Game in the South China Sea" (2018).