Implication of NDAA on China

Recently, President Donald Trump signed the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year 2019. What is NDAA? 

The National Defense Authorization Act (NDAA) is the name for each of a series of United States federal laws specifying the annual budget and expenditures of the U.S. Department of Defense. The first NDAA was passed in 1961. The U.S. Congress oversees the defense budget primarily through two yearly bills: the National Defense Authorization Act and defense appropriations bills. The authorization bill determines the agencies responsible for defense, establishes funding levels, and sets the policies under which money will be spent.

The new legislation prohibits the US Department of Defense from acquiring rare earth permanent magnetic materials from China, Russia, Korea, Iran and other non-allied countries.

It is an important ban because rare earth permanent magnetic materials are mainly applied to military filed, such as aviation, weapon system, supercomputer and satellite. The application of tungsten on military is of great significance. 

Fighter enthusiasts may know that the US F-22 is a fifth-generation fighter with supersonic cruise and stealth capabilities. The fuselage is made of rare earth-reinforced magnesium-titanium alloy. Tank enthusiasts may know that the sight distance of US military's M1A1 main battle tank can reach four kilometers. The laser rangefinder contains rare earth materials as well, which increase the sight distance greatly. Obviously, the application of rare earth to military field is not only extensive, but also improves sophisticated weapons directly.

There are some important statistics which can tell you the implications of National Defense Authorization Act on China. We can observe them from the export amount, export value and U.S total import amount of rare earth products

According to China Customs data, in 2017, China's export amount of rare earth permanent magnetic materials to the United States was more than 3300 tons, taking up about 11% of China's total exports of rare earth permanent magnetic materials; the export value was close to 150 million US dollars, taking up about 10% of China's total exports of rare earth permanent magnetic materials. According to statistics from the United States Geological Survey, about 80% of the total imports of rare earth products in the United States in 2017 are from China. It can be seen that the rare earth consumption in the United States is greatly dependent on China while the proportion of rare earth permanent magnet materials exported from China to the United States is small. Some insiders predict that the new legislation that prohibits the Ministry of Defense from purchasing rare earth permanent magnet materials from China will have a limited impact on China's rare earth industry.

As we all know, rare earth permanent magnet materials are important strategic materials. Next, let's learn about what rare earth permanent magnet material is.

First of all, we have to know that rare earth is not what people often call "soil", but metal oxides which include 17 types. Technically, rare-earth elements refer to a set of seventeen chemical elements with atomic number 57 to 71 in the periodic table, specifically the fifteen lanthanides, as well as scandium and yttrium. in the periodic table. They are similar to the chemical properties of lanthanide oxide.

Secondly, we need to know what permanent magnetic materials are. Permanent magnet material is a kind of magnetic material which is magnetized to reach the saturation and can maintain high remanence after removing the external magnetic field. Besides, it can provide stable magnetic field.

Finally, it is not difficult to understand what rare earth permanent magnet material is. Rare earth permanent magnet material is a kind of frequently-used permanent magnet material with rare earth alloy element added. Rare earth permanent magnets not only can be applied in military, but also in energy, information communication, transportation, computer, medical equipment and many other industries. In recent years, rare earth permanent magnets have shown their superior performance in energy-saving household appliances, battery electric vehicle, wind power, hydroelectric power generation and other fields. It has attracted more and more attention.

Once upon a time, China owned the world’s largest rare earth reserves, which took up about 70 percent. The share of exports was higher, accounting for 95 percent. However, China's rare earth reserves account for about 20% of the world's total and are likely to continue to decline. Why? This is mainly caused by the illusion of the "reserve" hypothesis. It represents only the proved quantity, except the consumption.

In addition, the World Trade Organization (WTO) ruled in 2014 that China's export tax and quota restrictions on rare earths were illegal. This shows the scarcity and strategic significance of rare earth elements. If the U.S. does prohibit the Department of Defense from buying rare earth permanent magnets from China, it will be beneficial to the protection of China's rare earth resources and help China's sustainable development. What’s your opinion?

With the escalation of Sino-US trade conflicts, countries will adopt some extreme methods to cope with the unrest. As a resource-rich country, the import and export of strategic raw materials will be affected or restricted. To take the restriction of rare earth material as an example, it is a double-edged sword for domestic enterprises. A blessing or curse? It depends on how you cope with it.

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