Amerca’s Loss of Neodymium Magnet Production

David Cay Johnston, a former New York Times reporter and critic of tax law loopholes, writes in his book, “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With The Bill),” on how China ended up with a monopoly on the neodymium-boron magnet industry. This interesting and frustrating tale highlights the methods utilized in a globalized “free” market.

Neodymium is a rare earth element that the United States no longer has the capacity to process for manufacturing. Neodymium magnets are used in computer hard drives, smart bombs, wind turbines and hybrid car engines.

Not long ago, the U.S. was a producer of neodymium magnets. Magnequence, a subsidiary of General Motors, used to employ 260 domestic workers for their neodymium-based manufacturing operations.

In 1995 GM decided to sell the division. The deal attracted little attention from the media as it was only a $70 million deal, but it represented the end to yet another manufacturing industry vital to national security. The buyer? Two partially state-owned Chinese companies – San Huan New Material High-Tech Inc. and China National Nonferrous Metals. The heads of these two Chinese companies are the son-in-laws of Deng Xiaoping, a prominent political leader in China at the time.

This is how “free trade” works. General Motors wanted access to the domestic Chinese auto market, but China required something in return: military technology. How trade can be considered free when companies are required to give up national security related technology and their manufacturing capabilities just to be given access to a market is anyone’s guess. But, for General Motors, it was either give up a seemingly insignificant portion of their company or remain exiled from a very profitable Chinese market. GM, in doing simply what was best for their bottom line profits, gave away a viable manufacturing company that was paramount to national security. With no check in place to stop such dangerous sell-offs, American citizens were essentially left to the whims of multinational companies whose sole focus was profits.

Now, China has a monopoly not only on the production of the raw ore from which neodymium is derived, but also on the processing technologies that produce neodymium, and the manufacturing of neodymium magnets.

We must reverse U.S. tax laws that encourage American corporations to offshore jobs and manufacturing production. China is going to continue to engage in trade practices that intentionally harm U.S. manufacturing, take our companies’ technology and sacrifice our national security. So, we must do all in our power to protect our country and economy from China’s underhanded methods. American companies can no longer look only to short-term profit opportunities. We must focus our investments and spending on future technologies that will provide greater productivity and ensure that America always has a place in the global economy. The shortsightedness and misguided focus of American companies must end.

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