The Middle East war has eliminated a significant portion of the United States missile defense system in the region. To rebuild, America will have to go through China.
More than a month into the war, Iran has targeted several US radar units Spread across the area, state-of-the-art defensive weapons are used to detect and shoot down incoming missiles and drones. Military experts believe much has been damaged, if not destroyed. A key component of those interceptors is gallium, an important mineral that is also used in other high-tech products such as semiconductors.
China has an almost complete monopoly on the processing of gallium. And it has already proven inclined to limit access. Growing US demand for metal to rebuild its interceptors – a process that will take several years – will only strengthen Beijing’s hand in the upcoming summit between President Donald Trump and Chinese leader Xi Jinping.
“Broadly speaking, does it make us more vulnerable? Yes, I think so,” said Mikhail Zeldovich, an investor who focuses on critical minerals. “I don’t think there’s any doubt about it.”
Gallium prices have surged 32 percent in the past month, after months of low prices following the October 30 agreement between the US and China. The talks began due to China’s almost complete control over the processing of critical minerals, including gallium, putting pressure on the country to cut off supplies and force the US to the negotiating table.
If demand for critical minerals increases as the US attempts to replenish its weapons stockpile, it will only strengthen China’s hand.
“The moment you seem like a demander and there are things you want, then the relationship is at the point where the other party is smelling leverage, right?” said Wendy Cutler, former USTR negotiator. “And so (Beijing) can increase its demands.”
The White House did not respond to a request for comment.
In addition to a range of consumer products, including semiconductors, electric vehicles, wind power generators, and smartphone and laptop chargers, critical minerals are a key component of U.S. weapons systems and other defense technologies. Interceptors rely not only on gallium for precise threat detection, but other heavy rare earth metals such as terbium and dysprosium are key components in missile targeting. China controls more than 90 percent of heavy rare earth metal processing.
“Disrupting those supply chains could create new disruptions to defense industry supply chains, we already have substantial challenges meeting demand within our defense industry,” said Brian Hart, deputy director of the China Power Project and fellow at the Center for Strategic and International Studies. “So adding significant mineral constraints there makes things very complicated.”
As the US regroups, during what the president announced Thursday night is a two-week ceasefire with Iran, the military will be able to assess the damage done to its weapons stockpile and what it will take to rebuild.
In the early days of the war, Iran launched attacks on seven US military sites, targeting communications and radar systems. According to The New York Times. Weakening those systems requires the US and its allies to fire more missiles to eliminate the incoming threat, sometimes using 10 or 11 interceptors to down one missile, rapidly depleting US supplies. According to an analysis By the Payne Institute for Public Policy at the Colorado School of Mines.
The conflict in Iran further accelerates federal government efforts to create alternative supply chains for critical minerals independent of China.
Just last year, the U.S. Trade Representative planned to negotiate multilateral critical minerals trade agreements with several countries, the administration requested $1.1 billion for a critical minerals office at the Energy Department, and it directed the State Department to work with allies to help secure critical minerals supply chains.
Last July, the Pentagon Becomes the largest shareholder in MP MaterialsJoe, who owns the only operating rare earth mine in the country, is buying $400 million in preferred stock.
In October, the White House announced a major minerals deal with Australia, in which both countries plan to spend $3 billion on critical minerals projects, including a Department of Defense investment in a gallium refinery in Western Australia that will produce 100 metric tons per year.
“We are making great progress in the United States with respect to domestic self-sufficiency for rare earths,” U.S. Trade Representative Jamieson Greer said Tuesday at an event hosted by the conservative-leaning D.C. think tank the Hudson Institute. “We are working with partners on this, talking about storage, doing deals, not just about mining facilities, but about processing, refining, manufacturing and pricing mechanisms to make sure it will be economically sustainable.”
Mineral experts say gallium is one of the most promising areas for the US to increase its supply. Not only is the market small, the metal is often a waste product obtained from the refining of other metals such as aluminum and zinc. That means a company with the ability to capture gallium in its smelting process could help increase global supply.
But those efforts take time, much longer than it would take for the United States to exhaust its weapons supply. Alcoa, the Australian company receiving funding in the Defense Department’s gallium effort, declined to comment for this article, saying it does not yet participate in the gallium supply chain.
“In the medium to short term, I think we’re still in a position where China can take advantage of this dominance in some of these critical minerals,” Hart said. “And I think Beijing has been successful in doing that. This was clearly their greatest bargaining chip in bringing the Trump administration to the negotiating table and reaching the Busan Accords last year.”
The trade truce has been relatively stable over the past five months, as China has followed through on its promise to loosen export controls on critical minerals.
But any effort to change that status quo could immediately plunge the two countries back into a series of trade escalations that would have significant consequences for the U.S. economy — at one point there was essentially an embargo between the two countries.
It remains to be seen whether China will seek to use any new gains from the Middle East war to its advantage. Ahead of Trump’s visit to the country in mid-May, Greer said relations between the two countries were stable. The Chinese, who want predictability from Trump, may not want to upset that balance.
“I don’t see any reason to upset the apple cart,” said Derek Scissors, chief economist at the China Beige Book, which tracks the Chinese economy. “Things are going well. We are alienating our allies, which is kind of a high priority for China internationally. So why mess with it for a small amount?”
