Elemental Bonds: The United States, Vietnam, and Rare Earth Elements

October 3, 2023 Topic: U.S.-Vietnam Relations Region: Southeast Asia

Elemental Bonds: The United States, Vietnam, and Rare Earth Elements

Washington and Hanoi should seize the opportunity presented by recent improvements in relations to forge a partnership in Rare Earth Element (REE) development.

Just a few weeks ago, the United States and Vietnam announced an upgrade in relations to a Comprehensive Strategic Partnership, Vietnam’s highest tier of foreign relations, putting the United States on par with China. Keen observers of Vietnamese-American relations have expected this upgrade for some time, and it centers around both countries’ aligned support for the rules-based order and concerns over Chinese aggression in the region. However, this upgrade is about more than just signaling to China. The agreement includes provisions to expand engagement in trade and development. However, one overlooked area of cooperation is the commitment to fostering collaboration in the Rare Earth Element (REE) sector. This cooperative venture holds significant promise and deserves greater attention in discussions about the burgeoning partnership between the United States and Vietnam.

The seventeen elements comprising REEs are necessary for several technologies in domains such as health care, electronics, and defense technology. However, their most pertinent significance lies in their vital contribution to carbon-neutral technologies. For example, Neodymium is essential for wind turbines, Dysprosium is necessary for electric vehicles, and Lanthanum is critical for battery storage. Their importance is only expected to grow, as the International Energy Agency predicts REE demand will increase between three and seven times.

Despite the paradoxical abundance of REEs, they are not spread out evenly but disproportionately controlled by a select few countries. China possesses the largest REE reserves in the world, including 85 percent of the world’s rare earth processing capacity and 34 percent of its REE total. As a result, Beijing dominates the REE sector from mining to processing. More importantly, between 2018 and 2021, 74 percent of U.S. rare earth imports originated in China, while 80 percent derived from China between 2014 and 2018. 

That imbalance is a significant vulnerability for the United States as REEs become far more critical for renewable energy and U.S.-China relations deteriorate rapidly. Notably, China has proven willing to use this leverage as a stick when countries act contrary to its interests. Consider the Japanese example where China announced a cut of the exports of REEs to Japan following a collision between a Chinese fishing vessel and the Japanese Coast Guard in disputed territory that resulted in the Japanese arresting the Chinese fishing captain. It is also worth noting that in the face of growing great power competition, China, at the start of 2023, has reduced its rare earth mineral exports by 4.4 percent.

As the Biden administration has argued, securing REE is a question of national security. It must find an alternative but won’t find it at home. Despite technically having the sixth largest reserve in the world, the United States only has one rare earth mineral mine and a mere fraction of the amount China possesses. Of the top five largest reserves by country, only one U.S. ally, Australia, finds itself in the top five at fifth. 

Vietnam can be a critical partner in the American struggle to wean itself off Chinese REEs. Fortunately, as a part of the upgrade in relations, both countries signed a Memorandum of Understanding to develop broad cooperation in this area, including “attract[ing] quality investment for integrated REE sector development.” This partnership makes sense for a couple of reasons. 

First, Vietnam has proven a reliable market and a suitable alternative to the Chinese market as it and the United States elevate relations. The United States has bet on Vietnam as a prime candidate for its de-risking strategy, which, although ill-defined, here is taken to mean reducing its risk posed by deteriorating relations with China by restricting Chinese access to sensitive markets by diversifying its supply chains. Vietnam has been one of the prime beneficiaries of this new strategy as various companies have shifted some of their production to Vietnam, including American companies like Microsoft, Apple, Google, etc.

Second, Vietnam is a major source of untapped potential. Despite its relatively small size, the American Geological Survey (AGS) estimates it contains about 20 million tons of the world’s rare earth reserves, valued at $3 trillion. In comparison, it is only behind China, which AGS estimates contains about 44 million tons, and Brazil, estimated to hold 22 million tons.

Third, Vietnam has made it clear that mining rare earth minerals is a critical industry for development and has taken steps to attract foreign direct investment in this area, like tax incentives, creating mining zones, and streamlining measures to speed up the time it takes to obtain a license, as evidenced by Resolution No. 10-NQ/TW, which established the strategic direction for the mining industry in Vietnam. Resultingly, last year, it boosted its rare earth output tenfold and welcomed a Korean firm that will open a magnet firm that could alone meet half of the United States neodymium magnet (utilized for various products in the field of information technology) demand. 

Still, tapping into Vietnam’s resources can be tricky. It has a notoriously layered and complex regulatory system that makes it challenging to enter its market. Moreover, the Vietnamese public has had bad experiences with foreign-led mining projects. Largely Chinese-led, the public has accused these projects of labor and human rights abuses and a palpable example of environmental degradation that benefits foreign powers at the cost of local health and the environment. Vietnam also notoriously lacks the technical expertise and capital to extract and process REE resources.

Still, despite potential obstacles, the United States should seize the opportunity presented by the recent improvement in relations to forge a partnership in Rare Earth Element (REE) development. The significance of REEs is continuously expanding, and securing alternative sources beyond China has become a paramount national security concern for the United States. The current upswing in relations and Vietnam’s keen interest in advancing its REE industry offers an auspicious moment for the United States to diversify its REE supply chain, reducing its dependency on Chinese sources.

Vincenzo Caporale has a BA from UC Berkeley in Comparative Politics and an M.Phil from the University of Cambridge in International Relations. He is an Editor at Large at the Realist Review and a Contributor at Modern Diplomacy. His work focuses on Vietnamese development, politics, and foreign policy. You can reach Vincenzo or follow his work on Twitter @VincenzoCIV.

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