Dr. Misty Blessley is Associate Professor of Supply Chain Management at Temple University
The American war machine depends on tiny bits of metal, some as small as dimes. Rare-earth magnets are needed for F-35 jet fighters, missile-guidance systems, Predator drones and nuclear submarines.
Although crucial to many industries, the U.S. lacks a robust domestic magnet supply chain. A recent Wall Street Journal article underscores the significance of regionally producing or nearshoring magnet production. China holds 92% of the global market share for rare-earth magnets. This figure increases when considering magnets produced in other countries but containing materials sourced or processed in China.
China’s dominance in the industry enables it to set prices so low that potential competitors are discouraged from entering the market. One U.S. company is set to mass-produce magnets, but at costs estimated to be 50% higher than the Chinese equivalent. Abiding by costly mining and processing regulations contributes to the disparity. In addition, the U.S. lacks expertise in magnet production.
Although regional or nearshore production is important for national defense and clean energy sectors, the prospect of higher-priced magnets poses challenges. Faced with higher costs, manufacturers in defense industries may witness reduced orders from customers unwilling to bear the increased costs. Similarly, major users such as electric vehicle and wind turbine manufacturers would need to be willing to accept higher costs in exchange for the benefit of having a supply chain decoupled from China. Currently, only General Motors has committed to purchasing the American-made magnets.
The U.S. Government is actively supporting efforts to develop a domestic magnet industry by extending support to domestic firms from mine to magnets. But after three decades of post-Cold War deindustrialization, rebuilding the industry—against China’s market heft—is an uphill battle, even with government help.
Classroom discussion questions:
- What are the benefits and costs of regional or nearshore magnet production?
- In Chapter 11 of your Heizer/Render/Munson text, Figure 11.1 is of a beer supply chain that exemplifies a multi-tier supply chain. Magnets produced outside of China may still contain material sourced or processed in China, demonstrating the importance of looking beyond tier-one suppliers. What do you think the role of firms, governments and trade associations is in investigating multi-tier supply chains? Why?