On September 21, 2022, the U.S. Department of Commerce’s (“Commerce”) Bureau of Industry and Security announced the findings of its investigation into the national security impacts of imports into the U.S. of Neodymium-Iron-Boron Permanent Magnets (“NdFeB magnets”), pursuant to Section 232 of the Trade Expansion Act of 1962 (“Section 232”). NdFeB magnets are used in a wide range of critical and defense uses, including electric vehicles, solar turbines, ship propulsion systems, and guided missile actuators.
This was the first Section 232 investigation initiated during the Biden administration, although President Biden previously declined to impose Section 232 tariffs on imports of vanadium pursuant to a Trump administration-initiated investigation that concluded in February 2021. The Trump administration revitalized the previously sparingly used Section 232 tool to initiate eight investigations and impose tariffs in two proceedings on imports of steel and aluminum, which largely remain in place.
Report Findings and Recommendations
In its investigative report, Commerce found that imports of NdFeB magnets meet the statutory definition of threatening national security. Commerce’s report finds that NdFeB magnets, which “are the strongest permanent magnets commercially available and improve the efficiency of electrical machines,” serve a wide range of critical uses, including standard commercial uses (such as headphones); defense uses, “including ship propulsion systems and guided missile actuators”; and “numerous critical infrastructure applications such as electric vehicle motors and offshore wind turbine generators.” Commerce focused its investigation specifically on “sintered” NdFeB magnets, rather than the “bonded” NdFeB magnets, given the former’s dominance in the NdFeB magnet market and in defense and critical infrastructure applications.
In evaluating the NdFeB magnet supply chain, the report also highlights the lack of major U.S. presence in most steps except in rare earth mining, noting that in contrast, China is the only country with a presence in every upstream and downstream step of the NdFeB magnet value chain, controlling about 92 percent of the global NdFeB magnet and magnet alloy market in 2020.1 The report states that “[i]n 2021, the United States imported 75 percent of its sintered NdFeB magnet supply from China, with nine percent, five percent, and four percent coming from Japan, the Philippines, and Germany, respectively.” Additionally, the report highlights the fact that only one U.S. company produces sintered NdFeB magnets, and their production is limited. The report also discussed ongoing efforts by the U.S. government and private sector to invest in the domestic NdFeB magnet supply chain and potential opportunities for growth in demand.
Despite finding that imports of NdFeB magnets do threaten U.S. national security, Commerce stopped short of recommending the imposition of new Section 232 tariffs on these imports, instead offering a series of other recommendations to develop and promote a U.S.- and ally-driven supply chain for NdFeB magnets as well as to reduce dependence on these magnets. According to an accompanying fact sheet stating that “[t]he investigation found that NdFeB magnet imports threaten national security as defined in the statute,” President Biden “concurs with the Secretary’s finding,” although the White House has not itself issued an official statement.2
The Commerce Department’s recommended range of actions the U.S. Government should take to promote a domestic NdFeB magnet industry and address the national security threat posed by such imports include:
- Engaging with allies to promote research and production of NdFeB magnets and technologies, encourage intellectual property licensing, and cooperate on foreign investment review mechanisms;
- Bolstering the domestic NdFeB magnet industry through domestic policies and investments, including through tax credits; the Defense Production Act (“DPA”); Export-Import Bank financing; other federal funding mechanisms such as the Bipartisan Infrastructure Law; the Defense Priorities and Allocations System; export controls on feedstocks to assist domestic producers in the face of foreign competition; and increasing the National Defense Stockpile inventories of rare earth elements and other strategic and critical materials related to NdFeB magnets;
- Enhancing domestic demand through DPA Title VII to promote offtake agreements using voluntary agreements; promoting recycling and reprocessing of NdFeB magnets; establishing U.S. and ally content requirements for NdFeB magnets used in U.S. government-owned electric vehicles and offshore wind turbines that power US government-owned buildings; and establishing a consumer rebate for products using U.S.- or ally-produced NdFeB magnets;
- Funding research and development into reducing the use of rare earth elements in NdFeB magnets, developing substitutable magnets, and developing technologies without magnets; and supporting human capital development in the NdFeB magnet industry; and
- Monitoring the NdFeB magnet supply chain for potential impacts from non-market factors or unfair trade actions.
While the President declined to impose duties on imports of NdFeB magnets under Section 232 at this time, the Biden administration has publicly stated its intent to continue to make investments in domestic and ally-driven production to reduce reliance on imports from non-allied countries and to monitor unfair trade practices. That being said, it is possible that the Biden administration or another party could request another review at a later date.
As noted in another article in this edition of US-China Trade, New Executive Order Clarifies CFIUS Review Criteria, one of the five factors that the Executive Order outlines for CFIUS to consider in evaluating the national security risk of a foreign investment relates to critical supply chains, which, in turn, include critical materials such as lithium and rare earth elements. As U.S. concerns about the safety of the country’s critical supply chains remain strong, imports of critical minerals and related products from non-allied countries (including China) may continue to receive heightened attention for their implications for U.S. national security and other U.S. policy matters.