Aiming to thwart China, U.S. senator pushes rare earths funding bill

(Reuters) - U.S. Senator Ted Cruz introduced legislation on Tuesday to help revive the U.S. rare earths industry with tax breaks for mine developers and manufacturers who buy their products, the latest attempt by Washington to break China’s control over the strategic sector.

FILE PHOTO: Senator Ted Cruz (R-TX) questions judicial nominees during a hearing before the Senate Judiciary Committee on Capitol Hill in Washington, U.S., December 4, 2019. REUTERS/Joshua Roberts

China is the largest global processor of rare earths, a group of 17 minerals used to make electronics and military equipment. The country has threatened to stop exporting the specialized minerals to the United States amid the ongoing trade war, prompting efforts by Washington to help revive its domestic rare earths industry.

Cruz’s legislation, if approved, would let mining companies deduct from their tax bill the costs of building rare earths mines, processing facilities and equipment purchases.

It would also let electronics manufacturers deduct 200 percent of the cost of U.S. rare earth products, including magnets, a measure designed to entice companies to buy fewer of the strategic minerals from China and more from the United States.

“I believe China is the most significant geopolitical threat to the United States for the next century,” Cruz, a Texas Republican, said in a statement.

The bill would also require the Pentagon to use U.S.-derived rare earth products in all weaponry.

Similar bills from other senators have yet to pass, though elements from them all could eventually be folded into broader U.S. military funding legislation, congressional staffers have said.

Reuters reported last month that a Chinese company’s minority stake in the only U.S. rare earths mine has prompted concerns from scientists at the U.S. Department of Energy. The U.S. Department of Defense decided to fund the mine’s owner, MP Materials in April.

Australia-based Lynas Corp LYC.AX also received Pentagon rare earths funding.

Two days after the Reuters report, Cruz and five other senators sent a letter to the Pentagon pushing it to only fund U.S. rare earth projects.

Cruz’s legislation introduced on Tuesday also would provide $50 million in grants for rare earth pilot projects, with roughly a third allocated for minerals recycling from old mine waste, among other sources.

"We commend Senator Cruz for recognizing that the first step in addressing China's dominance in the rare earths sector is prioritizing domestic U.S. rare earth development," said Pini Althaus, chief executive of USA Rare Earth, which is developing the Round Top rare earth mine in Texas with Texas Mineral Resources Corp TMRC.PK.

Alaska, Wyoming and California also contain large concentrations of rare earths.

Reporting by Ernest Scheyder; Editing by Aurora Ellis