Yesterday Today Tomorrow

Guest (Male): Yesterday, connecting past. Today, with an outer view. Tomorrow, to understand future. Yesterday, today, and tomorrow is the program that covers the current contemporary social issues in the light of our history, to understand our yesterday, to live fully today and tomorrow. Yesterday, Today, Tomorrow with Inseong Kim.

Inseong J Kim: Hello, this is Inseong Kim from Yesterday, Today, and Tomorrow. We're covering the rare earth minerals. We hear a lot about this issue on the mainstream media, but they touch just the tip of the iceberg, and we're going to go deeper today. We are going to talk about Magnaquench Company, a GM-related company.

Seventeen elements—most people cannot name one of them—but they are inside the cell phone in our pockets, turbines spinning on the hillside, and fighter jets overhead. They are the electric motor of the car in our driveway, the hard drive in the laptop, and the speaker in the headphones. It's everywhere. They call it rare earth. In the last 30 years, one country has controlled almost all of them. That's shocking.

Here is the number that should stop you: the United States once led the world in producing these materials. Thirty years ago, we had a processing company in the US. Now, America makes close to none of the finished magnets. Our military depends on it. This is not a shortage or a temporary supply hiccup; it is a near-total dependence on a strategic rival for something the Pentagon itself calls irreplaceable.

This is a story about the villains, and it's a story about the patience one nation had and another’s absence of it. It matters right now today for reasons we won't fully understand until part two of this series, when we show our audience where this same pattern may be happening again with a much more personal kind of asset, one that might already be sitting quietly in your own name. That's going to be the third program.

I would call the previous program part zero, the Magnaquench is part one, and part three is where we're going to talk about the financial sector that is doing similar things like Magnaquench. That's why it is important for us to share this program with loved ones, friends, and children—everyone around us—to be more alert because it's coming down to our pensions on the third program next week.

To understand what happened, we have to understand both sides fairly, not as a villain or a victim, but as two countries that made very different bets in the same information and the same moment in history. China’s bet story started earlier than most people think: 1927, when a Chinese geologist discovered a massive deposit at the place called Bayan Obo in Inner Mongolia.

Initially, they thought they found iron ore. It would turn out to be something far more valuable: what is still considered the largest rare earth deposit on Earth, holding more than 100 million metric tons. For decades, almost nothing happened with it. China was poor, isolated, ravaged by war and revolution, and focused on basic survival.

That is the key. When a country is isolated, ravaged by war and revolution, and focused on basic survival, then there is no mind or room to think of something else. In 1964, a rising Communist Party official named Deng Xiaoping visited that mine. It sat on the land and was controlled by a military steelmaker. His message, recorded at the time, was simple: China needed steel and needed rare earth too.

That's the moment the clock really starts, and not because Deng foresaw the smartphone—nobody did; it didn't exist yet—and neither did the wind turbine or electric car motor. What he understood was these materials already mattered to both Cold War superpowers for reasons that had nothing to do with consumer electronics.

By 1960, US Air Force researchers had built samarium cobalt magnets for high-powered radar systems. Soon after, yttrium aluminum garnet lasers were guiding missiles to their targets. Soviet metallurgists were using rare elements to strengthen the airframe of their fastest fighter jets.

China didn't need to predict the future. It needed only to notice what the two superpowers it was watching most closely already treated as indispensable and go get it, patiently, before anyone else fully understood why it mattered. In 1975, more than a decade after that mine visit, China's State Council formally created a national program to develop rare earth production.

Through 1980, under Deng, a young geologist-turned-official named Wen Jiabao, who would later become China's premier, did something the West mostly wasn't doing. Beijing treated this as a strategic industry, not just a commodity. This is 1980, which is where we began to have a trade deficit.

It was not just a commodity market to be left to ordinary supply and demand. Subsidies flowed to producers; state banks provided cheap financing; regulations favored expansion over caution. Export incentives were used deliberately to undercut competitors on price again and again, year after year. Patiently enough, Western mining companies simply couldn't compete on cost. That's exactly what happened, and it sounds familiar in every industry: the cost.

By 1990, China had become the world's leading producer of the rare earth ore. In 1992, Deng put the whole strategy into a sentence Chinese officials still quote today: "Middle East has its oil, China has rare earth." Then came the harder part, the part most countries skip entirely because it requires a discipline to tear down what we already built in order to build something stronger.

Starting around 2011, Beijing cracked down hard on its own chaotic, often illegal domestic mining sector, which had grown so fast it was riddled with unlicensed operators, environmental disasters, and smuggling. Provincial authorities raided unlicensed mines, and some were dynamited on camera as a warning to others.

Within a few years, dozens of small operators were closed down entirely and forcibly merged into a handful of enormous state-owned companies, an effort Chinese officials themselves refer to internally as "one plus five." This is a part the world is sitting with because it's a real lesson underneath everything else.

It took roughly 30 years of sustained, unglamorous multi-administration investment for China to go from a minor chaotic player to complete global dominance. Nobody in Beijing was in a hurry. Nobody expected the results within a single election cycle. Their patience and their unity on these issues is the actual weapon, more than any single mine, any single technology, or any single company.

This Chinese investment was growing not just locally, but all over the world through the Belt and Road Initiative. That's why the whole thing happening is critical. Chinese state-owned mining companies went shopping abroad, buying heavily into the rare earth and critical mineral deposits in Australia, especially in the years following the 2008 global financial crisis.

Why we had a financial crisis in 2008 without understanding China—which is within our own understanding of how our government failed—means we don't have the full picture. That's what we have to understand. Even today, geography alone doesn't solve the dependency problem. For anyone trying to compete, ore mined in Australia or Malaysia often still gets shipped to China for processing. That's the key: processing.

Here's the part that stings, because the US didn't start behind in this story; it started ahead by a wide margin. The Mountain Pass mine in the California desert, discovered in 1949, dominated global rare earth production from 1960 to 1980. Rare earths were even part of the American color television boom in that era.

Europium made its vivid red glow possible. Mountain Pass thrived supplying a booming consumer electronics industry that had no idea it depended on rare earths at all. These things were happening in our country. Rising US environmental regulation through the 1970s and 1980s made domestic mining and processing—which is genuinely messy, chemically hazardous, and radioactive-waste-generating work—significantly more expensive to do at home.

That's the reason we had to sell our company. One thing worth noting: Magnaquench was not why China became the world's leading source for rare ore. That mining was already happening. The key is General Motors had built the technology itself from scratch inside its own research lab.

In the early 1980s, a GM researcher named John Croat, working alongside Pentagon-funded research into next-generation magnetic materials, invented a new class of magnets: neodymium iron boron, known in the industry simply as NdFeB. It was stronger, cheaper to produce, and more versatile than anything that had come before it, including the samarium cobalt magnets the military had relied on for decades.

GM opened a dedicated factory to manufacture them in Anderson, Indiana, in 1986. Under the business unit named Magnaquench, those magnets went on to supply a reported 85 percent of the rare earth minerals used in guidance systems for America's most important precision-guided munitions: the JDAM smart bomb and cruise missiles.

This made this small, obscure Indiana company quietly one of the most strategically important businesses in the entire country, even though almost nobody outside the defense and auto industries had ever heard its name. By the mid-1990s, General Motors was restructuring its sprawling parts business under real financial pressure, shedding what corporate leadership called non-core operations, smaller divisions that didn't fit the company's future.

This is the key to why we couldn't see this issue. We finished the war, we were the winner, and we didn't feel that war was necessary. We have been hearing over and over again about the military-industrial complex and how we are the bad actor. We hear that we're doing too much war and we have to cut down the military funds. That was the rhetoric we had been hearing, and so we had that factory challenged.

The public face of the consortium was unmistakably American: Archibald Cox Jr., son of the Watergate special prosecutor of the very same name whom Richard Nixon famously fired rather than hand over the White House tapes. Archibald Cox Jr.'s investment vehicle, Sextant Group, was the buyer of record. Cox himself became Magnaquench's new chief executive.

So GM sold it to the son of the person who was involved in Watergate, his investment vehicle Sextant Group, and Cox himself became the new Magnaquench chief executive. That's not the end of the story. Behind that reassuring American face, the real controlling interest in the company—at least 62 percent of its shares—belonged to two Chinese firms: Beijing Sanhuan New Material High-Tech and China National Nonferrous Metals Import and Export Corporation.

The men actually running those two firms were not ordinary Chinese businessmen making an ordinary overseas investment. Jiang Hong, chairman of Sanhuan, was married to the second daughter of the leader I have been talking about, Deng Xiaoping. Wu Jianchang, tied to the other firm, was married to Deng’s eldest daughter.

Two sons-in-law of the very man who had launched China's 30-year rare earth strategy back in 1964 were now sitting in direct control of the one American company that held the technology to finish what that strategy had started. That's the story: we sold to one American man named Cox with two people who were the Chinese leader Deng Xiaoping's sons-in-law, and they owned 62 percent of its shares. That's where the story went downhill.

The sale required a formal review by the Committee on Foreign Investment in the United States, CFIUS, an interagency body chaired by the Secretary of the Treasury, whose members include the Departments of Defense, State, and Commerce. On paper, this is exactly the kind of body designed to catch precisely this kind of risk.

They were supposed to catch how important this business sector is, not just a segment of the GM branch that could be absorbed by other countries. Another country saw that as an opportunity, and they took it. They bought it, and now they have become a leading rare earth mineral producer in the world.

What we are facing today is we have to negotiate to get that mineral to our country to build our military. That is a serious matter, and it's very important for all of us to know and be educated. Whatever the actual number was, it did not hold. Starting in 1998, Magnaquench quietly began building a brand-new manufacturing plant in Tianjin, China.

They actually moved the factory from our country in Indiana to China. This similar pattern happened, as we all know, during the 2000s and 2010s. We got hit really hard on the 2008 housing market without understanding what was going on, essentially constructing its own eventual replacement in plain sight.

Again, Deng Xiaoping was the leader of China, and he presented himself as a peacemaker, but at the same time, behind the back, this kind of deal was happening, slowly moving our factories to China. Deng Xiaoping was the important figure during the Carter administration who proposed that he wants to bring Chinese students to America and educate them. Carter said whatever number he wanted, he could just bring them here.

Now we're living in the consequence of what happened before. How we are going to go about this in the future is a matter too, not just in the leadership, but for all of us in our daily lives. They were essentially constructing their own eventual replacement in plain sight while American factories kept running.

In 2001, the company announced the closure of the original Anderson, Indiana, facility. In 2004—it was very fast—the US plant in Valparaiso, Indiana, which alone had been responsible for producing the majority of the magnets used in America's smart bombs, shut its doors for good. Roughly 450 American workers lost their jobs in that final closure alone.

The specialized manufacturing equipment was crated up, loaded onto ships, and sent across the Pacific Ocean to the very plant that had been quietly built to receive it. That's what the real history is behind what had happened over 40 years, over 30 years, and over 20 years, and now we are here today.

Whatever decision we make today should be a bipartisan decision that really cares about national security. The free market has a cost if we don't see the broader spectrum of how micro- and macroeconomics are intertwined and how the global economy affects us. Is globalism working? Is the 100 percent free market working to our interest as US citizens?

That's what we are going to talk about next week—how it is related to our financial sector and our retirement plans and pensions. That relates to all the major investment companies. It should not happen like Magnaquench. We have to watch it because it is our money.

Everyone's hard-working years and years of saved money are shipping to a different country that has a closed economy where the government controls it. Money cannot come out of it, including the military pension plans. If the money doesn't come out, we cannot supply the people in the military. These are the realities that we are facing.

Please tune in for next week's program about three major financial companies and how they are affecting our personal portfolios. Thank you for listening to Yesterday, Today, and Tomorrow. We'll be back next week. Thank you.

Guest (Male): You've been listening to Yesterday, Today, and Tomorrow with Inseong Kim. You can also find more from Inseong Kim at inseongkim.org. That's I-N-S-E-O-N-G-K-I-M dot O-R-G. Thank you for listening to the show.