What's Next for US Minerals Policy?

Anyone watching the trials and tribulations of what passes for U.S. minerals policy comes away with a strong sense of deja vu. The mining industry is central to this feeling. Buffeted by unstable markets, with prices rising and dropping sharply over short periods, the industry nurses an increasing grievance that the country, and probably the world, do not give proper credit to the importance of minerals. "After all," they repeat, "where would modern society be without minerals?" This is a specious argument, to be sure, but one that comes from the heart of an industry complaining of neglect.

Then there are the politicians who every decade or so pass a law calling for high-standard-of-living goals such as a "sound and prosperous materials industry," usually coupled with such qualifications as "due regard for national security and the environment." Nothing much follows from these legislative pronouncements, as is apt to be the case with bills that provide no appropriations, prescribe no specific actions, and contain no regulations.

Conscious of the basic grievances nursed by the industry, the Congress or the president have created three national commissions in the last three decades to survey the scene, but these too have come aand gone without leaving noticeable legislative footprints.

The comprehensiveness fallacy

The main problem is that it is difficult to conceive of a "comprehensive national materials policy." Materials are just too diverse to be categorized in any national legislation. Petrochemical feedstocks have precious little in common with metals, nor material fibers with wood products, and the problems besetting each differ widely. This is true even within a more homogenous group, such as "the minerals," or narrower still, "the metals."

• Iron ore's problems are those of a steel industry—saddled with aged facilities and a highly paid labor force—that increasingly has fallen back in international competition.
• Titanium has the defense industry as its major customer and thus rises and falls as new weapons are introduced and abandoned, and as military technology and requirements in general change.
• Aluminum settled its raw materials problem a few years ago, when it reached mutually acceptable terms with its bauxite suppliers, mostly in the Caribbean. The aluminum industry thus is at best only mildly interested in raising issues of supply security, but it worries about capacity in excess of demand and a future market less bright than it appears a decade ago.
• Platinum suddenly found itself in hot demand when new legislation required that automotive engines be equipped with anti pollution devices incorporating platinum as a catalyst. But study of the platinum industry reveals that supplies would come overwhelmingly from southern Africa, an area of uncertain political stability.
• The United States is well endowed with lead and zinc, but for a variety of reasons lead and zinc smelters have been closing and smelting capacity has shifted abroad.
• The two major molybdenum producers in Colorado have either closed or radically reduced their operations because of sagging demand for this additive from the ailing steel industry: Molybdenum always has been the major steel alloy for which the United States did not have to rely on imports. Suddenly, for a different reason, it too has become a problem.

These examples illustrate the near impossibility of fashioning any policy that can comprehend all minerals, let alone all materials. Yet that has been the insistent demand of the materials community. As a result, legislation is passed that indeed is comprehensive but also, for that very reason, without operational significance.

Recently, some somber international overtones have been added to the conventional pattern of mineral problems. One is the concern over the instability of southern Africa, that is, the Republic of South Africa and such so-called frontier states as Zimbabwe and Zambia. Some important metals, such as manganese, chromium, and platinum come predominantly from that part of the world. Additionally, cobalt, which is employed in many defense and high-technology uses, comes largely from Zaire. That country is not part of the southern African complex, but it is close enough to the area of potential instability to be worrisome, and it has massive internal problems of its own.

The "resource war"

Alongside the concern over the reliability of African suppliers is sounded the theme of a deliberate Soviet policy to worsen the U.S. materials position. According to this view, the Soviet Union could create serious mischief for the United States by reducing its own exports of such items as chromium and manganese, by getting control over other suppliers—especially those in Africa—and generally by becoming a world trade power in minerals as its own resources begin to deplete. The combination of a Soviet minerals master plan plus the potential unreliability of southern Africa's exports would pose a real threat to the United States, and presumably even more so to other industrial nations far more dependent on imports.

At its peak this notion was given the label of the "resource war" and it had quite a few believers, if only because no potential Soviet design is to be dismissed lightly. It does not seem to have won much credibility among Europeans and Japanese. Perhaps as more experienced trading partners of the Soviet Union they are more skeptical of Soviet ability to bring off such ventures. Or perhaps they are inured to the threat because import dependence has been a way of life for so long in most of these countries.

But less is heard these days of this particular aspect of the materials problem even in the United States. Some careful research suggests that the likelihood of a Soviet "grand design" is exceedingly small; that brief trading ventures have no common policy roots; and that the only realistic view of looking at the Soviets is that they are ready at any time to make economic capital out of political trouble and political capital out of economic trouble.

This appears to be what has been happening in southern Africa, with less than spectacular success so far, for the simple reason that these countries need all the exporting of raw materials they can manage and the hard currency they earn just to stay alive. Moreover, the economically ailing Soviet Union can ill afford to engage in preemptive buying in an effort to thin the supply going to the West. Indeed, the Soviet Union itself must count heavily on raw materials exports to gain the hard currency it needs for its most urgent import needs (such as U.S. grain, to mention only one item).

Is the United States then "home free?" Hardly. The fact remains that southern Africa is both an important source of essential minerals and of questionable stability. Here U.S. foreign policy is in a bind. Favoring the Republic of South Africa will offend its northern neighbors, and vice versa, to say nothing of significant sectors of the American voting public in either case. The goal of a policy acceptable to both camps is as important as it is elusive. Massive, sustained internal turmoil in South Africa, or regional and tribal conflict anywhere in the area could paralyze minerals production and exports over an extended period. This is the real hazard and, should it come to pass, Soviet forces or their proxies could aggravate the situation. It is not a cheerful scenario, nor is it unrealistic.

What to do

Remedies do exist. One is an updated program of national stockpiles. The commodities most critically involved are few, and potential total outlays not exorbitant, even in a period of budgetary constraint. For example, one year's U.S. cobalt supplies cost about the same as two days of U.S. petroleum imports. Stockpiling plus a more aggressive and imaginative approach to materials substitution, in which government would play an important part, no matter how highly one values the efficiency of free markets, would do much to ensure against severe economic loss in case of massive supply interruptions. We should be aware, however, that other importers might be worse off. Japan, for example, relies wholly on private stockpiling and only now is considering the idea of a national stockpile. International cooperation and coordination need careful and urgent study.

A second remedial action lies in the foreign policy arena. Resolution of racial and national strife in southern Africa would greatly alleviate—perhaps entirely eliminate—the supply interruption hazard and permit cost differentials to set the flow of international trade, with obvious economic gains to all participants. U.S. policies alone cannot accomplish such a political and social miracle, of course, but the human and economic stakes are high and we should do whatever we can to reduce tensions and safeguard legitimate interests.

A new threat

Another dimension of the materials problem with important international connotations was hinted at above. Namely, if the shift of smelting and refining capacity out of the United States continues apace, eventually Americans may need to ship copper, lead, zinc, and other ores abroad to be turned into ingots or bars and then reimported. Not that this is an early prospect across the board, but for some minerals, such as lead and zinc, the trend already is pronounced. Various reasons for the shift have been advanced, including aging facilities, noncompetitive costs, and stringent environmental regulations; doubtless some combination of causes is responsible.

How adverse is this development? Apart from the immediate loss of employment and income, the answer depends heavily on where the substitute capacity is located. If it is in basically friendly, reliable, stable countries, the change simply may be one of economic adjustment associated with shifts in costs. If, on the other hand, this capacity comes to be established in potentially hostile countries or areas of questionable political, social, or economic stability, then indeed there would be cause for concern. This country's ample mineral endowment would count for little if, to exploit it, we would have to rely on foreign processing facilities that cannot guarantee a reliable return flow of refined products. Moreover, poorer grade U.S. ores might not tolerate the cost of this cycle and thus might lose their value. This is another set of issues that deserves attention before we suddenly are confronted by a fully matured new hazard.

Both public and private U.S. policy-makers would be well advised to abandon the quest for comprehensiveness. Although the resource war seems more spectral than actual, real threats do hang over U.S. materials supplies. They must be addressed by carefully targeted policies with realistic and precise objectives, not by grand rhetoric.

Author Hans H. Landsberg is a senior fellow in RFF's Center for Energy Policy Research.