On September 21, 2022, the US 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 United States of Neodymium-Iron-Boron Permanent Magnets ("NdFeB magnets"), pursuant to Section 232 of the Trade Expansion Act of 1962 ("Section 232").1 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.
In its investigative report, Commerce found that imports of NdFeB magnets meet the statutory definition of threatening national security, noting that in 2020, "China controlled about 92 percent of the global NdFeB magnet and magnet alloy market."2 However, 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 US- 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," the president "concurs with the Secretary's finding," although the White House has not itself issued an official statement.3 News reporting stated that, in conjunction with the Biden administration's decision to not impose tariffs, the administration noted a wide range of tools that it could use other than Section 232 tariffs and shared the administration's belief that these policies "could lead to a significant decline in import penetration by 2026."4
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.
Background on the Investigation and Section 232
Under the Section 232 statute, any department (including Commerce itself), agency head, or "interested party" may request that Commerce investigate the effects of imports of certain products on US national security. The investigation into NdFeB magnets was initiated pursuant to President Biden's February 24, 2021, Executive Order 14017 on America's Supply Chains, which directed 100-day reviews of supply chain risks, including for critical minerals such as rare earth elements.5 One recommendation that resulted from these 100-day reviews was that the secretary of commerce consider whether to initiate a Section 232 investigation into rare earth magnets in light of their "key role in motors and other devices, and importance to both defense and civilian industrial uses" and also heavy US dependence on imports of these magnets.6 On September 21, 2021, Secretary of Commerce Gina Raimondo initiated the Section 232 investigation into effects of imports of rare earth magnets on national security, notifying the US Department of Defense on the same day, as required by the statute.7 On September 27, 2021, Commerce published a Federal Register notice seeking public comment by November 12, 2021.8
After initiation of a Section 232 investigation, the statute requires that if Commerce determines that these imports threaten to impair national security, Commerce has 270 days from the initiation date of the investigation to submit its findings and any remedy recommendations to the president. Under the statute, the president then has 90 days to decide whether to concur with the recommendations and take action-either those recommended by Commerce or an alternative approach, such as negotiations-to adjust imports to a level that will not threaten to impair national security. The statute grants the president 15 days after making such a determination to implement any action and 30 days to submit a written statement to Congress explaining any action; the president's findings must also be published in the Federal Register. As discussed in detail below, in this investigation into imports of NdFeB magnets, despite finding that imports of NdFeB magnets do threaten US national security, Commerce did not recommend action pursuant to Section 232; since the president elected to follow Commerce's action and not impose duties on imports, the president is not required to issue any statement or guidance under the statute.
Report Findings and Recommendations
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 US 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. 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 US company produces sintered NdFeB magnets, and their production is limited. The report also discussed ongoing efforts by the US 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 US national security, the Commerce Department stopped short of recommending the imposition of tariffs. Instead, Commerce's report focused on a range of actions the US government should take to promote a domestic NdFeB magnet industry and, as required by the statute, address the national security threat posed by such imports. These 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 US and ally content requirements for NdFeB magnets used in US government-owned electric vehicles and offshore wind turbines that power US government-owned buildings; and establishing a consumer rebate for products using US- 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.
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