Rocks for Jocks

High school has started online in our household. At our dinner table the other night, we were discussing different science courses and their workloads. My husband recalled that Earth Science (before political correctness) was affectionately known as “Rocks for Jocks,” playing into a stereotype that introductory geology was an easy way to get science credits. If you’re paying attention to trade policy, it’s time to dust off the Earth Science textbooks.

Over the last few years, the national security dimensions of trade policy have come into sharper focus. It has become a lens through which a broad spectrum of trade policies is viewed, including those affecting extraction and trade in the minerals and metals mined from the earth. These materials have vast commercial and vital military applications and are the bedrock of today’s modern and emerging technologies.

Explosive Potential

The United States has had a tepid love affair with nuclear energy, yet nuclear holds an important place in the U.S. energy mix. Nearly 20 percent of U.S. electricity is generated by 96 nuclear reactors in 29 U.S. states. Nuclear accounts for more than 55 percent of U.S. carbon-free electricity.

Beyond consumer electricity, nuclear powers U.S. Naval submarines and aircraft carriers as well as spacecraft and the amazing NASA probes now roving Mars. Nuclear plants produce isotopes used in medical imaging, cancer treatments and radiation that kills bacteria in our food. Globally, advanced reactors are being used to bring fresh water to the Middle East and African countries by powering desalination facilities. It is the only carbon-free energy source that can deliver world energy supplies on a large scale.

What fuels nuclear energy is uranium, a naturally occurring radioactive material containing fissionable isotopes that once concentrated, or enriched, can produce the chemical chain reaction required to generate electricity.

Policy-Enriched Uranium

After World War II, the U.S. government sought to promote the development of the civil nuclear power industry. Nuclear generated electricity would stimulate demand for U.S.-mined uranium, which would in turn assure the supply for military needs.

In 1964, Congress amended the Atomic Energy Act of 1954 to enable private ownership of nuclear fuel. Prior to that, the U.S. Atomic Energy Commission ran the only enriching operations in the free world – a large and dedicated client for U.S. uranium. To shield the U.S. uranium industry from competition as commercial nuclear operations came online, Congress prohibited the importation of foreign-sourced uranium destined for domestic end use. Enriched uranium could not be imported, but the U.S. industry could import natural uranium and enrich it for domestic use and for export. Congress estimated such restrictions would only be required for ten years until civilian demand would grow to such volumes as to sustain uranium production in the United States.

Whether those restrictions constituted a violation of U.S. obligations under the General Agreement on Tariffs and Trade went uncontested by U.S. trading partners, the largest of which were – and still are – Canada and Australia, which boast cheaper, higher-grade sources of uranium.

The import prohibition remained in place from 1969 to 1977. It was phased out from 1977 through 1984 as demand for uranium increased and domestic mining reached capacity. The 1980s would turn out to be a heyday for U.S. uranium, its fate bound with the ups and downs of the U.S. nuclear industry. Nuclear utilities were negatively impacted by conservation efforts during the oil embargos of the late 1970s and suffered major regulatory and policy setbacks in commercial expansion following high profile accidents at Three Mile Island and Chernobyl. Slowed production and plentiful stockpiles for both commercial electricity and defense uses dramatically reduced demand for newly extracted uranium.

U.S. Uranium’s Implosion

The timing of the uranium mining industry downturn coincided with a seminal free trade agreement with Canada, which is a major exporter of uranium for nuclear fuel. The 1989 U.S.-Canada Free Trade Agreement (a precursor to NAFTA and USCMA), exempted Canada from any restrictions the United States imposes on imported uranium.

Although the FTA incorporated GATT national security exemptions under which the United States could derogate from this obligation, Canada and the United States explicitly agreed to limit use of such exemptions in North American trade in energy goods.

The agreement effectively threw open the door to cheaper, high-grade uranium that would displace U.S. uranium. As Canada could fill the majority of U.S. demand, remaining restrictions on imports from other foreign sources would have little benefit to the U.S. uranium industry.

The U.S. industry resorted to filing its first petition to the U.S. Department of Energy under the 1962 Trade Expansion Act Section 232, which required the U.S. Energy Secretary to determine whether uranium was being imported “in such quantities and under such circumstances as to threaten to impair the national security of the United States.” If so, options would include raising tariffs to block foreign imports of uranium.

The Secretary issued a negative finding and President Reagan rejected tariffs on imported uranium. Rather than preserving national security, tariffs were believed to have the potential to disrupt critical supplies, therefore impairing it. The Reagan administration instead established a Uranium Revitalization fund – a government purchase program – to buy up unneeded resources, helping to create space in the market and restore prices for the U.S. uranium industry.

The Half-Life of Industry Protection

The term “half-life” derives from nuclear physics. It describes the length of time that stable atoms survive before exponential radioactive decay occurs. Uranium-238 has a half-life of 4.5 billion years. Uranium-235 has a half-life of just over 700 million years. Trade protections for U.S. industries typically have a half-life of around 2 to 3 years.

Artificial and temporary protections (for example: tariffs on imports from foreign competitors) may provide immediate relief for the domestic industry, but that advantage quickly drops off unless the industry makes investments to improve efficiencies or other market conditions change in the domestic industry’s favor.

Since the late 1980s, U.S. nuclear energy producers have steadily increased their purchases of cheaper foreign uranium, primarily from Canada, Australia and Russia. As more uranium circulated in global markets, the U.S. government privatized its uranium enrichment operations during the 1990s, releasing more uranium into the U.S. market. Kazakhstan and producers in Africa also came online, ramping up the use of cheaper and environmentally harmful extraction techniques, exacerbating a growing glut of inventory in global markets, depressing prices and creating more strain on a struggling U.S. uranium industry.

Uranium’s Future is Bound with Nuclear

Of the 442 nuclear units in the world, the United States operates 96 nuclear reactors – one-quarter of the global total – compared with 57 in units in France, 48 units in China, and 38 units in Russia. The U.S. fleet produces more electricity from nuclear energy than any other country – two times more than France, three times more than China, and four times more than Russia.

Nuclear energy dominance, however, may be shifting hemispheres. China has 44 reactors under construction and 168 planned. India has 14 reactors under construction and Russia has 24 under construction with as many planned. In contrast, the United States has just three reactors under construction and 18 planned.

Energy expert Jane Nakano points out that, while exporting nuclear materials to supply power plants is largely a private sector endeavor in the United States (though heavily regulated to mitigate proliferation risks), both Russia and China have state-owned or directed industries and are deploying aggressive export and overseas investment strategies with both commercial and foreign policy objectives. As these countries forge ahead with global partnerships, U.S. exports of natural and enriched uranium continue to decline as a share of global exports, dropping from 29 percent in 1994 to 3.4 percent in 2019.

From Fission to Fizzle

Nuclear generation capacity in the United States may decrease over the next decade depending on the life of existing reactors. Recent financial losses in the U.S. nuclear sector have led to shutdowns and scaling back of investments, further reducing opportunities for U.S. uranium.

Although global demand for nuclear power is projected to grow, especially in East Asia and the Middle East, that’s not necessarily good news for uranium mining and trade.

The OECD Nuclear Energy Agency and International Atomic Energy Agency produce a biannual Red Book, assessing the state of world supply in uranium. The 2018 Red Book indicated that identified recoverable uranium resources are sufficient to power the global nuclear reactor fleet at 2016 levels of installed nuclear capacity for the next 130 years.

Uranium exploration and mine development expenditures have been declining almost everywhere in the world in response to oversupply. At the same time, nuclear plants are being run more productively on fewer uranium resources.

The impact on the U.S. uranium industry is evident in its steep decline in production output. The U.S. Energy Information Agency (EIA) reported uranium mining in the United States produced 78.9 tons in 2019, representing an 88 percent drop from 2018 production of 656.8 tons. It is the lowest output recorded since 1948. For context, 2019 production contributed 0.3 percent of the uranium fuel requirements for U.S. nuclear reactors. The remainder was supplied by foreign producers.

Good Chemistry

The near-total collapse of the industry prompted the few remaining U.S. uranium mining, milling, and producing companies to file a new Section 232 petition to the Trump administration in January 2018, asserting that reliance on imported uranium constitutes a threat to U.S. national security. U.S. nuclear energy and utility companies opposed new import tariffs, saying the strain of increased costs would threaten the viability of their own operations.

Although fuel for defense purposes is adequately supplied by government stockpiles of highly enriched uranium, the Secretary of Commerce rendered a finding in favor of the uranium industry. President Trump, however, made a choice that diverged from this recommendation and from his use of Section 232 tariffs to protect the U.S. steel and aluminum industries.

Instead, the President issued a memorandum in July 2019 establishing a Nuclear Fuel Working Group to develop recommendations about how to “reinvigorate the entire nuclear fuel supply chain.” In April this year, the working group issued a Strategy to Restore American Nuclear Energy Leadership.

The first step in the plan is a throwback to the Reagan era, creating a uranium reserve through which the Department of Energy will buy uranium directly from domestic mines and contract for uranium conversion services. As for trade restrictions, the Strategy supports the Department of Commerce measures to counter uranium imports from Russia that are “dumped” in the U.S. market at below fair market prices (representing no change from current trade policy). It also explicitly enables the U.S. Nuclear Regulatory Commission to deny imports of nuclear fuel fabricated in Russia or China on national security grounds.

Nuclear Options

The nuclear industry may represent the same or higher strategic importance to national security as the uranium industry. They are interconnected in the same way semiconductors provide brains to your smartwatch and to military weaponry, or the way rare earths drive hybrid cars as well as armored vehicles. They are emblematic of how U.S. industries are affected by global markets regardless of whether their sales are primarily domestic.

What the administration’s approach to the uranium Section 232 petition recognizes is that import tariffs to deliver temporary protections to one domestic industry inherently harm the American buyers of those inputs and the workers in downstream industries.

And, it recognizes that national defense relies on commercial companies to sustain its technology needs. However, the government as a sole buyer cannot support innovation or sales growth for private companies. U.S. companies benefit from tapping into fast-growing foreign markets to be profitable and to reinvest in innovation. It’s a balancing act. “Nuclear options” in trade policy ultimately damage both commercial and national security interests.

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