Highlights

• Pentagon official Mike Cadenazzi warns China controls 85-90% of rare earth processing and permanent magnet manufacturing, creating a national security threat beyond economics.
• The U.S. has committed nearly $6 billion through DoD investments and Congressional programs to rebuild domestic critical mineral processing and separation capabilities.
• Rare earth separation remains extraordinarily complex at scale, with the magnet manufacturing chokepoint being more critical than mining or oxide production dependency.

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The global rare earth competition rarely produces blunt language. But at a defense conference in Honolulu, a senior Pentagon official delivered exactly that. And not surprisingly, rare earth elements and critical minerals were at the top of my mind.

Mike Cadenazzi, Assistant Secretary of Defense for Industrial Base Policy

Mike Cadenazzi (opens in a new tab), Assistant Secretary of Defense for Industrial Base Policy, warned that the United States faces a widening manufacturing and materials gap with China—particularly in critical minerals and rare earth supply chains. Speaking at the NDIA Pacific Operational Science and Technology Conference (opens in a new tab), Cadenazzi noted that China now accounts for roughly 30% of global manufacturing output, compared with about 17% for the United States, while dominating multiple strategic mineral supply chains tied to defense systems.

The DefenseOne account (opens in a new tab) cites correctly that the rare earth challenge is no longer merely economic—it is a national security issue.

The Chemistry Problem Few Talk About

Cadenazzi described rare earth separation as “black magic,” a colorful way of acknowledging the complex chemistry required to convert ore into usable rare earth oxides and metals. Rare earth elements themselves are relatively abundant in the Earth’s crust. The challenge lies in environmentally intensive separation and refining processes that require sophisticated solvent extraction systems and large industrial infrastructure.

After the Cold War, much of that capacity migrated overseas—primarily to China—leaving the United States with limited domestic expertise and industrial scale in rare earth processing. And while not technically black magic, Cadenazzi is certainly correct that arguably rare earth separation remains the most complex of undertakings, especially at scale.  Only China has proven this out at scale.

What Checks Out—And What Needs Context

Several points raised in the remarks align with supply-chain reality:

• China produces roughly 60–70% of global rare earth mine output
• China controls around 85–90% of rare earth processing and permanent magnet manufacturing
• Rare earth magnets are essential components in advanced defense systems, electric motors, and precision electronics

However, commonly cited figures suggesting the U.S. is “95% dependent” on China oversimplify the issue. The most critical chokepoint today is, in addition to separation and refining, permanent magnet manufacturing, not simply mining or oxide production.

Rebuilding the Industrial Base

The Pentagon has begun committing substantial resources to close the gap.

Cadenazzi cited nearly $1 billion in direct Department of Defense investments, expanded purchases through the National Defense Stockpile, and approximately $5 billion authorized by Congress through industrial base programs targeting critical minerals. New partnerships—including mineral cooperation agreements with Australia and other allies—are also part of the emerging strategy.

Rare Earth Exchanges™ has chronicled the growing embrace of industrial policy by the Trump administration. And this is the correct direction.

Why Investors Should Pay Attention

Washington’s message is becoming unmistakable.

Rare earth supply chains are now viewed as strategic infrastructure, not just commodity markets.

Rebuilding them will likely require long-term government financing, coordinated industrial policy, and allied supply networks. In the rare earth economy, market forces alone rarely solve strategic dependencies.

History suggests that industrial policy usually does.