Highlights
- China dominates over 80% of global rare earth processing, giving it strategic leverage over critical technologies and manufacturing.
- The US must consider state-led industrial policy and unprecedented government investment to challenge China’s monopoly on rare earth elements.
- By 2049, China aims to become the global technological and economic leader, with rare earth elements serving as a key strategic component of this ambition.
The United States faces a daunting challenge in its quest to secure a rare earth supply chain independent of Chinese dominance. While rare earth elements (REEs) like neodymium and dysprosium are not geologically rare, the processes required to mine, refine, and manufacture products using them are extraordinarily complex and capital-intensive. Over the past few decades, China has cemented its control over this critical industry, dominating over 80% of global rare earth processing and refining capacity. This chokehold gives China unparalleled leverage over the production of magnets, electric vehicles, and other essential technologies, leaving the U.S. in a precarious position.
Many will assume such assumptions are based on alarmism, that Western resourcefulness, ingenuity, the profit motive, and the contradictions inherent in the underlying mixed economy of China will all eventually succumb to the laws of economics. Yes, this is likely true. But that’s a process; over time, and in the interim to long term (meaning next decade), the law of economics is superseded by state actions.
China’s Strategic Playbook
China’s dominance did not happen by accident. Over decades, Beijing consolidated its rare earth industry into a small number of state-owned conglomerates. These giants can operate regardless of market prices, shielding them from economic downturns that would bankrupt Western companies operating under a free-market system. Willing participants in the West deferred to this approach, given the economics and short-term thinking. This strategic consolidation allows China to undercut global competitors, discouraging investment in alternative supply chains.
Unlike the U.S., where rare earth initiatives rely on startups and the private sector backed by cursory federal programs and grants, China’s model benefits from direct, strategic, and government intervention. Beijing has methodically expanded its control beyond mining and refining to include high-value downstream products like permanent magnets and electric vehicles. For instance, BYD, a leading Chinese electric vehicle manufacturer, has leveraged the country’s rare earth advantage to dominate global markets. These efforts align with China’s long-term plan, encapsulated in its “Two Rare Earth Bases” policy, which seeks to integrate mining, processing, and advanced manufacturing under a single umbrella. As Rare Earth Exchanges has reported, after translating many state documents in China, the mission to control the global currency by 2049 achieved in a three-phase process. See “_China’s Strategy of Complete Domination: Without a Shot Fired.”
Western Missteps and Media Myths
In contrast, the U.S. and its allies have relied on fragmented, primarily market-driven solutions to counter China’s monopoly. Media coverage frequently hypes nascent technologies like rare earth recycling or alternatives to rare earth materials as potential disruptors. While promising, these approaches are far from scalable. This means that years and billions of dollars later, maybe there will be transformative change. Recycling technologies, for instance, are still in their infancy and would require years, if not decades, to achieve significant impact. Similarly, developing alternative materials that can replicate the properties of rare earth elements is a long-term endeavor with uncertain outcomes.
The notion that startups or piecemeal private-sector investments with some federal framework policies can rival China’s state-industrial-scale operations is deeply misguided.
Experts have suggested that even with a concentrated investment of $1 trillion or more, it would take at least a decade to establish a robust, independent rare earth supply chain due to a host of material factors. Meanwhile, China’s grip tightens as it continues to keep the U.S. in its current position, avoiding provocative moves like an outright embargo that could galvanize the U.S. to move swiftly with government intervention. Instead, Beijing methodically maintains its dominance, ensuring that any American response remains sluggish and underfunded.
Given the mounting contradictions in that hybrid, mixed economy, our free market paradigm informs us that China is but a decade away from complete collapse. But are we willing to bet America’s role in leading the world on that assumption? Or conversely, is some form of Operation Warp Speed necessary to jump-start a more serious initiative to overcome the current dynamics?
A Need for State Intervention?
If the U.S. ever hopes to compete with China’s rare earth empire in earnest, it must abandon its reliance only on free-market solutions and embrace state-led industrial policy, targeted and tailored for this mission, with key milestones, targets, and accountability measures. However, government intervention in the West has a mixed record. At times, it has been instrumental, from Roosevelt’s efforts to the Manhattan Project. However, given the accumulating American debt and the confluence of other negative factors associated with today’s government, neither political will nor proclivity for industrial policy may exist. An example of a decent piece of legislation is outgoing President Joe Biden’s Chip and Science Act(opens in a new tab) (opens in a new tab) enacted by the 117th Congress.
The Act, signed into law by President Joe Biden in August 2022, represents a landmark investment in U.S. semiconductor manufacturing and technology innovation. With a budget exceeding $280 billion, the act is designed to boost domestic production of critical semiconductor chips, reduce reliance on foreign suppliers like China, and strengthen the U.S.’s competitive edge in advanced technologies. The legislation allocates $52 billion specifically for chip manufacturing incentives and research and development, along with significant funding for STEM education and scientific research. By fostering domestic manufacturing and innovation, the CHIPS Act aims to address supply chain vulnerabilities, secure national security interests, and fuel economic growth in key industries such as artificial intelligence, quantum computing, and clean energy. While representing a start, this initiative will not change much in the Rare Earth Complex order.
Would government intervention, akin to China’s approach, be necessary to level the playing field? This includes direct investment in mining, processing, and advanced manufacturing capabilities, as well as subsidies to protect fledgling industries from being undercut by Chinese pricing tactics. This notion goes contrary to American, and for that matter, Western ideological principles based on free markets and the law of economics. Even this author suggests that in the long run, those “laws” will prevail, meaning China’s complex will likely erode and maybe even fall apart at some point in the future. But seen from another vantage, can the U.S. (and West) wait for that moment, chipping away at the problem in an ad hoc manner for decades?
Most certainly, with the incoming POTUS Donald Trump, who is known for an aggressive transactional approach to producing long-term positive impacts, the U.S. needs a cohesive, long-term strategy that spans multiple administrations: perhaps another Operation Warp Speed, this time for rare earth supply chain independence.
Current efforts are fragmented and lack the scale required to challenge China’s near monopoly. Without substantial state intervention, could private companies struggle to overcome the high costs and risks associated with developing rare earth infrastructure? Simply put, the market alone will not solve this problem in the short, medium, or even long run.
Again, we tend to concur with the various paradigms in economic thought that a state monopoly will implode at some point. The question, however, is sustenance and viability over the next years to decades. That jolting moment is when the U.S. would be forced into more proactive industrial policies despite resistance from the governing and business classes of America. Again, China would prefer to keep the U.S. in the same position. Because of this reality, the Chinese will likely not act to cut off all rare earths to America unless it’s a last resort in a nasty trade war.
The Clock Is Ticking
China’s rare earth dominance is not just about controlling materials; it’s about dictating the future of advanced technologies, from renewable energy to military hardware. And that’s just a means to a greater end. Beijing’s goal is to secure technological and economic leadership by 2049, aligning with its broader aspirations for global influence. This means that by then, China, based on its internal plan, the Asian nation would have become indisputably the number one superpower of the world and possibly the overseer of global business currencies. Of course, there are numerous points to counter this reality, and those arguments would feed a narrative that the rare earth element crises could be overblown. But we are not so sure.
Regardless, the U.S. risks falling further behind, shackled by outdated assumptions about the power of free markets to solve strategic challenges when the playing field doesn’t align with such assumptions. Again, in the long run, we here at Rare Earth Exchanges tend to align philosophically with the powerful concepts developed by Adam Smith(opens in a new tab) (opens in a new tab) and others over the last few hundred years involving the science of economics. Those unfolding forces, regardless of various government fads of the day, will overcome and direct. As John Maynard Keynes once said, while exposed to the crises of the Depression and World War 2, “In the long run, we are all dead.”
The U.S. likely needs to act decisively, with unprecedented government investment and coordination, to build a competitive rare earth supply chain for its network of allies. An Operation Warp Speed for rare earth liberation? More than likely, anything less will leave America vulnerable, dependent, and outpaced in the technologies that will define the 21st century unless we are willing to sit it out and await the market forces that will inevitably overcome even the well-planned, hybrid Chinese model. Or perhaps there is another third pathway?
Daniel
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