The Rare Earth Crisis – Why the U.S. is at Least a Decade Behind China Contrary to Many Commentators

Highlights

• China dominates over 90% of global rare earth processing, leaving the US critically vulnerable in technology and defense sectors.
• The US faces two primary options:
  • Launch a $500+ billion national mobilization.
  • Negotiate a strategic supply agreement with China.
• Without immediate action, the US risks severe technological and national security limitations due to rare earth element dependency.

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Rare earth elements (REEs) are the linchpin of modern technology, integral to everything from advanced defense systems to electric vehicles and renewable energy. The United States, despite its historical role in rare earth mining, has fallen at least a decade behind China in separation, refining, and value-added production. While some commentators suggest that rapid U.S. progress is feasible in the relatively short run, the reality is far more daunting due to technical, economic, regulatory, and geopolitical hurdles that cannot be overcome with short-term policy shifts alone.

The U.S. faces an urgent crisis. China’s state-backed dominance over rare earth processing and magnet production leaves American industry and national security highly vulnerable. While technological innovation—such as rare earth recycling or alternative magnet chemistries—may mitigate this dependency in the long run, these solutions are not scalable for at least another decade. That does not mean companies such as Niron Magnetics (opens in a new tab) or various recycling initiatives such Phoenix Tailings (opens in a new tab) will not see success—they will. 

But in the aggregate at scale, we are years away from declarations of supply chain resilience. The only viable paths forward to mitigate major risks with China are either a massive industrial mobilization exceeding what would likely be $500+ billion in investment and massive concentrated focus or a short-term geopolitical maneuver to secure Chinese cooperation while building a domestic supply chain. This latter move is likely far more palpable,e and President Trump is ideally suited to pull something like this off.

The Decades-Long Head Start–Why China Leads in Rare Earths

China began its rise to dominance in rare earths over 30 years ago, recognizing their strategic importance well before Western nations did. By the early 2000s, China had consolidated control over the entire rare earth supply chain through state-backed enterprises that benefited from:

• Heavy government subsidies to support unprofitable processing facilities
• Environmental exemptions that allowed high-pollution extraction and refining
• State-driven technological refinement to optimize separation efficiencies
• Vertical integration that ensured complete supply chain control from raw ore to finished magnets
• Expansionary access to deposits worldwide as part of a longer-term approach than the West

Today, China controls over 90% of the global rare earth processing capacity and an overwhelming majority of high-purity magnet production. The U.S., in contrast, lacks even a single commercial-scale rare earth separation plant, let alone advanced refining capacity.

We should provide the caveat that a national treasure, MP Materials, is ramping up processing and magnet manufacturing with General Motors. That publicly traded company would definitely be at the tip of the rare earth element arrow of a state-backed effort in the United States.  But make no mistake, business as usual and free market assumptions won’t succeed in the short to intermediate run here. In the long run (say a couple of decades), market forces via technological disruption, China’s own internal contradictions, and other unfolding factors will likely unseat China’s position.

But do we have time to wait? As the economist John Maynard Keynes’ (opens in a new tab) said in his famous quote, “In the long run, we are all dead.” This statement highlights his focus on addressing immediate economic problems rather than waiting for long-term solutions that may or may not materialize.

So what are some key technical barriers to USA competitiveness?

The separation of rare earth elements is an intricate, element-specific process requiring highly specialized techniques. While these elements share similar chemical properties, their separation demands precise methodologies such as solvent extraction (SX), ion exchange, and emerging membrane technologies. Mastering these processes requires deep technical expertise, an area where China has excelled after decades of refinement. The result is a more efficient and cost-effective SX process than anything currently available in the West, giving China a significant competitive advantage.

Beyond separation, the U.S. faces a critical gap in refining infrastructure. Converting rare earth oxides into metals and alloys is a highly specialized process that requires dedicated reduction facilities—something nearly absent domestically, aside from the important but still limited MP Materials and a few startups with marketing but questionable scale. 

China has not only established these capabilities but has also developed and monopolized advanced refining techniques. These are essential for producing the high-purity rare earth metals needed for advanced technologies, leaving the U.S. without a scalable pathway to independence in this sector.  Plus China’s monopoly allows it to stand in the way by artificially increasing price volatility (opens in a new tab).

The lack of domestic refining cascades into another major issue, according to Rare Earth Exchanges. That is, the total paucity of value-added magnet production in the U.S. There are efforts to ramp up the production of neodymium-iron-boron (NdFeB) magnets, a cornerstone of modern high-performance electronics and defense applications., but we are years away from the scale necessary for supply chain resilience.  Again, MP Materials has a promising deal with General Motors, and firms such as Niron Magnets have locked in on technology from the University of Minnesota to produce non-rare earth magnets.  Recycling efforts such as those with the previously mentioned Phoenix Tailings and others show real promise over the long run. But these solutions will take time to scale.

The reality is that the manufacturing of magnets requires proprietary sintering techniques and doping strategies (opens in a new tab), areas where Chinese firms hold a near-total monopoly. Even Japanese and European manufacturers remain reliant on Chinese feedstocks, reinforcing China’s dominance over the entire rare earth supply chain.  In the meantime, U.S. defense contractors must ensure that all magnets are not from China by 2027. Will this be achievable in time?  

Regulatory and Economic Challenges

Despite multiple executive orders under the Trump administration during the first 30 days—and a handful of references to bolstering critical mineral supply chain vulnerabilities, none gained the necessary momentum to drive meaningful change. There was no sustained effort to establish a critical minerals czar, nor was there a coordinated strategy to streamline overlapping agencies and regulations discernible at this stage, nor were the policies apparent to break China’s dominance. Aggressive acquisitive talk of accessing deposits overseas or on the North American continent in Canada doesn’t solve the problem.

Without strong leadership and a central authority to drive policy, the U.S. remains stagnant in this sector. While more access to deposits helps, again to be clear, aggressive acquisitive talk with Greenland, Ukraine or for that matter ridiculous talk of Canada as a “51st  state” does nothing for America.   None of those strategies solve the underlying core problem which centers on the separation, refining and production. 

Stringent environmental regulations further cripple domestic refining efforts, making rare earth processing prohibitively expensive without massive government subsidies.   Frankly, a network of alliances will be necessary in the West, and current popular economic nationalism linked to MAGA likely, in the short run, preclude such synergistic moves unless a rapid change in sentiment and outlook occurs, and fast.

While China freely operates high-capacity rare earth refineries with what is claimed to be minimal environmental constraints (a lot of propaganda is definitely involved), U.S. firms face overwhelming regulatory hurdles that discourage investment and scalability. The technical expertise required to expand refining capabilities simply does not exist in sufficient supply within the U.S. workforce today, creating a knowledge gap that China has spent decades perfecting.

The financial reality is daunting even if regulatory and technical barriers are overcome. Building a fully independent rare earth supply chain—from mining to refining to magnet production—would require at least, we estimate, $500 billion in coordinated public and private investment, including multiple Western allied nations.  Without a dedicated strategic framework and high-level oversight, such as a critical minerals czar, there is little chance of securing the capital or political will needed to challenge China’s stranglehold on this industry.

The Time Crisis: China’s Near-Total Control Over U.S. Defense and Technology

The U.S. military depends on Chinese-sourced rare earths for critical defense systems, including:

• F-35 fighter jets (magnets, actuators, and guidance systems)
• Missile defense systems (rare-earth-based radars and targeting technologies)
• Nuclear submarines (electric drive systems reliant on high-performance magnets)

China has already demonstrated a willingness to weaponize rare earth exports, restricting shipments to Japan in 2010. Recently, the Chinese cut off a few rare earth/critical minerals for US access for national security purposes. The U.S. cannot assume continued access in the event of heightened geopolitical tensions. Trump’s tariffs could prompt the Chinese to withhold more, which could be devastating.  On the other hand, the Chinese do not want to prompt the USA to act, enabling a major campaign for true resilience. Meaning they are likely not to act aggressively—only as a last resort.

Potential Solutions: The Two Choices America Faces

The U.S. faces a stark choice in the battle for rare earth independence: either launch a full-scale national mobilization or strike a deal with China. Half-measures won’t cut it.

Option 1: A $500+ Billion National Emergency Mobilization

The only way to achieve true rare earth independence is through a Manhattan Project-style initiative, pumping at least half a trillion dollars into mining, refining, and magnet production along with a series of tightly interwoven national alliances.  Aside from the reality that today’s politics will not appreciate more deep state (remember the Manhattan Project was the birthplace of the Deep State), this requires slashing environmental red tape, fast-tracking approvals, and offering massive subsidies to attract private investment, all backed by U.S. and other national treasuries more than likely.  Meaning that the U.S. must also solidify strategic alliances with Japan, Australia, and the EU to create a Western-controlled supply chain. Yet recent economic nationalism trends certainly slow down such a collaborative ethos, should we want to go in that direction.  And even if so the challenge? This would take a decade or more to materialize, and political resistance—especially from factions wary of government-led industrial policy—could sabotage momentum before it even begins.

Option 2: A Short-Term U.S.-China Rare Earth Deal

If an all-out industrial mobilization is politically or financially unfeasible, the U.S. may have to take the pragmatic route, and President Trump is frankly an ideal candidate to pull this off. Negotiating a rare earth supply agreement with China would mean securing a decade of stable rare earth imports in exchange for economic concessions, such as allowing China value-added firms such as BYD and others greater access to U.S. markets. The upside? This buys America crucial time to build its own infrastructure without immediate supply disruptions.

The risk? Well, there are multiple.  For starters, the political backlash of engaging with China would be intense, with critics accusing any administration of caving to Beijing.  Then, we would support the Chinese three-phased pathway to their own worldwide economic ascendency, per translated planning documents by Rare Earth Exchanges.

There does not appear to be any viable middle ground. Either the U.S. treats rare earth independence as a national emergency or it plays the long game under a temporary truce with China. Anything less is just more political theater while Beijing tightens its grip. 

Perhaps we are missing a third pathway?  The goal here is to prompt deep thinking on the matter.

Conclusion: America’s Rare Earth Reality Check

The notion that the U.S. can simply “catch up” to China in rare earths and, frankly, major critical minerals without a decade-long, fully funded industrial policy-driven push is a delusion. The cold, hard truth is this:

• China has already won—it controls the processing, refining, and magnet production, while the U.S. has none.
• Innovation won’t save us in the short to intermediate run—rare earth recycling and alternative magnets at scale (meaning ready to replace existing approaches for whole industries) are years, if not decades, away.
• The U.S. appears to have only two serious choices—either launch a $500+ billion emergency industrial surge driven by industrial policy and a network of aligning nations or negotiate a rare earth lifeline with Beijing while taking a more measured, long-term approach toward resilience (factoring in innovation, disruption and the truism that market forces ultimately will transcend government-controlled industry).  Yes, in the long run, capitalistic models will win, but in the long run, those of us now talking about these matters will likely be gone.

With economic nationalism running hot in America, a sweeping industrial policy dependent on a network of allied nations faces political landmines. Meanwhile, a Trump-led diplomatic tradeoff—securing a decade of supply while domestic infrastructure is built—remains the most viable short-term option—and Trump is ironically the best candidate for this job.

We suppose another option is likely– just keep the status quo going—business as usual. What are the risks associated with this direction?

More than likely, time is running out.  Trump has embraced bold reform but should now take it to the next level on the rare earths and critical minerals front and act—either go to economic war or employ the Art of the Deal and build resilience in parallel—before China decides for us.