Highlights
- China currently controls 70-80% of rare earth element production, using it as a strategic geopolitical weapon against Western economies and defense industries.
- Western governments are deploying comprehensive financing tools, including strategic investment funds, tax incentives, loan guarantees, and public-private partnerships, to develop domestic rare earth supply chains.
- The US, EU, Canada, and Australia are implementing coordinated national strategies to secure critical minerals production, processing, and manufacturing independence from Chinese control.
Modern economies and militaries depend on rare earth elements (REEs). Yet today China dominates these critical minerals, controlling roughly 70–80% of production and some 90% of processing. Beijing has openly treated rare earths as a strategic weapon: in recent years, it declared REEs “state property,” banned the export of extraction technologies, and curbed shipments of specific elements for geopolitical leverage. This power China wields affords an unfair advantage: cheap capital, generous subsidies and quotas, and lax environmental standards keep Chinese REEs far cheaper and faster to market. Western industry simply cannot compete head-on without massive state support.
Meanwhile, Western countries face growing supply-chain shocks. Critical systems from F-35 fighters to wind turbines rely on REE magnets. U.S. military strategists note that rare earths like dysprosium and yttrium are “essential” to jet engines, lasers, and radars, yet “we are 100% dependent on refined Chinese materials,” EU Industry Commissioner Stéphane Sejourne bluntly observed Market Screener (opens in a new tab) and Reuters (opens in a new tab).
A bipartisan Defense Department initiative has spent over $439 million since 2020 to build a domestic “mine-to-magnet” supply chain, from separation to finished magnet production as reported by Rare Earth Exchanges (REEx).
But this scratch-the-surface effort is far short of the scale needed. If China were to cut off REE exports in a trade war—as it famously did (briefly) to Japan in 2010 – the effect on Western tech and defense would be devastating. China recently locked down several rare earth elements, subjecting exports to painfully slow bureaucratic steps.
To secure supply independence, Western nations must mobilize massive financing across the entire REE pipeline—mining, processing, and component manufacturing. This means creative public–private partnerships, strategic investment funds, government loan guarantees, export-credit support, tax incentives, procurement guarantees, and even dedicated ETFs to draw in capital. Below, we examine how the US, EU, Canada, and Australia can deploy these tools to build a resilient, state-of-the-art REE supply chain.
The Western Gap–Upstream, Midstream, and Downstream
Before detailing financing mechanisms, we must outline the problem. The full REE supply chain consists of upstream mining and beneficiation, midstream refining and separation, and downstream manufacturing of components (especially magnets). China dominates all three tiers. For example,Australia’s Lynas Corporation—the largest non–Chinese rare earth miner—must ship concentrate to Malaysia and soon to Texas for refining because China still handles most separation.
In Europe, even refining capacity is scarce: Commissioner Sejourne noted that without REE refineries “there can be no defense industry” as cited in Reuters (opens in a new tab). And in the US, Mountain Pass (California) is the only major mine; its owner MP Materials currently ships most output to China for processing, only beginning limited separation at home in 2023.
Upstream (Mining): Canada, the US, Australia, and Africa have large REE deposits, but developing mines is slow and capital-intensive. President Donald Trump’s executive orders have accelerated the pathway to opening new mines.
But Western explorers face high permitting hurdles, environmental scrutiny, and financing gaps. For example, Canada’s Torngat Metals is developing the large Strange Lake project (dysprosium-rich), but the federal government only recently approved up to C$10 million for a 170 km road and port access. Saskatchewan’s Research Council similarly needed subsidies (≈C$30 m) to build Canada’s first REE processing lab. In short, finding ore is not the bottleneck – moving it to market is.
Midstream (Refining/Separation): Extracting and separating mixed REE concentrates into pure oxides is technically complex and profit-limited. China’s years of investment have built dozens of separation plants, which operate at a huge scale. By contrast, the West has only pilot plants or dependent operations. Governments must subsidize this step heavily. For example, Lynas is now building a heavy-REE processing plant in Texas with $288 million of U.S. defense funding. The US Department of Defense has similarly funded domestic separation efforts and even piggybacked on coal and scrap feedstocks to recover REEs (via DOE’s CORE-CM program. In Canada, federal and provincial grants are underwriting the Saskatchewan Research Council’s processing of bastnaesite ore into rare-earth carbonate. The EU, under its new Critical Raw Materials Act, has already listed 24 processing projects as strategic and aims for Europe to process 40% of its needs by 2030.
Downstream (Component Manufacturing): Finally, the refined oxides must be turned into metals and magnets. Here, too, China’s dominance is near-total: it makes the vast majority of NdFeB magnets and advanced REE alloys. The US now talks of a “mine-to-magnet” chain. By sometime in 2025, MP Materials expects to produce finished magnets in Texas (for customers like General Motors) – a project supported by roughly $58.5 million in U.S. funding. Yet REEx has learned that General Motors has tailored much of this deal. U.S. Rare Earths is working on a mine-to-magnet supply chain as are a few others.
Nevertheless, Western capacity is tiny. Europe has virtually no NdFeB magnet factories on scale. Governments must guarantee offtake or even mandate domestic purchases. In an example of procurement security, Australia’s opposition plans a A$1.2 billion stockpile and offtake facility, which would buy key minerals from local producers to stabilize supply and prices. The U.S. National Defense Authorization Act similarly directs the stockpiling of strategic REE materials for the defense industrial base.
Unless Western governments underwrite the economics at each tier, Chinese producers will simply outcompete any isolated Western effort. Below, we survey the financing tools that can bridge the gap.
Public-Private Partnerships
Combining government support with private innovation is already a proven model. In the United States, the Department of Energy’s Critical Materials Institute (CMI) exemplifies a PPP: it brings together national labs, universities and companies to develop REE extraction and recycling technologies.
CMI team members (e.g. industrial gas firm Lixivia, BorgWarner, Rio Tinto) co-invest in R&D to “avoid a supply shortage” in REEs (opens in a new tab).
Similarly, DOE’s new CORE-CM program (opens in a new tab) funded $45 million in five regional consortia (university-led PPPs) to leverage coal and mining waste as REE feedstocks. These collaborative hubs leverage private know-how while spreading technical risk.
In Europe, the European Raw Materials Alliance (ERMA) has been launched to unite companies, governments and researchers (opens in a new tab) across the rare-earth and magnet chain. ERMA’s goal is “strategic autonomy” for critical-materials supply chains; it will help identify barriers and investment needs and coordinate industry and state actions. In Canada, government-backed consortia are also forming: the Critical Minerals Infrastructure Fund (CMIF) encourages industry–province coalitions by offering grants (31 projects totalling over $300 million were conditionally approved in 2024).
Key examples: Lynas, for instance, teamed with the U.S. Defense Department in a PPP to build the Texas separation plant. The federal-DOE AMRL (Alliance to Accelerate Materials) is a $2 billion program (with Ford, GM) to develop critical battery and magnet materials through PPP projects.
Strategic Investment Funds
Major Western governments are creating funds to invest in critical mineral ventures directly and to leverage private capital. In May 2024, France, Italy, and Germany announced a €2.5 billion joint investment plan for critical minerals. France is seeding a €500 million national “minerals fund” (managed by Infravia) with a €2 billion fundraising target. Italy put €1 billion into a “Made in Italy” critical-supply fund, aiming to double it with private partners. Germany allocated €1 billion via KfW, plus a government “raw materials committee” to screen projects.. These European funds will take equity stakes in mines, processors, and magnet makers, covering the whole value chain from ore to recycling.
Canada’s government is similarly funneling capital: it launched (opens in a new tab) the CMIF with up to $500 million for mining infrastructure. Over 31 projects have already received about $300 million in conditional approvals (opens in a new tab).
Ottawa’s Critical Minerals Strategy has poured $700 million+ into REE projects since 2022, including loans, grants and equity stakes. In Australia, the 2025 budget pledged an unprecedented A$7 billion in tax breaks and incentives (opens in a new tab) for critical mineral processing; combined with earlier measures, Canberra has made over A$1.3 billion available in direct support since 2022.
Beyond equity funds, Western export-credit and development banks are mobilizing. The U.S. International Development Finance Corp (DFC) (opens in a new tab) has financed overseas REE projects (e.g., technical grants for Africa’s Pensana project) to expand “allied” supply. In September 2024, the U.S.-led Minerals Security Partnership (MSP) created a Finance Network to synchronize government-backed lenders and export credit agencies’ reports, according to (opens in a new tab) White Case. This MSP Network aims to coordinate DFIs (like DFC, CDPQ, EDC) so they can co-finance third-country projects under high ESG standards. In practice, this means multi-billion-dollar lines of credit and political-risk insurance can be arranged for mining and processing abroad in friendly nations.
Tax Incentives and Subsidies
A direct way to attract capital is tax breaks. The U.S. Inflation Reduction Act (IRA) introduced Section 45X, a 10% tax credit on the costs of domestic production of eligible critical minerals (including key rare earths). Crucially, this credit has no phase-out for minerals and is permanent in law per CSIS. Reducing production costs signals to investors that extracting and refining REEs in the U.S. is more competitive. Congress has also topped up the Defense Production Act with $500 million for battery minerals (though much of that so far targeted lithium); funding could be redirected to REEs under national security priorities.
Similar measures exist elsewhere. Australia’s recently passed Critical Minerals Bill creates a 10% refundable tax credit for processing and refining 31 critical minerals (including rare earths). Each project can claim credit for up to 10 years. Prime Minister Albanese hailed it as a way to “process more of these minerals here in Australia” and diversify away from Chinese supply. Canada’s government extended its flow-through share Mineral Exploration Tax Credit by two years. This provides a 15% tax credit to investors in junior miners, directing roughly $110 million more into exploration. While not specific to REEs, it injects capital into all Canadian mining juniors (including rare earth plays). The EU is considering tax credits for onshore processing under its Critical Raw Materials Act, and member states may offer R&D credits and subsidies for refining technologies.
Loans, Guarantees and Export Credit
Governments can also use the loan mechanisms of institutions like the U.S. DOE’s Loan Programs Office or export-import banks. Under the IRA, DOE’s Loan Programs Office can now back projects that “increase domestically produced supply of critical minerals”. Already, DOE’s Title XVII authority (up to 100% federal loan guarantee) is being expanded. DOE evaluates projects like DOE-validated REE refineries and magnet plants for such backing. For example, DOE has reportedly offered conditional commitments for several gigafactory loans; similar guarantees could be mobilized for REE plants and magnet factories.
Export credit agencies (ECAs) also have roles. A strategic ECA credit line could finance equipment purchases for rare-earth projects, reducing private borrowing costs. The new MSP Finance Network explicitly coordinates ECAs: partners may use their export credit instruments to support allied critical mineral projects. For instance, Export Development Canada (EDC) and Business Finland have already chipped in on EV battery projects abroad; extending this to rare-earth facilities is a logical next step.
Procurement Guarantees and Stockpiling
Another financing approach is offtake and procurement guarantees. Governments can underwrite demand to encourage capacity-building. Australia’s proposed A$1.2 billion strategic reserve is a prime example: the government would buy agreed volumes of critical minerals at fixed prices, holding them in stockpiles to stabilize markets. This “buyer of first resort” model gives miners confidence to invest, knowing there is a guaranteed buyer. The U.S. military is also effectively acting as a buyer of last resort for REE magnets, funneling budget to domestic magnet projects and stockpiling materials. Even the 2024 National Defense Authorization Act directs the Defense Logistics Agency to stockpile certain REE compounds for defense needs.
Internationally, joint procurement among allies can pool demand and de-risk ventures. After Russia’s invasion of Ukraine, the EU organized joint purchases of gas and food to blunt shortages. A similar model could apply: for example, Quad countries (US, Japan, Australia, India) agreed in 2022 to coordinate rare-earth supply chains, reuters.com (opens in a new tab), signaling possible future bulk buying agreements. Formal agreements that Western militaries source REE magnets only from certified allied producers would create captive markets and help finance new plants.
ETFs and Capital Markets
Beyond government programs, capital markets can amplify financing. Specialized rare-earth and critical-minerals ETFs pool investor funds into the supply chain. REEx is proposing simulated ETF security for review via the REEx Forum (opens in a new tab).
For instance, VanEck’s REMX (opens in a new tab) and other thematic funds invest in mining and processing companies worldwide. REEx – a market intelligence platform – has proposed an ETF targeting the full REE supply chain. Such vehicles make it easier for pensions and institutions to back REE companies, increasing equity flows. They also signal to private firms that there is patient capital available. Ultimately, harnessing private capital via ETFs, venture funds, and green investment portfolios will be essential. However, these can only thrive if governments provide the backdrop of co-investment and policy support.
Country Case Studies and Comparisons
Western nations are at different stages, but all are ramping up efforts.
United States
The U.S. has passed sweeping measures (IRA, CHIPS Act, infrastructure bills). Apart from the 10% 45X credit per CSIS (opens in a new tab) and DOD funding (opens in a new tab), the Biden administration has targeted REEs through executive action. In 2023, it launched a Federal Initiative on Critical Minerals, coordinated by the National Science Foundation, and directed agencies to use the Defense Production Act on REEs. DOE’s Loan Office, ARPA-E, and NSF funds back REE R&D and demo projects. The Pentagon has awarded >$439M for REE supply chain projects, and Section 232 tariffs have been used to favor domestic magnet producers. The U.S. also leans on the Minerals Security Partnership to align allied finance. Despite these, many argue that even more direct investment (e.g., an American rare-earth strategic reserve) is needed. With the incoming administration of Donald Trump, multiple executive orders have been issued, including a 232 action, which is used to consider permanent, longer-term changes.
European Union
The EU’s 2023 Critical Raw Materials Act sets binding targets: 10% of mining, 40% of processing, and 25% of recycling by 2030. On March 25, 2025, the Commission announced 47 strategic raw-material projects (25 mines, 24 processing) across 13 countries. Projects benefit from accelerated permitting (15–27 month caps) and may receive state aid. Three EU powers – France, Italy, Germany – collectively allocated €2.5 billion for critical raw materials funds, as detailed above. At EU level, the European Investment Bank (EIB) is rolling out a €4 billion “InvestEU (opens in a new tab)” facility for strategic minerals. The EU also pursues procurement: it’s exploring a joint magnet-purchasing agreement for member-state defense agencies. Still, Europe remains 100% reliant on China for refined REEs, so these measures must rapidly scale. The new European Raw Materials Alliance is meant to harness industry–government PPPs, though critics note Europe lags Asia in funding speed.
Canada
Ottawa’s 2022 Critical Minerals Strategy aims to make Canada a “superpower” in minerals. Since then, >$700 million in federal investments have been pledged. Key tools include the flow-through tax credit for juniors, the $500M Critical Minerals Infrastructure Fundcanada.ca, and provincial co-funding (as in Saskatchewan’s $13–$30M for REE processing). Notably, in Dec 2024, Canada announced $10M for road/port to unlock Torngat’s Strange Lake REE project. Canada also participates in the MSP and is pursuing trade agreements to secure offtake (e.g., a 2023 US-Mexico-Canada pact on critical minerals). However, Canada’s refining capacity is virtually zero, so some analysts urge federal stakes in a Canadian separation plant or financing joint ventures with American partners. Over $700 million has been committed.
Australia
Canberra has aggressively funded mining and processing. The government recently announced a $1.2 billion (Australian) stockpile of critical minerals. In March 2022, Australia unveiled A$500 million in new grants and loans to boost its critical minerals sector, explicitly to counter China’s 70–80% market share. Last year, the Albanese government passed the 10% processing tax credit and set up a new Critical Minerals Council. A scheduled 2025 budget promised A$7 billion in extra credits for onshore processing. Labor has also announced the A$1.2 billion stockpile and permanent offtake vehicles for key minerals. Beyond money, Australia has partnered with the U.S. – jointly funding startups and R&D – and with Japan and others to finance projects like the proposed Browns Range REE mill. Critics still argue more is needed, such as faster approvals and more incentives for local refining, but Australia leads the West in mobilizing resources so far.
What Must Be Done
Securing Western REE supply chains demands far-reaching, integrated action. Isolated grants or loans won’t suffice. Governments must coordinate across agencies (defense, energy, industry) and borders to pool demand and deploy capital at scale. In practice this means:
| Action Items | Summary |
|---|---|
| Massive Public Funding | Governments will likely have to co-invest on a scale rivaling China’s state subsidies. That could include national “Critical Minerals Banks” or sovereign REE investment vehicles. Direct equity stakes in mines, refineries and magnet factories may be necessary to jump-start projects that the private sector shuns alone. |
| Streamlined Regulatory and Investment Frameworks | Streamlined Regulatory and Investment Frameworks: Beyond money, bureaucratic reforms (fast permits, environmental standards for mining tailored to global benchmarks, protections against Chinese predatory pricing) are crucial. Public-private consortia should aim to “crowd in” private finance by mitigating geological and market risk (e.g., through state loan guarantees and insurance for exploration). |
| Allied Partnerships | No single Western country can handle the entire chain. The US, EU, Canada and Australia should form a “Rare Earths Allies Pact,” aligning strategies much as NATO did on defense. Joint R&D programs, co-financed projects (e.g., building a magnet plant in Canada funded by a US-AUS consortium) and pooled procurement will amplify each other’s efforts. The MSP Finance Network is a good start; an allied output-sharing agreement or stockpile, akin to the IAEA approach to nuclear fuel, could emerge. |
| Incentives and Procurement | Tax breaks and loan guarantees should be front-loaded for companies that meet strategic milestones (e.g., 100% domestic supply to carmakers, or first-of-its-kind recycling plants). Governments should use their buying power: for example, the U.S. should mandate that all F-35 magnets be made in-country. Canada and Australia have pioneered the stockpile idea, and Europe might consider a community-level strategic reserve or guarantee to commit to buy magnets for turbines. |
| Leveraging Private Capital | Western pension funds, wealth managers and even retail investors must be encouraged to fund REE ventures. ESG frameworks may adapt to allow “responsibly sourced critical minerals” as an investment theme. ETFs like the proposed Rare Earth Exchanges REE Supply Chain ETF could channel billions into dozens of companies from mine to magnet. Public guarantors or “anchor” investments (e.g., sovereign wealth funds taking seed positions) can give confidence to such fund. |
In sum, the West must treat rare earths as a national security imperative, deploying every financial tool – and some bold new ones – to out-compete China’s all-in strategy. Failure means continued dependency on a strategic rival; success could secure the critical inputs for the clean-energy and defense industries of the 21st century.
Sources: The analysis was compiled from government releases and media reports, including Reuters, CSIS, Benchmark Minerals, Traxys, Al Jazeera, Chatham House, U.S. and Canadian official statements, and other sources within the REEx network.
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