U.S. Vulnerability to Critical Material Supply Chains: Insights and Actions

Highlights

• China controls 80-90% of rare earth element processing, creating strategic vulnerabilities for the United States.
• Geopolitical risks emerge from concentrated supply chains in critical materials for defense and clean energy technologies.
• Urgent action is needed to diversify material sources and develop domestic production capabilities.

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The United States has become heavily reliant on foreign sources for critical materials essential for defense systems and clean energy technologies, with China dominating the supply chains for rare earth elements (REEs) and lithium-ion battery (LIB) components. This dependency has been shaped by decades of offshore mining and processing, leaving U.S. supply chains susceptible to geopolitical disruptions and economic coercion.

China’s market dominance stems from its cost-effective production practices in the 1990s, bolstered by state-backed policies and consolidation efforts that have created significant barriers for other nations to compete. Today, China controls about 80-90% of REE processing and is a global leader in LIB material processing, which is vital for technologies like electric vehicles, wind turbines, and military systems.

Key risks include the potential for China to leverage its control over critical materials as a geopolitical tool, as demonstrated in past export restrictions and market manipulations. U.S. efforts to reduce dependency, such as domestic mining and international partnerships, are progressing but face long timelines and significant investment requirements.

Experts suggest proactive policies, such as increased domestic production, stockpiling, and fostering international alliances, are crucial to mitigating risks. However, these initiatives must contend with environmental regulations, high costs, and the lengthy timeframes required to establish a resilient supply chain.

Experts from the West agree that the U.S., as well as other nations from the West, as well as allies, must act urgently to diversify their critical material sources and bolster domestic capabilities. This includes preparing reactive policies to address potential disruptions while implementing proactive measures to reduce dependency on China. The stakes are high—not just for national security but also for global clean energy transitions and economic stability.

Rare Earth Exchanges suggests a scalable independence even with a concentrated effort today (with sufficient investment) would be several years off into the future.