Highlights
- The U.S. went from being the world’s leading rare earth producer to almost total dependence on China due to corporate short-termism and environmental regulations.
- China strategically developed a vertically integrated rare earth supply chain, controlling 90% of global rare earth processing through long-term industrial policy.
- Rebuilding U.S. rare earth independence requires billions in investment, new infrastructure, and potentially strategic collaboration with China despite geopolitical tensions.
Do you want to understand why the United States is so behind in the world of rare earth elements? Sulgiye Park (opens in a new tab) and colleagues at Stanford University in 2023 provide a critical reevaluation (opens in a new tab) of the United States’ decline in rare earth element (REE) production, challenging the popular notion that China’s dominance resulted purely from geopolitical maneuvering.
Instead, their research uncovers how domestic failures—environmental regulations, corporate short-termism, and strategic complacency—allowed China to build a near-monopoly in REEs while the U.S. forfeited its early lead. The study suggests that rather than framing the rare earths issue solely as a national security crisis, the U.S. should take a pragmatic approach, potentially including strategic cooperation with China to rebuild a more resilient supply chain.
From Global Leader to Dependence: The U.S. Rare Earth Collapse.
Until the 1980s, the U.S. was the world’s dominant producer of REEs, with Mountain Pass in California as the leading supplier. However, a combination of environmental constraints, corporate outsourcing, and shortsighted government policies gradually dismantled the domestic supply chain. A turning point came in the 1990s, when U.S. companies began offshoring rare earth processing to China, initially as a cost-saving measure and a way to avoid the Environmental Protection Agency’s (EPA) tightening regulations.
By 2002, Mountain Pass shut down, and the U.S. ceded full-spectrum control of REE mining, processing, and magnet manufacturing to China. Unlike the U.S., China treated REEs as a strategic resource, consolidating its domestic industry with heavy state subsidies, cheap labor, and lax environmental enforcement. Over the next two decades, China steadily built a vertically integrated REE supply chain, refining 90% of the world’s REEs while the U.S. lost all domestic refining capacity.
China’s Near-Monopoly Wasn’t Just About Cheap Labor—It Was Strategic
Contrary to Western narratives that China’s rare earth dominance was a result of market forces alone, the study highlights that Beijing’s success was rooted in deliberate, long-term industrial policy. China treated REEs not just as an economic asset but as a national security advantage, embedding them into the country’s broader strategy for technological self-sufficiency.
The key to China’s rise was its ability to control downstream processing and magnet manufacturing, which required advanced metallurgical expertise. In contrast, the U.S. simply mined raw materials but lacked the refining capacity to turn them into high-value products. This meant that even when Mountain Pass restarted production in 2017 under MP Materials, its rare earth concentrates still had to be sent to China for final processing—a critical weakness in U.S. supply chain resilience. Rare Earth Exchanges has reported that MP Materials is ramping up its processing and manufacturing capabilities.
China strategically restricted exports to gain leverage in geopolitical disputes. A pivotal moment came in 2010, when China cut rare earth exports to Japan by 52% following a territorial dispute, triggering a surge in global REE prices. The move served as a warning: any country reliant on Chinese REEs could face supply disruptions as a political weapon.
Why the U.S. Can’t Easily Rebuild Its Rare Earth Industry
Despite renewed political urgency in Washington, rebuilding U.S. rare earth independence is far more complex than simply opening more mines. The study points to four major obstacles:
| Obstacles | Summary |
|---|---|
| Lack of Processing Infrastructure | Mining is only the first step; refining REEs into usable materials is the real bottleneck. The U.S. currently has zero domestic refining capacity, meaning even if Mountain Pass produces rare earth oxides, they must be shipped to China for processing. |
| Corporate Short-Termism vs. National Interests | Unlike China’s state-backed approach, U.S. firms prioritize quarterly profits over long-term strategic investment. Major corporations offshored rare earth processing to China in the 1990s, and even today, MP Materials has deep financial ties with Chinese firms, complicating efforts to fully repatriate production. |
| Environmental & Regulatory Hurdles | The same environmental regulations that shut down Mountain Pass in the 1990s still pose a challenge today. REE mining generates radioactive waste, and U.S. regulations on handling thorium and uranium make domestic refining significantly more expensive than in China. |
| China’s Technological Edge | Over the past 30 years, China has perfected rare earth separation and magnet manufacturing, while the U.S. has lost generations of expertise. Even with government funding, rebuilding this knowledge base will take at least a decade, requiring heavy investment in R&D, workforce training, and industrial policy. |
The Path Forward: Confrontation or Collaboration?
The study provocatively argues that U.S.-China cooperation on rare earths may be more effective than confrontation. While Washington frames the rare earth crisis as a Cold War-style competition, the reality is that China still controls the vast majority of refining and magnet manufacturing capacity.
Rather than pursuing an all-out decoupling, the authors suggest that strategic collaboration—such as joint ventures and knowledge-sharing—could help stabilize global supply chains while reducing economic and security risks.
However, geopolitical tensions make such collaboration increasingly difficult. With the U.S. restricting China’s access to semiconductor technology, Beijing could retaliate by weaponizing rare earth exports—a scenario that would have catastrophic effects on American defense production, EV manufacturing, and clean energy goals.
And, of course, since the 2023 report and the re-election of Donald Trump, talk of tariffs and trade wars now goes to the next level. China has started identifying key elements to restrict, while the U.S. has already announced tariffs against China by January 2025.
The Harsh Reality of U.S. Rare Earth Dependence
The decline of U.S. rare earth production was not just the result of China’s rise but of America’s own failures—from corporate short-sightedness to environmental constraints and lack of industrial strategy. Rebuilding the domestic industry will require billions in investment, new refining infrastructure, and a fundamental shift in U.S. industrial policy. While Washington focuses on decoupling from China, the uncomfortable truth is that China’s dominance is so entrenched that cooperation may be a more pragmatic solution.
Without a clear, long-term strategy, the U.S. risks remaining permanently dependent on its greatest geopolitical rival for the most critical materials of the 21st century. Rare Earth Exchanges has multiple articles suggesting a pathway forward.
Daniel
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