Highlights
- The United States relies heavily on China for rare earth elements, with 72% of imports coming from China, which are critical for defense, electronics, and emerging technologies.
- Trump’s presidency could potentially slow clean energy transitions while challenging China’s near-monopoly on rare earth processing through domestic mining initiatives.
- Developing a domestic ‘mine-to-magnet’ supply chain is crucial for U.S. national security and reducing vulnerability in key industries like defense and technology.
The incoming presidency of Donald Trump, marked by what will likely be a stark reversal of the Biden administration’s climate policies, raises significant questions for the global market for rare earth elements (REEs). A full embrace of fossil fuels under Trump’s “drill baby drill” mantra, coupled with likely plans to exit the Paris Agreement and dismantle electric vehicle (EV) mandates, would likely slow the U.S. transition to a carbon-free economy (of course, there are arguments that such transitions are costly from an energy perspective). This shift could possibly weaken one of the key growth drivers for REE demand—namely, the adoption of clean energy technologies like wind turbines and EVs, which rely heavily on neodymium, dysprosium, and other rare earth magnets. But when reviewing the total dependence still on Chinese imports for both the elements plus value-added products across a range of industries and sectors, the magnitude of the dependence remains a serious challenge in the short run, at least, if not as well, for the intermediate run.
During the four-year term, this policy pivot may temper the upward trajectory of REE prices, particularly for those tied closely to green energy sectors. However, the impact might be limited because REEs are critical to other sectors, such as defense, consumer electronics, and advanced manufacturing, which are less influenced by environmental policies.
For example, as demonstrated in the table below, rare earths remain indispensable in producing smartphones, high-performance motors, and military technologies like guided missiles. These enduring applications could stabilize demand despite a potential slowdown in clean energy adoption.
For China, which controls over 80% of global rare earth processing, Trump’s presidency could present a mixed bag. On the one hand, a diminished U.S. focus on clean energy may reduce Chinese leverage in the rare earth supply chain tied to renewable technologies. On the other, the broader reliance on rare earths across strategic industries means China’s near-monopoly status remains a powerful geopolitical and economic tool.
If Trump pursues aggressive domestic mining and processing initiatives, it could challenge China’s dominance, particularly if paired with incentives for U.S. industries to develop alternative supply chains. But Rare Earth Exchanges suggests that thus far, U.S. politicians, policymakers, and others influencing decisions don’t understand just how far behind the U.S. remains.
The costs from the need for research and development to the scaling up of process industries are likely a half-decade to a decade away, assuming a national directive to catch China. This is because, due to the environmental constraints, the answer for the U.S. and the West will be to leapfrog China’s rare earth complex. But this could easily be a decade, if not more, away.
Ultimately, while the shift in U.S. policy may recalibrate demand for rare earths in specific sectors, the broader indispensability of these elements ensures their strategic importance endures. The true test lies in how global markets and China adapt to this changing paradigm, as well as the extent to which other nations committed to the green energy transition compensate for any U.S. policy reversals.
What are the rare earth-related products the USA depends on China for?
The United States has been significantly reliant on China for its rare earth element (REE) imports. Between 2019 and 2022, approximately 72% of U.S. rare earth imports originated from China, with Malaysia, Japan, and Estonia accounting for 11%, 6%, and 5%, respectively.
The U.S. depends heavily on China for processed rare earth products, which are essential for a variety of industries, including defense, renewable energy, electronics, and advanced manufacturing. The most significant earth products the U.S. relies on from China are included in the table below:
| Category | Key Elements | Uses | Dependency |
|---|---|---|---|
| Permanent Magnets (NdFeB Magnets) | Neodymium (Nd), Dysprosium (Dy), Praseodymium (Pr), and Terbium (Tb). | The U.S. sources nearly all of its supply of finished NdFeB magnets and magnet raw materials from China, where over 90% of the global processing capacity is concentrated. This is a category of high risk and vulnerability for incoming President Donald Trump. | The U.S. sources nearly all its supply of finished NdFeB magnets and magnet raw materials from China, where over 90% of global processing capacity is concentrated. This is a category of high risk and vulnerability for incoming President Donald Trump. |
| Catalysts | Lanthanum (La) and Cerium (Ce). |
| China processes most of these materials, particularly for lanthanum-based refining catalysts used in the U.S. oil industry. Obviously, it is another vulnerable area. |
| Polishing Powders | Cerium (Ce). |
| Most cerium polishing powders used in U.S. manufacturing are processed in China. |
| Rare Earth Alloys | Neodymium (Nd), Dysprosium (Dy), Gadolinium (Gd), and Samarium (Sm). | • Heat-resistant materials | The U.S. relies on China for a significant share of rare earth alloy production and processing expertise. |
| Phosphors | Europium(Eu), Terbium (Tb), and Yttrium (Y). |
| China dominates phosphor production, which remains critical for U.S. electronics and lighting industries. |
| Rare Earth Compounds for Batteries | Lanthanum (La) and Cerium (Ce). |
| The U.S. relies on Chinese processing for materials essential to battery production. |
| Heavy Rare Earth Elements (HREEs) | Dysprosium (Dy), Terbium (Tb), and Yttrium (Y). |
| The U.S. lacks sufficient domestic processing capabilities for these elements and relies heavily on Chinese expertise. |
So, as can be seen above, pivotal American industry remains highly dependent on China’s rare earth complex.
The United States’ dependence on these Chinese rare earth elements and related products, particularly neodymium-iron-boron (NdFeB) permanent magnets, is a significant concern across multiple industries. These magnets are essential components in various sectors, including defense, clean energy, automotive, and consumer electronics.
What follows is a summary of some key industry factors.
Defense Industry
The U.S. defense sector is highly reliant on REEs for critical applications. NdFeB magnets are integral to precision-guided munitions, missile defense systems, and advanced communication devices. The Department of Defense has recognized this dependency as a national security risk and is actively seeking to establish a domestic “mine-to-magnet” supply chain to mitigate reliance on foreign sources.
As reported this year in Defense, “Since 2020, DOD has awarded more than $439 million to establish domestic rare earth element supply chains. This includes separating and refining rare earth elements mined in the U.S., as well as developing downstream stateside processes needed to convert those refined materials into metals and then magnets.” However, while this is promising from a U.S. future resilience strategy, in the short run, China has serious leverage that the incoming POTUS must consider.
According to USA Facts (opens in a new tab), Since 1980, defense spending has risen by 62%, climbing from $506 billion to $820 billion by 2023, after adjusting for inflation. In 2023, the US military spent approximately $820.3 billion, or roughly 13.3% of the entire federal budget for that fiscal year.
Key elements here include Neodymium (Nd), Dysprosium (Dy), Praseodymium (Pr), and Terbium (Tb). Heavy rare earth elements such as dysprosium (Dy), terbium (Tb), and yttrium (Y) are also important.
Clean Energy Sector
Renewable energy technologies, particularly wind turbines and electric vehicles (EVs), utilize REE-based magnets for their efficiency and performance. China’s dominance in the rare earth market poses a challenge to the U.S. clean energy transition, as the availability and cost of these materials are subject to geopolitical tensions. See the Department of Energy 2022 report. This sector’s demand may diminish, given the stated policies of the incoming POTUS.
Automotive Industry
The automotive sector’s shift towards electrification increases the demand for REEs used in EV motors. The U.S. government’s initiatives to secure a domestic supply chain for critical minerals aim to reduce dependence on Chinese imports and support the growing EV market. But again, Rare Earth Exchanges expects the U.S. will be stepping back from electric vehicle mandates. Key elements for electric vehicles include Neodymium (Nd), Dysprosium (Dy), Praseodymium (Pr), and Terbium (Tb).
Internal combustion engine (ICE) cars do utilize rare earth elements, primarily in their catalytic converters and in the refining process of the gasoline they use, meaning even though they don’t have electric motors that directly require rare earths, their production still relies on these elements to some degree, mostly Lanthanum (La) and Cerium (Ce).
Consumer Electronics
Devices such as smartphones, laptops, and audio equipment rely on REE-based components for functionality. China’s control over the supply chain affects the availability and pricing of these essential materials, influencing the consumer electronics market in the U.S. Key elements include Neodymium (Nd), Dysprosium (Dy), Praseodymium (Pr), and Terbium (Tb).
Efforts are underway to diversify supply chains and reduce dependence on Chinese REEs. For instance, MP Materials, operating the only rare earth mine in the U.S., is developing domestic processing capabilities to produce magnets for EVs and other applications.
In summary, while multiple U.S. industries are dependent on Chinese REEs and related products, the defense sector’s reliance is particularly critical due to national security implications. Ongoing initiatives aim to establish a more resilient and self-sufficient supply chain to mitigate these dependencies. During Trump’s second term, this imperative will be embraced and intensified.
Conclusion
China’s dominance in rare earth processing gives it a strategic advantage, as the U.S. depends on it not just for raw materials but for the value-added products that power critical industries. Efforts to diversify supply chains, increase domestic processing, and invest in allied partnerships are essential for reducing this dependency, but significant challenges remain due to the scale, cost, and environmental impact of rare earth processing.
Meanwhile, with the incoming POTUS embracing threats of tariffs, this risks retaliatory actions, such as China’s recent announcement that select minerals would be withheld from the United States. Trump’s administration should take a cautious approach with China, not jeopardizing access to vital inputs, for example, such as Defense, not at least until a more viable, resilient, and sustainable alternative emerges.
Daniel
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