Highlights

• Washington takes unprecedented equity positions:
  • 10% Trilogy Metals
  • 15% MP Materials
• Billions deployed across North American mining projects
• Lacks coherent industrial policy:
  • No price floor
  • Limited refining capacity
  • No heavy rare earth separation outside China
• China's dominance:
  • 80%+ refining control
  • 90% magnet production
  • 98-99% dominance in critical heavy elements
• Recent export control pause offers only tactical relief
• Beijing retains power to strangle supply and flood markets to undercut Western competitors
• Pentagon's 2027 ban on Chinese magnets in defense systems is unattainable:
  • Insiders expect broad waivers
  • No viable domestic supply chain exists
• Trump's bold rhetoric masks fragility and risks complacency:
  • Potential price warfare ahead

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Washington’s Big Bet: Equity and Intervention

The Pentagon is indeed going “long” on miners. In a remarkable departure from free-market tradition, the U.S. government now acts like a strategic investor. The Department of Defense (or “Department of War,” as some wryly call it) has taken equity positions in critical mineral firms: 10% of Trilogy Metals (opens in a new tab) (to boost an Alaskan copper-zinc project) and 5% of Lithium Americas (opens in a new tab) (securing the Thacker Pass lithium mine) were announced in October.

Even more striking, a 15% stake in MP Materials – America’s flagship rare earth miner (the treasure trove) – means Washington is part-owner of the sole U.S. rare earth mine. Alongside these stakes, agencies have funneled capital into projects like Lynas’s Texas refinery, Graphite One’s Alaska graphite plant, Electra’s battery metals refinery in Canada, the USA Rare Earths mine-to-magnet play, plus ReElement Technologies, along with Vulcan Elements (magnets), and Perpetua’s Idaho antimony mine. Washington is no longer a passive grant-maker; it’s picking winners and tying itself to their success.

This muscular approach – reminiscent of wartime resource policy – is born of urgency. As one Defense official put it, (opens in a new tab) “we’re making investments so we can make sure we’re securing these critical supplies”. The upside? Companies get not just funding but a powerful partner signaling long-term commitment. Canada, notably, has up till recently been more cautious (offering grants and fast-track permits without taking ownership).

By contrast, the U.S. is wielding equity to assert influence and drive market forces toward the U.S. homeland. When the government starts taking equity, the market ceases to be neutral – mineral financing is now an instrument of state policy. Of course, an activity the Chinese have turned into a critical part of their political economy.

Yet Washington’s bet is fragmented. It lacks an “industrial soul” as REEx has cited. Money is sprinkled across ventures, but who will tie it together? We still have no national strategy ensuring these mines and plants connect into a self-sufficient supply chain.

The current administration touts each deal as a triumph, but rare-earth and, for that matter, the broader critical mineral independence isn’t achieved by scattershot funding alone. As REEx argued in “The $10B Mirage,” a true industrial policy would include price stabilizers (across the ecosystems), processing incentives, guaranteed offtake for defense (beyond a couple of contracts), a magnet manufacturing corridor, workforce training and talent development, and allied trade agreements – none of which are in place in any comprehensive way. Instead, we have big headlines and “soundbites peppered with material actions” lacking a unifying plan.

Trial and Error on the Mine-to-Magnet Road

The crown jewel of America’s rare earth push, MP Materials—that rare earth treasure trove--exemplifies both progress and pitfalls. With substantial DoD funding, MP is building new refining facilities and a magnet factory – an unprecedented mine-to-magnet program on U.S. soil. This should eventually produce neodymium-iron-boron (NdFeB) magnets domestically, breaking a decades-long dependence on Chinese magnet makers.

But it won’t happen overnight. MP’s Mountain Pass has traditionally shipped a substantial portion of its concentrate to China for refining; ramping up on-site separation of light rare earths (Nd/Pr) is still underway. Crucially, heavy rare earth separation (Dy/Tb) – needed to make top-grade magnets for weapons systems – remains out of reach according to some projections.

MP has no significant dysprosium feedstock and admits China still dominates that domain.  MP Materials has expressed to REEx that the firm is on track, even with its heavy rare earth mission.  See “America’s are Earth Treasure Trove: Can MP Materials Make Heavy Rare Earths by Next Year? Promising Signals”.

Yet some deeply knowledgeable critics suggest, under condition of anonymity, that at best, MP might produce token quantities of heavy rare earths unless it sources new ore or partners abroad. Across the industry, talk of a “10× scenario” (tenfold increase in output) is tempered by reality. Every step from ore to magnet involves steep learning curves and substantial trial and error. Chemical processing of rare earth oxides is notoriously complex, and success at laboratory scale doesn’t guarantee success at volume.

Refining at scale will need subsidies and patience – investors recall how past U.S. ventures faltered when Chinese producers slashed prices. If anything, China is doubling down on capacity just as the West tries to scale up. By 2026–27, Chinese state miners and magnet firms (buttressed by consolidation into giants) could unleash a glut of cheap NdPr oxide and magnets. This is the classic playbook: flood the market, depress prices, and make would-be competitors non-viable. Western projects could struggle to service loans if rare earth prices crater. Without coordination (such as a price floor or procurement guarantees), Washington’s new equity stakes might turn into rescues or write-offs in a price war.

2027: Mandate Meets Reality

On paper, the U.S. DoD (Department of War) has drawn a line in the sand. A rule (DFARS 252.225-7052 (opens in a new tab)) kicks in January 1, 2027, banning defense contractors from using any rare earth magnets touched by China (or Russia, Iran, North Korea) in their supply chain. This extends earlier sourcing bans and is meant to sever Chinese influence over fighter jets, missiles, and other vital hardware. The message: two years from now, no more Chinese magnets in American weapons. It’s a bold ultimatum – and almost certainly unattainable in the given timeframe.

Industry insiders quietly acknowledge what officials won’t say aloud: there is no way the defense supply chain will be ready by 2027. The ban’s scope is expansive – covering everything from the mined ores to alloy production – yet America and its allies today lack an independent, sustainable supply for many critical rare earth products. Every F-35 jet, Aegis destroyer, or Abrams tank rolling off the line today still contains Chinese-origin rare earth materials. Substituting those will take years beyond 2027, no matter how much money is thrown at the problem now. As a result, REEx predicts that the Pentagon will “fudge” the deadline with waivers and extensions.

According to Rare Earth Exchanges’ sources, power players in the DoD are not taking the 2027 ban literally – they fully expect to issue broad exceptions to keep assembly lines running. In truth, “nothing but exceptions” may be the initial outcome; otherwise, critical programs would grind to a halt. The rule’s intent (to shock the system into action) has succeeded in spurring investment (and we would credit President Trump with doing more than any other president over the last decades), but when D-Day arrives, national security will trump strict compliance. We’ll see a rash of case-by-case waivers to allow Chinese-origin components until viable substitutes ramp up. Officially, the U.S. talks tough; unofficially, it knows it must buy time.

China’s Short Leash and the Long Haul Ahead

Meanwhile, China is making it painfully clear who holds the leash. Those export controls from April 2025 – requiring licenses for each rare earth oxide or magnet shipment – remain firmly in place.  Beijing used them this year to create selective shortages, delaying approvals until foreign manufacturers felt the choke. As reported by Reuters (opens in a new tab), auto plants in the West had to halt at least some production lines in May due to sudden, rare-earth part shortages. That leverage persists. The much-touted “deal” between Trump and Xi in late October was not a rollback of China’s grip – it was a temporary stay of execution. True, the Trump administration is positioning itself as more of an enduring stability.

China agreed to delay new stricter measures and to consider yearly permits, giving Washington a symbolic win. But Chinese officials are mum on removing the existing April regime, and insiders say defense-related buyers may still face tight controls. In essence, we’re back to the status quo ante of April’s tough rules, which U.S.negotiators had called onerous. Beijing can still veto or slow-walk any export to America by denying a license. The leash slackened slightly, but it’s still around our neck.

All of this underscores a stark truth: despite clear progress, America has not yet escaped China’s rare earth orbit. Importantly, President Trump has done more than any U.S. leader to date – he’s marshaled funds, invoked wartime powers, and even taken ownership stakes to force a domestic supply chain. That deserves some serious credit. Yet, without a comprehensive plan – an “industrial policy” with real spine – these efforts risk being Sisyphean.

Thus far, except for specific company contracts (e.g., MP Materials, which has some significant built-in margins with the feds), there is no integrated strategy synchronizing mines, refineries, magnet factories, and end-users in a way that can outlast price swings and Chinese countermoves over the years ahead. We are attempting a great re-learning: rebuilding an industrial base that was allowed to wither for decades. It’s a monumental task, requiring not just money but coordination, patience, and yes, subsidies and protections to weather China’s inevitable pushback.

President Trump’s triumphal rhetoric (“we’ll have all the magnets we need imminently”) may rally crowds and show well in the news, but it masks the fragility of the endeavor. Based on multiple REEx analyses, the over-promising of quick victory is dangerous – it risks complacency and can mislead investors, something we will not let happen at REEx. Already, some private capital is hesitant, seeing a mismatch between political claims and on-the-ground metrics: no new heavy REE output, no clear demand guarantees, uncertain pricing. Beijing, ever pragmatic, reads America’s swagger and sees an opportunity: exploit the gaps, undercut the prices, maintain the dependency.

Grave economic danger lies ahead if Washington cannot align its vision with reality. A flood of Chinese supply could massacre the NdPr market in a few years, gutting the economics of new Western projects. If that happens, the U.S. might find itself even more reliant on China a few years from now, having spent billions for little gain – a nightmare scenario of “two steps forward, three steps back.” Avoiding that fate will require more capital, more collaboration, and more candor about the challenges than we’ve seen to date. It likely means embracing policies once anathema: production subsidies, purchase mandates, stockpiles, perhaps even trade actions – all coordinated under a single strategic umbrella.

Summary

In short, the Pentagon’s big bet on miners is a necessary start but nowhere near a sufficient, enduring plan. America’s rare earth independence won’t come via a few deals or a loud proclamation in anticipation of a mid-term election; it will come from painstakingly building an entire ecosystem from the ground up – and defending it from market warfare. Until then, China still holds most of the cards, and the mine-to-magnet saga remains an uphill battle for the United States. The coming years will reveal whether this bold but brittle push gains an industrial soul, or whether it becomes just another mirage in the desert of global supply chains.

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