The U.S. Struggles to Break Out from China’s Grip on Rare Earths
The Trump administration is trying an
array of unconventional measures to shore up U.S. rare earths supplies. It
remains uncertain whether the strategy will work.
Overview
The Trump administration has launched a broad,
high-stakes campaign to reduce America’s dependence on Chinese-controlled
rare earth minerals, which are essential for the production of electric
vehicles, jet engines, weapons systems, and data centers.
Despite aggressive measures — including government
investments, proposed tariffs, and a strategic mineral reserve — experts
warn that the U.S. remains years away from building a viable alternative supply
chain.
China’s Dominance
·
China mines 70% of global rare earths and
handles 90% of global processing.
·
Beijing has announced new export licensing rules,
granting it control over shipments even beyond its borders, covering
products with as little as 0.1% Chinese-origin content and Chinese
mining technology.
·
These rules also encompass battery and magnet
technologies vital for EVs, drones, and AI data centers.
·
China argues the controls uphold “international
non-proliferation obligations,” but U.S. officials see them as economic
coercion.
U.S. Countermeasures
The Trump administration has rolled out unorthodox
economic and industrial strategies to respond:
·
Government equity stakes in key
mining companies:
o
MP Materials ($400 million for a 15% stake;
operates U.S.’s only rare earth mine).
o
Trilogy Metals (Alaska copper-zinc project).
o
Lithium Americas (Nevada lithium mine).
·
Plans for:
o
A Strategic Rare Earth Reserve and price
floors to stabilize domestic producers.
o
Tariffs and subsidies to
encourage U.S. refining and magnet production.
o
Bilateral mineral partnership with Australia,
worth billions.
o
International coordination through
allies like Canada, India, and the EU.
Treasury Secretary Scott Bessent
described the effort as “forward buying” to ensure this crisis “doesn’t happen
again.”
Risks and Challenges
·
Long timelines: Mines and refineries take years
to construct, facing environmental and permitting hurdles.
·
Capital intensity: Risk of taxpayer
losses on unproven or speculative projects.
·
Fragmented coordination: The
effort spans multiple agencies (Defense, Energy,
Treasury, Commerce, and the State Department), but faces:
o
A partial government shutdown,
o
Staff shortages, and
o
Lapsed congressional funding for the
U.S. International Development Finance Corporation (DFC).
·
Tariff inflation: Higher
input costs may discourage domestic production rather than stimulate it.
Geopolitical Tensions
·
China’s latest restrictions, taking effect in
November–December, coincide with renewed U.S.-China talks.
·
Trump has threatened an additional 100% tariff
on Chinese imports if Beijing does not relent.
·
A Trump–Xi meeting is planned in South
Korea later this month, but experts doubt China will withdraw its licensing
system.
·
Analysts call the move a strategic turning point
— with Beijing weaponizing supply chains in response to U.S. tech
sanctions and export controls.
Expert
Views
·
Abigail Hunter, Securing America’s Future
Energy: The U.S. has been “proactive,” but change will take time — “You’re only
as strong as your weakest supply chain link.”
·
Kurt Campbell, Asia Group: “We’ve been good at
admiring the problem and less good at solving it.”
·
Sarah Stewart, Silverado Policy Accelerator:
“Until this spring, government intervention was thin. Now we’re seeing a rush.”
·
Evan Medeiros, Georgetown University: The new
Chinese system is “breathtaking in its extraterritoriality.” He questions
whether the U.S. can muster enough diplomatic coordination to rally
allies.
Strategic Outlook
|
Issue |
Current
Status |
Outlook |
|
U.S.
Rare Earth Supply |
Domestic
output <10% of demand |
Gradual
improvement through 2027–2030 |
|
China’s
Licensing Regime |
Global
control through export rules |
Likely
to persist; high compliance burden |
|
Allied
Cooperation |
Early-stage
talks with Australia, Canada, EU |
Expanding,
but fragmented |
|
Industrial
Policy |
Direct
U.S. equity investments, tariffs |
High-risk,
politically volatile |
|
Environmental
Permitting |
Major
bottleneck |
Unlikely
to ease quickly |
Bottom Line
Washington’s new “minerals-first industrial
strategy” marks one of the boldest efforts in decades to untangle U.S.
dependence on China.
But with Beijing still dominating both production
and refining, analysts warn that the U.S. remains years from real
supply-chain independence.
As one official put it, “This is China versus the world — not just China versus America.”
The
Trump administration is pursuing an array of unconventional measures to shore
up mineral supplies that are vital for makers of cars, jet engines, weaponry
and data centers, as the Chinese government leverages
its control of rare earth exports in ways that could cripple global industry.
In
recent months, the administration has taken stakes in several mining and
minerals firms. It has talked of establishing a strategic reserve of rare
earths, and supporting domestic producers with price controls and tariffs. On
Monday, the United States announced a strategic agreement with Australia to
invest billions of dollars to develop mineral supplies. The topic is expected
to be on the agenda for a Group of 7 meeting in Canada at the end of the month.
Some
analysts have praised the administration’s effort to find new approaches to
reduce a dependence on China that has persisted through the terms of many U.S.
presidents. But they have cautioned that the measures are not likely to provide
a quick fix to a deep reliance on Chinese mineral supplies.
Constructing
the mines, refineries and factories needed to provide a real alternative to
Chinese supplies will likely take years — even if foreign producers can obtain
the machinery and technology they need, which the Chinese government has also
proposed controlling. These investments will also require substantial capital,
creating the risk that some taxpayer funds will go to unproven companies that
could fail.
China
mines 70 percent of the world’s rare earths, and does chemical processing for
90 percent of the global supply. When the Trump administration recently hit the
nation with high tariffs and more expansive technology controls, the Chinese
government responded by rolling out a licensing system that would give it
control over rare earths shipments even outside of China.
The
restrictions would affect shipments of products containing as little as 0.1
percent Chinese-origin rare earths, as well as the use of Chinese mining and
refining equipment and technology. The licensing system would also control
battery technologies that are important for electric vehicles, drones and the
data centers that power artificial intelligence.
Mr.
Trump has threatened to impose an additional 100 percent tax on Chinese imports
on Nov. 1 unless Beijing backs down from its new restrictions, which are
scheduled to go into effect in November and December.
The
United States and China could walk back tensions in high-level meetings
scheduled for later this month. Mr. Trump is expected to meet with Xi Jinping,
China’s leader, in South Korea, amid a multicountry
trip to Asia. But experts say that Beijing is unlikely to remove its new
licensing system entirely, meaning it would continue to hold leverage over the
United States and other nations if tensions return.
Abigail
Hunter, the executive director of the Minerals Center
at Securing America’s Future Energy, a nonprofit, said that the Trump
administration had been “really proactive in trying to solve these problems”
but that it would take time for the United States to develop an alternative
supply chain for critical minerals.
Threats
to U.S. mineral supplies will just “keep happening until we shift our thinking
on how important these kind of trace materials are,” she said, adding, “You’re
only as strong as your weakest supply chain link.”
A Longstanding Risk
The
extent of the Chinese restrictions has come as a surprise, but Beijing’s use of
its exports as a source of leverage has not. As early as 2010, China cut off
rare earth exports to pressure Japan in a maritime dispute. Beijing has used
other kinds of trade curbs to try to pressure other governments, including
Australia, South Korea and Estonia.
Under
President Joseph R. Biden Jr., the U.S. government carried out a supply chain
review of mineral dependence on China, but little headway was made in changing
it. Mining and refining operations can be environmentally harmful, and take
years to set up in the United States, if they are approved at all.
The
Biden administration also discussed international partnerships. But the volume
of Chinese-produced rare earths flooding the global market pushed down prices
and made many international projects uncompetitive, analysts said.
“We’ve
been very good at admiring the problem and less good at solving it,” said Kurt
Campbell, the chairman and co-founder of the Asia Group and the former deputy
secretary of state under Mr. Biden.
Last
December, China banned the export of several minerals to the United States, in
response to technology curbs put in place by the Biden administration. In
April, after Mr. Trump threatened tariffs on its exports, Beijing put more
limits on its exports of rare earth metals and magnets, causing some global factories
to shutter temporarily.
This
month, the Chinese government greatly expanded the program, in a move that some
in the Trump administration likened to the Japanese attack on Pearl Harbor
during World War II. The announcement came after a move by the United States that
added thousands of Chinese companies to a so-called entity list, which
restricts the U.S. technology those firms are allowed to buy.
Chinese
officials have insisted that the licensing program is aimed at fulfilling
“international non-proliferation obligations,” and laid the blame on the United
States for upsetting ongoing negotiations. Last week, Lin Jian, a spokesman for
the Chinese Ministry of Foreign Affairs, said that the licensing system was “in
line with international practice.”
Mr.
Campbell said that Chinese officials had been privately assuring the Trump
administration that the rare earths licensing system was not meant to have such
a broad impact, and that the United States had misunderstood its intent. But
Beijing was unlikely to withdraw the measures, he said.
“I
do not believe that they’re going to back down,” Mr. Campbell said.
The
restrictions the Chinese have proposed would affect a variety of minerals, each
with different uses and market dynamics. Some are used to create magnets that
power wind turbines, electric vehicles and jet engines. Others are used in tiny
quantities to make semiconductors, medical devices and cancer treatments.
Sarah
Stewart, the chief executive at Silverado Policy Accelerator, a think tank,
said that some private companies were trying to be more creative in shoring up
domestic supplies. But without government intervention to prop up low prices of
minerals, it has been difficult for private companies to justify making the
substantial capital investments the industry requires, she said.
“Until
this spring, government intervention had been pretty thin in terms of figuring
out how to invest in this sector,” Ms. Stewart said. “Now we’re seeing a rush.”
Kush
Desai, a White House spokesman, said that the administration was “committed to
using every tool at our disposal to safeguard America’s national and economic
security,” adding, “The era of America’s foreign dependence ended the day
President Trump took office.”
A New Gold Rush
The
Trump administration has discussed a variety of unconventional approaches to
the problem. Treasury Secretary Scott Bessent said at an investment forum last
week that the administration would work to set price floors, do “forward
buying” and establish a strategic mineral reserve to “make sure this doesn’t
happen again.”
He
said the government would look to make direct investments in the rare earths
industry, as well as several other strategic sectors.
The
government has already taken equity stakes in several companies in the mining
sector. In July, the Defense Department agreed to
invest $400 million to take a 15 percent stake in MP Materials, which owns a rare earths mine on the California-Nevada border. The
company is finishing a factory in Texas to supply General Motors, and is
planning a second factory to expand production.
The
Trump administration also recently announced it would take stakes in Trilogy
Metals, a Canadian company that has proposed copper and zinc mining in Alaska, and
Lithium Americas, which is developing one of the world’s largest lithium mines
in Nevada.
People
familiar with the sector say the Trump administration has been weighing further
government investments and eyeing areas like rare earth magnets, deep sea
mining and African mines that are not yet under Chinese control. Some potential
investment targets are being drawn from lists of applicants for previous
funding programs. In other instances, companies in the industry are approaching
the Trump administration directly.
The
moves have raised concerns among some analysts and executives about how the
Trump administration is choosing targets for substantial investments of U.S.
taxpayer money, and about whether the deals will pan out. Those concerns are
particularly acute when it comes to processing minerals, given the sector
features many companies that market new technologies that have not been widely
used.
Mahnaz
Khan, a vice president at Silverado Policy Accelerator, said that
administration officials were knowledgeable about the sector and exercising
caution when considering investing in companies pitching unproven solutions.
“I
think there is that sense of hesitation,” she said. The administration’s
efforts to shore up alternative supplies of rare earths involve multiple
agencies. While many of the actions appear aggressive, analysts said they could
be impeded by a lack of coordination and turmoil in the government, including
an ongoing government shutdown, mass layoffs and a lapse in certain
congressional funding.
The
National Energy Dominance Council, which was set up in the White House in
February, is playing a leading role in finding new sources of minerals outside
of China. The Defense, Energy and Treasury
Departments and the Export-Import Bank of the United States have been involved
with funding and investments, while the State Department has discussed
international partnerships.
The
Commerce Department has been preparing tariffs on foreign critical minerals and
providing analysis of the global supply chain. But some former Commerce
employees said that the agency’s staff was hollowed out by a reorganization
during the Biden administration and government downsizing in the Trump
administration.
The
U.S. International Development Finance Corporation, which is responsible for
making investments in line with U.S. foreign policy objectives, is also seen as
an important player. But congressional funding for the agency expired Oct. 6,
and would need to be renewed before the D.F.C. can make new investments.
Some
analysts and executives argue that more extensive congressional funding will be
needed to support mining and processing or to build up a strategic reserve of
the minerals.
Others
say that the problem ultimately requires international coordination, given that
rare earth deposits are spread out around the world, and that strong
environmental protections and high costs may prevent projects from moving
forward in the United States.
In
his remarks last week, Mr. Bessent said that the United States would speak with
allies in Europe, Australia, Canada, India and Asia to respond collectively.
“This
is China versus the world. It’s not a U.S.-China problem,” Mr. Bessent said.
Evan
Medeiros, a professor at Georgetown University and a senior adviser at the Asia
Group, said the Chinese system was “breathtaking in its application of
extraterritoriality.” But he questioned whether the Trump administration would
“have enough good will and have enough diplomatic nimbleness” to harness
international resistance to the Chinese action.
“The
real question is whether or not the international community will recognize this
and collectively come together,” Mr. Medeiros said.