US-China Rare Earths Conflict Intensifies
The global supply chain for rare earth minerals is fracturing as the US-China rivalry deepens. China's recent export restrictions triggered immediate production stoppages at US plants, highlighting extreme vulnerabilities. In response, investors and boards are demanding resilience-first strategies, but new supply from friend-shored sources is projected to fall short of surging demand, with China's market share only expected to dip from 90% to 69% by 2030.
The recent escalation is part of a decades-long strategy by Beijing. In 1992, Chinese leader Deng Xiaoping stated, "The Middle East has oil, China has rare earths," signaling the intent to leverage its resources. This was followed by years of state-funded overproduction that drove global competitors out of business, consolidating China's control over nearly the entire supply chain by the early 2000s. China's latest export controls, announced in late 2025, are its most restrictive yet. The rules establish a licensing system for not only raw materials but also for any foreign-made products containing more than 0.1% of Chinese-origin rare earths or produced using Chinese technology. This asserts extraterritorial jurisdiction, aiming to prevent these materials from reaching foreign defense supply chains. The immediate impact is on high-performance magnets made from elements like Neodymium, Praseodymium, Dysprosium, and Terbium. These are irreplaceable in advanced military hardware, including the F-35 fighter jet (which uses 418 kg of rare earths), Tomahawk cruise missiles, and Virginia-class submarines (which require a massive 4,600 kg). Their unique magnetic and electrochemical properties are vital for guidance systems, stealth technology, and electronic warfare. In response, the U.S. Department of Defense has invoked the Defense Production Act, investing over $439 million since 2020 to rebuild a domestic supply chain. This includes direct equity stakes in companies like MP Materials, which runs the only active U.S. rare earths mine at Mountain Pass, California, and setting price floors to guarantee production. While the U.S. has only one operational mine, several international projects aim to close the gap. Australia's Lynas Rare Earths, the largest non-Chinese producer, is building a processing plant in Texas. Other ventures are underway in Canada, Brazil, South Africa, and Europe with companies like Ucore, Aclara Resources, and Rainbow Rare Earths planning to supply Western markets. Despite these efforts, a significant supply deficit remains. The Mountain Pass mine in California still sends most of its raw material to China for the final, complex processing stages. Building end-to-end domestic processing and magnet manufacturing capabilities at scale is a capital-intensive effort expected to take years, ensuring China's market leverage will persist through the decade.
