The United States has known for years that its economy depends on materials it cannot control. The rare earth metals that power F-35 fighter jets, electric vehicles and iPhones mostly come from one place: China.
Now, after years of warnings, this dependence has gone from being an abstract vulnerability to a central issue in global trade. An agreement between President Donald Trump and Chinese President Xi Jinping earlier this month has moved the U.S. back from the brink of panic — at least for now — but long-term supply chain vulnerability remains.
Beijing’s planned rules, taking effect on December 1, would require a license for any company anywhere in the world exporting even minute quantities of rare earth materials originating in China. Analysts have warned that the application of these controls could slow or paralyze production in entire industries, particularly impacting the automotive sector.
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The deal buys the U.S. a little time — about a year — to deal with rare earth minerals. But experts say it doesn’t fix the root problem that put the U.S. in this position in the first place: decades of overcaution and underfunding.
A crisis built over the years
Peter Harrell, a Georgetown Law School researcher and former senior White House and State Department official who advised the Trump and Biden administrations on supply chain security, said the vulnerabilities were well known in Washington long before the current crisis.
“This is not a new problem,” he said in an interview with Fortune.
For many policymakers, Harrell added, the first time the gap began to draw attention was in 2011, when China cut off rare earths exports to Japan during a maritime dispute.
This incident — sometimes called a “classic example” of how trade can be weaponized in geopolitical conflicts — scared Japan into reducing its dependence on Chinese rare earth exports from 90% to 60%.
This episode, he said, triggered “a wave of activity” in the Pentagon and among US allies. The Obama administration’s initial efforts were primarily diagnostic; Trump’s first term funded some pilot mining and processing projects; Biden’s tenure has added a diplomatic layer through the Minerals Security Partnership, a U.S.-led alliance of about a dozen countries to secure global supply chains for critical minerals.
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But collectively, Harrell argued, these efforts failed because “it’s hard to get the government to focus on problems that aren’t urgent, take years to solve, and cost real money.” For a while, the threat seemed theoretical—until now.
Former USTR employee (US Department of Foreign Trade) and the Treasury Department’s Emily Kilcrease, now a researcher at the think tank Center for a New American Security, agreed that Washington’s failure was not due to ignorance but rather to misplaced faith in the free market.
“The private rare earths market is not going to provide us with what we need,” she said. “It is dominated by China. Companies cannot compete on price alone.”
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China’s state-run system — driven by subsidies, lax environmental rules and an aggressive industrial policy — has destroyed its competitors. Rare earths have long given Beijing disproportionate global influence despite requiring a relatively small financial investment.
The industry generates about $50 billion a year — a figure cited by Ahmad Ghahreman, CEO of Cyclic Materials — but supports multitrillion-dollar industries including defense, electric vehicles, renewable energy and consumer electronics.
By heavily subsidizing the refining and production of magnets throughout the 1990s and 2000s, Beijing secured a near-monopoly on global production, Ghahreman told Fortune. Today, China accounts for about 70% of rare earths mining and nearly 90% of processing capacity, according to U.S. Geological Survey and OECD trade data.
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This dominance allows China to use export restrictions as a geopolitical tool at little economic cost to itself — but with enormous potential for disruption abroad — a dynamic that, as Kilcrease put it, has turned rare earths into “a bottleneck” in the world’s most advanced supply chains.
China, however, had always “acted with restraint” in exploiting this bottleneck, Kilcrease said.
The race
That changed this year. China’s new export restrictions have struck at the heart of Western manufacturing just as demand for electric vehicle engines and data center hardware is growing. In Washington, the response has been a rush to design industrial policy for a supply chain that barely exists.
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The most ambitious measure so far is the US$8.5 billion US-Australian rare earths deal, supported by the US Department of Defense and the Export-Import Bank. The pact combines loans, subsidies and purchase guarantees to keep allied producers active even if Beijing floods the market to drive down prices.
Still, experts say the agreement barely scratches the surface. For starters, the agreement mainly covers neodymium and praseodymium, which are just two of the 17 rare earth elements.
“There are a dozen other rare earths and another 20 critical raw materials that need the same attention,” warned Harrell. “You need to focus on the entire group, not just some of them.”
Furthermore, although Australia has the world’s fourth largest reserves, with 5.7 million tonnes of rare earth oxide equivalents, its industry is insignificant compared to China’s 44 million.
For Kilcrease, the agreement is part of a larger change: the end of Washington’s faith in markets as an automatic solution and the recognition that the State needs to play a more direct role.
She said the move fits into a broader pattern of “a more muscular industrial policy,” pointing to recent government capital investments in companies like Intel and US Steel.
“This is all part of the same trend,” Kilcrease said. “The government is getting more involved to ensure we have a reliable supply of materials that keep our economy running.”
Within Washington, the policymaking process has also changed.
“The interagency process under the second Trump administration is fundamentally different from anything we’ve ever seen,” Kilcrease said.
She described a White House that no longer waits for technical proposals: “It’s the president sitting down with the Treasury secretary or the Commerce secretary to figure out how to put together the trade and government agreement that solves the problem.”
Reuse, recycle
As Washington adjusts to this new approach, the industry is trying to fill the gap on its own, Ghahreman said.
“We founded Cyclic Materials because we knew this was coming,” he said. “I was working on a study for the Government of Canada on rare earth deposits and concluded that we needed a business whose revenue did not depend entirely on mining.”
Ghahreman’s company extracts magnets and metals from used products such as electric bicycles, power tools and motors.
“At our first facility in Arizona, we will process about 25,000 tons of end-of-life products per year,” he said. “This produces around 750 tons of magnetic material per year, which goes into our second technology, where we produce rare earth oxides and nickel-cobalt hydroxide.”
The Arizona facility and a complementary facility in Kingston, Ontario, are expected to begin full commercial operation in the first half of next year.
Recycling, he said, does not eliminate the need for mining, but it does reduce pressure on the system.
“Both need to coexist if we want to truly decarbonize the planet,” said Ghahreman. “Recycling uses 5% of the water that mining consumes and about a third of the carbon footprint.”
Heavy rare earth elements, he added, remain the most critical: “Today, 99% of heavy rare earth elements are mined and supplied by China. The only realistic sources outside of China are new mines and recycling.”
The most common heavy elements — dysprosium, terbium and yttrium — are used in the high-strength magnets that drive motors in electric vehicles and military technology.
In Ghahreman’s view, “government support over the next five to ten years will be critical” if the US and its allies are to compete.
For now, this support is coming slowly. Harrell said the US-Australia agreement and smaller Pentagon contracts with mining companies like MP Minerals are a start, but warned that “the question will be: Can we maintain this level of attention and resources to really solve the problem? Or, in six months or a year, will we have already moved on to another crisis?”
Ghahreman expressed a similar warning. He said China’s pattern of tightening export controls — from equipment restrictions in 2023 to their expansion this year — shows how quickly the landscape is changing.
“You can connect the dots and project them into the future,” he said. “Speed of execution and bringing the entire supply chain to the U.S. and allied countries will be important.”
If the U.S. wants to end its dependence on China, he said, it will have to act faster than it ever has.
“We’re just getting started,” Ghahreman said. “But we don’t have time to waste.”
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