Nowhere is China’s critical mineral dominance greater than in rare earth supply chains. In 2022, the US government estimated that China controlled “nearly 60 percent of mined production, over 85 percent of processing capacity, and over 90 percent of permanent magnet production.”

Yet what’s at stake is clear, especially since the US government deems these materials necessary to national security. Rare earths—which include the fifteen lanthanide series elements plus scandium and yttrium—are critical not only to energy technology like permanent magnets in electric vehicles and offshore wind turbines but also to military applications like lasers and precision-guided weapons. These elements enable defense equipment and weapons system components to function.

Yet while US presidential determinations have declared that domestically producing light and heavy rare earths, rare earth metals and alloys, samarium cobalt magnets, and neodymium iron boron magnets “is essential to the national defense,” the US relies nearly entirely on foreign imports for its consumption of rare earth compounds and metals. Indeed, over 70 percent of those imports are from China. This state of affairs means that China can alter rare earth supplies to undermine US economic prosperity and national security at will.

The US government has sought to increase its domestic rare earth production, but only to limited effect thus far. To better encourage private sector investment in American rare earth projects, it must lower the industry’s high barriers to entry—including capital costs, technical challenges, and an incumbent oligopoly.

Current Constrictions

China dominates the production of rare earths. While the United States does produce rare earths at MP Materials’ Mountain Pass mine in California, these rare earths are mainly light rare earths, such as the neodymium and praseodymium used for permanent magnets.

Meanwhile, China (along with Myanmar) controls 100 percent of the global production of heavy rare earths, like dysprosium and terbium, which are both more scarce and often deemed more important than light rare earths given their advanced applications like laser crystals. With its production dominance across rare earths, China can influence global rare earth stocks by restricting its supply (which can drive up shortages) or increasing its supply (which drives down global prices and can drive out competitors).

China has done both over the past decade or so. Amid a diplomatic row with Japan in September 2010, China temporarily blocked rare earth exports to that country. (China denied doing so.) Conversely, in late 2014, China removed export quotas on rare earths, increasing global supply and decreasing global prices, which partly contributed to bankrupting Molycorp, which was then the owner of Mountain Pass.

Technological innovation for rare earths is another category in which China leads. From 1950 to October 2018, China filed 25,911 rare earth patents, while the United States filed only 9,810. Thus, China can also restrict rare earth technology. In April 2023, for instance, Nikkei Asia reported that China was considering restricting exports of rare earth magnet technology. 

China’s overall rare earth dominance grants it leverage over US national security and economic prosperity, given the necessity of rare earths in many advanced technologies.

Strengthening Supply

To reduce its rare earth reliance on China, the US government has long sought to increase domestic production across the rare earth supply chain. Numerous rare earth bills have been introduced in Congress, but few have become law.

For instance, in 2010, US Senator Lisa Murkowski (R-AK) introduced the Rare Earths Supply Technology and Resources Transformation Act, and the US House of Representatives passed the Rare Earths and Critical Materials Revitalization Act, but neither bill became law. In subsequent years, other rare earth bills have been introduced but not signed into law, including the Obtaining National and Secure Homeland Operations for Rare Earth and Manufacturing Act and the Rare Earth Magnet Manufacturing Production Tax Credit Act in this Congress. (Domestic manufacturing plants of neodymium-iron-boron magnets remain eligible for investment tax credits after the Inflation Reduction Act became law in 2022.)

The executive branch has proven to be the US government’s chief means of disbursing grants and contracts to companies seeking to build American rare earth projects. This has led to $45 million going to MP Materials, $94 million to E-VAC Magnetics, and $288 million to Lynas USA. This effort largely began in 2019 after former US President Donald Trump issued presidential determinations under the Defense Production Act, which authorized $250 million to boost domestic production across the rare earth supply chain.

Subsequent legislation has also provided the US Department of Defense with $864 million to fund strategic and critical materials projects, including rare earth projects. US President Joe Biden has also requested $276 million in 2024 and $244 million in 2025 to fund such projects.

Bringing Down Barriers

Despite these US government efforts to boost domestic rare earth production, the private sector has hitherto invested narrowly in American rare earth projects due to the industry’s high barriers to entry.

Regulatory issues, from permitting timeframes to environmental reviews, have been major barriers to entry, and these issues have been discussed extensively. Yet other key barriers to entry include capital costs, technical challenges, and an incumbent oligopoly. To encourage private sector investment in American rare earth projects, the US government must work to lower all of these barriers to entry. 

First, rare earth and related manufacturing projects—from mines to magnet facilities—have high capital costs. Dylan Kelly of the Australian investment firm Terra Capital notes that companies need at least $1 billion to commission a rare earth project.

The necessary sums can be startling. California’s Mountain Pass rare earth mine required $1.7 billion in investment for modernization and restart expenses in the early 2010s. Downstream, Lynas has invested about $1 billion in its rare earth refinery in Malaysia. Similarly, Iluka’s separated rare earth oxide refinery in Australia will cost up to $770 million, and Lynas’s rare earth cracking and leaching plant in Australia will cost an estimated $470 million. Additionally, MP Materials’ magnet production facility in Texas will require a $700 million investment.

The US Department of Energy’s Loan Programs Office (LPO) could offer more low-cost loans for rare earth projects to address these high capital costs. Rare earth projects are eligible for LPO lending under the Title 17 Clean Energy Financing Program and Advanced Technology Vehicles Manufacturing Program, but the LPO has yet to offer loans to such efforts.  

Rare earth projects are also technically challenging. Sebastien Meric, Solvay’s head of rare earths, notes that refining different rare earth ores requires different processes, which can take up to 1,500 steps.MP Materials has been seeking for three years to refine its mined rare earths, although it did recently start refining small amounts of these resources. The technical difficulties are illustrated by observing that the success rate for rare earth projects entering production between 2011 and 2021 was only 1.5 percent.

These technical challenges have been compounded by a limited, qualified workforce. So the US government could support skill development programs to address this issue. The Mining Schools Act, which the US Senate Energy and Natural Resources Committee recently reported out of committee favorably, could help address this skills shortage in the mineral industry.

Overcoming Oligopoly

A third relevant factor is that the rare earth supply chain is an oligopoly, with dominant incumbents holding significant market influence. For example, the Bayan Obo mine in China alone comprised 45 percent of global rare earth mine production in 2019. Also, present rare earth incumbents are often state-backed enterprises with access to low-cost, long-tenure, limited recourse loans. This means that new market entrants must compete against both companies and countries. (For instance, Japan backs Lynas, Germany backs Hastings, Australia backs Iluka, and the United States backs MP Materials and Lynas.)

Amid this oligopoly, the US government could offer long-term procurement contracts—such as supplying the US military—to American rare earth companies. As the world’s largest purchaser of goods, the US government could be a key customer for American rare earth companies. The Department of Defense could also increase the number of rare earths in the National Defense Stockpile by procuring domestically produced rare earths.

China’s present rare earth dominance affords it leverage over US national security and economic prosperity. To reduce this vulnerability, the US government has sought to increase domestic rare production, but to limited effect.

To better encourage private sector investment in American rare earth projects, the US government must lower the industry’s high barriers of entry, including capital costs, technical challenges, and an incumbent oligopoly. Adopting the policies laid out above and others can encourage domestic rare earth production and reduce American reliance on Chinese rare earths.