The United States has known for years that its economy runs on materials that it can’t control. The rare-earth metals that power F-35 fighter jets, electric vehicles, and iPhones mostly comes from one place: China.
Now, after years of warnings, that dependence has turned from an abstract vulnerability into a central fault line in global trade. An agreement between President Donald Trump and Chinese President Xi Jinping earlier this month has pulled the U.S. back from the brink of panic, at least for now, but the supply chain’s long-term vulnerability remains.
Beijing’s planned rules, due to take effect December 1, would have required a licence for any company anywhere in the world exporting even trace amounts of rare-earth materials that originated in China. Analysts warned that enforcement of those controls could have slowed or halted production across entire industries, particularly hitting the automotive sector.
The agreement buys the U.S. a little time—a year’s worth—to get a handle on rare-earth minerals. But experts say it doesn’t fix the rot that put America in this position in the first place: decades of overcaution and underfunding.
A crisis years in the making
Georgetown Law scholar Peter Harrell, a former senior White House and State Department official who advised both the Trump and Biden administrations on supply-chain security, said the vulnerabilities were well understood inside Washington long before the current flare-up.
“This is not a new problem,” he said in an interview with Fortune.
For a lot of policymakers, Harrell added, the first time the gap began to register was in 2011, when China cut off rare-earth exports to Japan during a maritime dispute. That incident—sometimes referred to as the “poster child” for how trade could get weaponized in geopolitical conflict—panicked Japan enough to prompt it to reduce its reliance on China’s rare-earth exports from 90% to 60%.
That episode, he said, triggered “a flurry of activity” at the Pentagon and among U.S. allies. The Obama administration’s initial efforts were mostly diagnostic; Trump’s first term funded a handful of pilot mining and processing projects; Biden’s term added a diplomatic layer through the Minerals Security Partnership, a U.S.-led alliance across a dozen nations to secure global supply chains for critical minerals.
But collectively, Harrell argued, those efforts fell short 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 and Treasury official Emily Kilcrease, who is currently a fellow at the think tank Center for a New American Security, agreed that Washington’s failure stemmed not from ignorance but from misplaced faith in markets.
“The private market for rare earths is not going to get us what we need,” she said. “It’s dominated by China. Companies can’t compete on price alone.”
China’s state-directed system—fueled by subsidies, loose environmental standards, and an aggressive industrial policy—has gutted its competitors. Rare earths have long given Beijing outsized global leverage despite being a relatively small financial investment. The industry itself generates roughly $50 billion a year in revenue—a figure cited by Ahmad Ghahreman, CEO of Cyclic Materials—yet it underpins multi-trillion-dollar sectors including defense, electric vehicles, renewable energy, and consumer electronics.
By heavily subsidizing refining and magnet-making throughout the 1990s and 2000s, Beijing secured a near-monopoly over global production, Ghareman told Fortune. Today, China accounts for about 70% of rare-earth mining and nearly 90% of processing capacity, according to the U.S. Geological Survey and OECD trade data. That dominance allows China to wield export restrictions as a geopolitical tool at little economic cost to itself but enormous potential disruption abroad—a dynamic that, as Kilcrease put it, has turned rare earths into “a choke point” for the world’s most advanced supply chains.
China, however, had always “exercised restraint” in leveraging that choke point against the, Kilcrease said.
The scramble
That changed this year. China’s new export restrictions have hit at the heart of Western manufacturing just as demand for EV motors and data-center hardware soars. Inside Washington, the response has been a scramble to design an industrial policy for a supply chain that barely exists.
The most ambitious step so far is the $8.5 billion U.S.–Australia rare-earth framework, backed by the U.S. Defense Department and the Export-Import Bank. The pact blends loans, subsidies, and purchase guarantees to keep allied producers alive even if Beijing floods the market to crash prices.
Still, experts say the framework barely makes a dent against the problem. For one, the agreement covers mainly neodymium and praseodymium, which are only two of the 17 rare-earth elements.
“There are a dozen other rare earths and twenty other critical minerals that need the same attention,” Harrell warned. “You’ve got to sustain focus across the whole set, not just a couple of them.”
Also, Australia holds the world’s fourth-largest deposits of rare earths, but at 5.7 million metric tons of rare-earth oxide equivalents, its industry is dwarfed by China’s 44 million.
For Kilcrease, the deal is part of a larger shift away from Washington’s long-standing faith in markets and toward a recognition that the state has to play a more direct role. She said the move fits into a broader pattern of “a more kind of muscular industrial policy,” pointing to recent U.S. equity stakes in companies like Intel and U.S. Steel.
“These are all part of the same trend,” Kilcrease said. “The government is getting more involved to make sure we have a reliable supply of the materials that keep our economy running.”
Inside Washington, the policymaking process itself has also changed.
“The interagency process under the second Trump administration is fundamentally different than we’ve ever seen before,” Kilcrease said.
She described a White House that no longer waits for staff-level policy proposals: “It’s the president sitting down with the Treasury secretary or the Commerce secretary and figuring out how to come up with the commercial and government deal that resolves the problem.”
Reuse, recycle
While Washington works through that new approach, industry is trying to fill the gap on its own, Ghahreman said.
“We started Cyclic Materials because we really knew this was coming,” he said. “I had been working on a study for the government of Canada on rare-earth deposits, and I concluded that we needed a business whose revenue wasn’t entirely dependent on mining rare earths.”
Ghahreman’s company extracts magnets and metals from used products like e-bikes, power tools, and electric motors.
“In our first facility in Arizona, we’ll process about 25,000 tons per year of end-of-life products,” he said. “That produces about 750 tons of magnet material per year that goes into our second technology, where we produce rare-earth oxides and nickel-cobalt hydroxide.”
The Arizona plant and a companion facility in Kingston, Ontario are expected to begin full commercial operation in the first half of next year.
Recycling, he said, can’t eliminate the need for mining but can relieve pressure on the system.
“Both of them need to coexist if we ever have a vision of decarbonizing our planet,” Ghahreman’s said. “Recycling uses five percent of the water that mining consumes and about a third of the carbon footprint.”
Heavy rare-earth elements, he added, remain the most critical: “Ninety-nine percent of heavy rare earths today are mined and supplied by China. The only realistic sources outside China are new mines and recycling.”
The most common heavy rare-earth elements—dysporosium and terbium—are used in the heavy-duty magnets which power EV motors and military tech.
In Ghahreman’s view, “government support for the next five to ten years is going to be critical” if the U.S. and its allies want to compete.
For now, that support is coming slowly. Harrell said the U.S.–Australia deal and smaller Pentagon contracts with mining companies like MP Minerals are a start, but warned that “the question is going to be, are we able to sustain this level of attention and this level of resources to actually solve the problem? Or, you know, six months or a year from now, do we move on to something else?”
Ghareman sounded a similar note of urgency. He said China’s pattern of tightening export controls—from equipment restrictions in 2023 to the expansion of those controls this year—shows how fast the landscape is shifting.
“You can connect the dots and project it to the future,” he said. “Speed to execution and bringing the full supply chain to the U.S. and allied countries is going to be important.”
If the U.S. wants to end its dependence on China, he said, it will have to move faster than it ever has before.
“We’re just getting started,” Ghahreman said. “But we don’t have time to waste.”
