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Breaking China's Grip on Rare Earths

Breaking China's Grip on Rare Earths

The Multi-Decade American Push to Rebuild Critical Mineral Supply Chains

Overview

The United States imports 80% of its rare earth elements and depends on China for virtually all processing of the materials that power electric vehicles, wind turbines, and precision-guided weapons. The DOE's January 20, 2026 deadline for its $134 million Rare Earth Demonstration Facility program marks another step in a 15-year effort to rebuild domestic capacity—one accelerated dramatically after China's April 2025 export restrictions sent rare earth magnet shipments to the U.S. plummeting 93% year-over-year.

The funding targets a deliberately unconventional approach: extracting rare earths from mine tailings, acid mine drainage, and e-waste rather than opening new mines. If successful, up to two projects could demonstrate commercial-scale recovery of elements like neodymium, dysprosium, and terbium within 36 months. The stakes extend beyond economics—samarium-cobalt magnets are essential for missiles and stealth aircraft, and China now requires export licenses that effectively bar sales to defense contractors.

Key Indicators

93%
Rare earth magnet shipment decline to US
Year-over-year drop in Chinese rare earth magnet exports to the US in May 2025
$134M
DOE demonstration facility funding
Federal funding for 1-2 projects recovering rare earths from unconventional sources
90%+
China's rare earth processing share
China refines over 90% of global rare earths and produces 90% of high-performance magnets
$400M
DOD equity stake in MP Materials
July 2025 investment making the federal government MP's largest shareholder

People Involved

James Litinsky
James Litinsky
CEO and Chairman, MP Materials (Leading the only major US rare earth producer)
PZ
Paul Ziemkiewicz
Director, West Virginia Water Research Institute (Leading acid mine drainage rare earth extraction research)
Amanda Lacaze
Amanda Lacaze
CEO, Lynas Rare Earths (Texas facility in limbo; pivoting to Malaysia expansion)

Organizations Involved

DO
DOE Office of Critical Minerals and Energy Innovation
Federal Agency
Status: Administering $134M rare earth demonstration program

DOE office responsible for deploying Bipartisan Infrastructure Law funding for critical mineral supply chains.

MP
MP Materials
Mining/Processing Company
Status: Only major US rare earth producer; DOD's largest investment

Owner of Mountain Pass, the only operating rare earth mine and processing facility in the United States.

PH
Phoenix Tailings
Technology Company
Status: Scaling zero-emission rare earth refining from waste streams

Massachusetts-based startup recovering rare earths from mine tailings and waste using a carbon-free process.

Timeline

  1. DOE Application Deadline Closes

    Milestone

    Final deadline for applications to $134 million rare earth demonstration program. Awards of $67-134M each expected for up to 2 projects; selection anticipated February 2026.

  2. DOE Announces $134M Demonstration Program

    Funding

    Department of Energy opens applications for Rare Earth Elements Demonstration Facility program targeting recovery from unconventional feedstocks.

  3. China Suspends October Controls for One Year

    Geopolitical

    Following US-China negotiations, China suspends October export controls until November 2026. April 2025 restrictions on heavy rare earths remain in place.

  4. China Escalates with October Controls

    Geopolitical

    China announces expanded export controls including extraterritorial provisions requiring licenses for products made outside China using Chinese rare earth materials.

  5. DOD Takes 15% Stake in MP Materials

    Investment

    Pentagon invests $400 million equity in MP Materials, becoming largest shareholder. Deal includes $150M loan, 10-year offtake agreement, and $110/kg price floor—triple market rates.

  6. US Rare Earth Imports Collapse

    Trade

    Chinese rare earth magnet exports to US fall 93.3% year-over-year. Ford temporarily closes Chicago factory; automakers scramble for supply.

  7. China Imposes Rare Earth Export Controls

    Geopolitical

    China requires export licenses for seven heavy rare earth elements—including samarium and dysprosium—in response to US tariffs. Defense contractors effectively barred from purchasing.

  8. DOD Awards MP Materials $35M

    Funding

    Department of Defense awards contract to MP Materials to design and build heavy rare earth separation facility at Mountain Pass.

  9. Bipartisan Infrastructure Law Enacted

    Policy

    President Biden signs legislation including $140 million for DOE rare earth demonstration facilities and over $600 million for critical mineral programs.

  10. MP Materials Acquires Mountain Pass

    Corporate

    Consortium led by JHL Capital purchases Mountain Pass mine at bankruptcy auction for $20.5 million, beginning revival of US rare earth production.

  11. Molycorp Files for Bankruptcy

    Corporate

    America's only major rare earth producer files Chapter 11 with $1.4 billion in debt. Mountain Pass mine shuts down as rare earth prices collapse from post-2010 highs.

  12. WTO Rules Against China

    Legal

    WTO finds China's rare earth export restrictions violate trade rules. China subsequently drops export quotas in 2015.

  13. US Files WTO Case Against China

    Legal

    United States, Japan, and European Union jointly file WTO dispute against China's rare earth export restrictions.

  14. China-Japan Rare Earth Crisis Begins

    Geopolitical

    Chinese fishing trawler collides with Japanese Coast Guard near disputed Senkaku Islands. China halts rare earth exports to Japan for two months, triggering global price spike and supply chain panic.

Scenarios

1

Demonstration Projects Prove Commercial Viability by 2029

Discussed by: DOE program documentation; industry analysts at S&P Global and Wood Mackenzie

Funded projects successfully demonstrate commercial-scale rare earth recovery from mine tailings or e-waste within the 36-month performance period. This validates unconventional feedstocks as economically viable, attracting private capital for follow-on facilities. Combined with MP Materials' 2028 magnet plant, the US achieves partial supply chain independence for defense applications by decade's end.

2

China Reimposes Full Export Controls After Truce Expires

Discussed by: CSIS analysts; Resources for the Future; FDD

The November 2026 deadline passes without a new trade agreement. China reactivates October 2025 controls including extraterritorial provisions. US defense contractors face acute shortages of samarium-cobalt magnets for missile systems. Emergency measures including Defense Production Act authorities and allied supply agreements partially mitigate impact, but production delays cascade through weapons programs.

3

Technology Gaps Delay US Independence Past 2030

Discussed by: Chicago Council on Global Affairs; industry executives

Even with successful demonstration projects, scaling from pilot to commercial production proves slower than anticipated. Permitting challenges similar to those stalling Lynas's Texas facility plague new entrants. Heavy rare earth separation technology—currently dominated by Chinese expertise—remains a bottleneck. The US makes incremental progress but remains dependent on imports through the early 2030s.

4

Allied Coordination Creates Alternative Supply Network

Discussed by: DOD officials; Australian government; Japan's Ministry of Economy

The US coordinates with Australia (Lynas), Canada, and Japan to build a Western rare earth supply chain. Japan's post-2010 diversification model—reducing China dependence from 90% to 60%—provides a template. Lynas's Malaysian expansion fills gaps while domestic US capacity builds. Allied processing facilities handle material from multiple mining sources, reducing single-point vulnerabilities.

Historical Context

China-Japan Senkaku Islands Rare Earth Embargo (2010)

September-November 2010

What Happened

After Japan detained a Chinese fishing captain near the disputed Senkaku Islands, China halted rare earth exports to Japan for approximately two months. Japan imported 90% of its rare earths from China. Prices for some rare earths spiked over 2,000%—the cost of US rare earth imports rose from $6,969 to $170,760 per metric ton by 2011.

Outcome

Short Term

Japan's automotive and electronics industries faced immediate supply disruptions. The crisis triggered a global rare earth price bubble lasting through 2011.

Long Term

Japan invested 100 billion yen in supply chain resilience, cutting China dependence from 90% to 60% and halving total rare earth consumption through efficiency and recycling. Lynas received $250 million in Japanese investment. The WTO ruled against China's export restrictions in 2014.

Why It's Relevant Today

The 2010 crisis demonstrated China's willingness to weaponize rare earth supply. Japan's response—diversification, efficiency improvements, recycling, and allied investment—provides a template for US strategy. The current situation is more severe: April 2025 restrictions target defense applications specifically.

Molycorp Bankruptcy and Mountain Pass Collapse (2015)

June 2015 - June 2017

What Happened

Molycorp, America's only major rare earth producer, filed Chapter 11 bankruptcy with $1.4 billion in debt. The company had invested over $1 billion to modernize Mountain Pass after the 2010 price spike, but prices collapsed before full production began. Shares fell from $79.16 to $0.35. The mine sold at auction for $20.5 million.

Outcome

Short Term

The US lost its only significant rare earth production capability. Mountain Pass sat idle for two years.

Long Term

MP Materials acquired and revived the mine, going public in 2020 at a $4 billion valuation. The experience demonstrated both the volatility of rare earth markets and the difficulty of competing with Chinese state-subsidized production.

Why It's Relevant Today

The Molycorp failure shows why government support—like the July 2025 DOD price floors—may be necessary to sustain domestic rare earth production. Private capital alone proved insufficient against Chinese market manipulation.

Japanese Rare Earth Strategy (2010-2025)

October 2010 - Present

What Happened

After the 2010 embargo, Japan launched a comprehensive five-pillar strategy: reduce rare earth usage through technology, develop substitute materials, promote recycling, diversify suppliers, and build strategic stockpiles. The government invested 100 billion yen ($1.2 billion) immediately. State-backed entities invested $250 million in Lynas, securing 30% of Japanese demand.

Outcome

Short Term

Japanese companies rapidly developed motors using fewer rare earths and found substitutes for some applications.

Long Term

Japan cut China dependence from 90% to 60% while halving total consumption. The Lynas investment helped create a second major non-Chinese rare earth producer. Japan's approach became a model for resource security policy.

Why It's Relevant Today

Japan achieved meaningful diversification in 15 years through sustained government-industry coordination. The US is attempting a similar effort but started later. The DOE demonstration program and DOD's MP Materials investment mirror Japan's playbook.

15 Sources:
+9
U.S. Department of Energy Grants.gov Center for Strategic and International Studies MP Materials Bipartisan Policy Center International Energy Agency GV Wire Clark Hill PLC West Virginia Water Research Institute MIT News CEPR VoxEU World Economic Forum Defense News U.S. Department of Energy Center for Strategic and International Studies