Introduction to Rare Earths and China's Dominance
- Rare earths are the backbone of modern technology, and China currently owns, processes, and refines them, controlling 80 to 90% of the global production and processing, which makes the rest of the world reliant on China for these essential elements 10s.
- The main use of rare earths is in the production of powerful high-performance magnets, which are used in various modern technologies, including electric motors, phones, wind turbines, electric vehicles, and missile systems, making China's dominance in this field a significant geopolitical leverage 42s.
- The US-China trade war has highlighted the importance of rare earths, with China responding to US tariffs by imposing export controls on rare earths, which exposed the dependence of Western manufacturing on China's supply, and the automotive industry warned that it would have to shut down factories without access to these essential materials 2m6s.
- Rare earths are a group of 17 metallic elements that are chemically similar and help create powerful heat-resistant magnets, with China having the world's largest rare earth deposit and controlling 90% of the refining process and magnet production 2m6s.
The Strategic and Environmental Challenges of Rare Earth Processing
- The processing stage of rare earths is the real choke point, with China controlling 90% of the refining process, and the production of rare earth magnets is costly and environmentally damaging, producing toxic waste, including radioactive materials, which is why many Western countries have allowed China to dominate this industry 2m6s.
- China has used its dominance over rare earths as a geopolitical weapon before, such as in 2010 when it restricted exports to Japan due to a territorial dispute, and this experience should have served as a warning to the US, but it still came as a shock when China used this leverage again in the US-China trade war 4m30s.
China's Geopolitical Use of Rare Earths
- China has used its dominance over rare earths as a geopolitical weapon before, such as in 2010 when it restricted exports to Japan due to a territorial dispute, and this experience should have served as a warning to the US, but it still came as a shock when China used this leverage again in the US-China trade war 4m30s.
- The global high-tech economy relies heavily on rare earths, and China's control over the supply chain gives it significant influence, with the US and other Western countries now scrambling to build a new supply chain from mine to magnet to reduce their dependence on China 5m0s.
Historical Context of China's Rise in the Rare Earth Industry
- The US was the largest player in the rare earth industry from the 1950s to the 1980s, but China has since caught up and become a dominant force, with its late paramount leader Deng Xiaoping famously stating that China has its rare earths just like the Middle East has its oil 10s.
- China's rise to prominence in the rare earth industry was not accidental, as Beijing treated rare earths as a strategic industry and built capacity throughout the entire supply chain, making it cheaper for consumers to buy from China than to produce rare earths elsewhere 42s.
Global Response to China's Rare Earth Monopoly
- The risks of relying heavily on China for rare earth supplies have become clear, prompting countries to develop their own rare earth industries, with companies like Lynas, an Australian mining company, leading the charge to rebuild the rare earth supply chain outside of China 2m6s.
- Lynas has a $96 million contract to supply heavy rare earths to the US Department of Defense and aims to produce over 10,000 tons of rare earth oxides per year, having broken the monopoly on separated heavy rare earths last year 2m6s.
- Rebuilding a rare earth supply chain requires not only new factories but also new deposits and skilled workers, with China having a dedicated mining and engineering university and the US graduating relatively few mining engineers, highlighting the need for investment in developing competence in the rare earth market 2m6s.
Military and Strategic Implications of Rare Earth Dependence
- The urgency for the US to develop its rare earth industry has grown due to its depleted stockpiles of advanced weapon systems, which require rare earths to produce, with the US military's exact demand for rare earths classified but estimated to be significant 4m30s.
- Countries like Brazil are being targeted for new rare earth deposits, with the US geological survey estimating that Brazil is home to roughly a quarter of the world's rare earths, and companies like Meteoric Resources receiving backing from the US to develop these deposits 6m40s.
Domestic and International Efforts to Build Alternative Supply Chains
- The US is also investing in domestic rare earth production, with the Pentagon-backed MP Materials being a key player, having received a $400 million investment from the Department of Defense in 2025 and expecting to be able to separate heavy rare earths later this year 8m10s.
- Despite these efforts, China's dominance in the rare earth industry poses a significant challenge, with China able to squeeze margins and flush out new competitors, prompting the Western world to intervene and provide financial support to companies developing rare earth supplies 9m50s.
Challenges and Realistic Goals for Supply Chain Diversification
- Building up a supply chain takes time and a lot of effort, as evident from Japan's experience, where its dependence on China for rare earths reduced from 90% in 2010 to about 60-70% currently, indicating a long and slow 15-year process 10s.
- A more realistic goal for companies would be to aim for a balance in their supply chain, such as 60% from China and 40% from the rest of the world, or a 50-50 split, which could be achievable by 2030 and into the early next decade 42s.
- According to a Bloomberg Intelligence Report, $10 billion of public funds are expected to be invested in rare earth ventures outside of China by 2026, marking a significant shift, and countries like the US, Australia, Brazil, Japan, South Korea, and France are expected to start producing commercial-scale permanent magnets and rare earths 2m6s.
