America Gave Away Rare Earths

Decades of policy failure gifted China control of the rare earth magnets that make modern life possible—but there’s a way out.

Earlier this month, the Chinese government announced export controls on rare earth elements and rare earth magnets, asserting authority not only over the raw materials that are critical to modern manufacturing but also over the mining, processing, and magnet-making technologies that enable their production. The licensing regime is expansive and can pull certain foreign-made products into Beijing’s dragnet if they contain even trace amounts of Chinese-origin rare earth content. China did not need to impose an outright export ban to make its point: The Chinese Communist Party, as a result of a decades-long industrial policy, holds a near-monopoly position over rare earths and rare earth magnets—inputs essential for the manufacture of a wide range of modern defense and industrial goods—giving Beijing a chokepoint that, if fully leveraged, could bring factories in the United States and around the world to a standstill.

The response from U.S. policymakers reflected the severity of the threat, the extent to which this dependency had been allowed to deepen, and the scale of the policy response necessary to neutralize it. President Trump threatened to impose an additional tariff of 100% on Chinese goods. At the same time, his administration put together a plan to impose export controls on the chokepoints in our control: software used in the manufacture of semiconductors, consumer electronics, and a range of industrial goods. If both sides had carried out their threats, the effect would have been a de facto trade embargo between the world’s two largest economies and a sudden break in economic relations resulting in mutually assured disruption. A detente to de-escalate tensions—which the leaders of both nations struck Thursday morning during a meeting in South Korea—was therefore all but certain. Neither China’s expansive export controls nor the Trump administration’s aggressive response will take effect—at least not for now. How long the ceasefire remains in effect is unclear; whether it will stop either country from taking expedient action to strategically decouple from the other is unlikely.

The United States must eliminate China’s chokehold on rare earth elements and the magnets they underwrite. Before policymakers take steps to do so, we must reckon with how we got here—how policymakers allowed a critical supply chain that America once controlled to consolidate into a chokepoint that an adversary can now leverage. The week China announced its rare earth export controls, Treasury Secretary Scott Bessent said, “This rare earth problem was decades in the making. Every past administration should be ashamed.” He’s right. The leverage China has demonstrated this year is the cumulative result of decisions by U.S. policymakers dating back to the late twentieth century that enabled a homegrown mine‑to‑magnet ecosystem to disintegrate and permitted the U.S. economy to become dependent on critical inputs from an adversarial nation.

The Rise and Fall of America’s Mine-to-Magnet Ecosystem

Rare earth elements—the 17 metals whose magnetic, optical, and catalytic properties power modern hardware—matter less for their price than for their function. Manufacturers embed rare earths in products with both commercial and defense applications, including catalytic converters and petroleum‑refining catalysts, phosphors for displays and lighting, glass polishing and optics, high‑strength alloys and batteries, and sensors, lasers, and other precision components. A handful of rare earths—especially neodymium and praseodymium with dysprosium or terbium as heat‑hardening additives—are the feedstock for rare earth magnets. Those magnets convert electricity into motion and precision: they spin the drivetrains of automobiles and industrial robots, hold aircraft control surfaces steady, steer missile fins, stabilize satellites and drones, and power medical equipment.

Although rare earths and magnets account for a small fraction of a finished product’s cost, they are essential: products that use them cannot be manufactured without them. The choke point isn’t in the rocks—which, despite their name, are not actually that rare—it’s in the chemistry that makes high-purity oxides and metals, and in the factories that turn them into magnets at reliable quality and scale.

Today, China holds a commanding share of the rare earth market, controlling nearly 70% of rare earth mining, upward of 90% of chemical refining and separation, and more than 90% of magnet production. However, it was not always this way. In the late twentieth century, the center of gravity for rare earths was not in the Chinese province of Inner Mongolia where it sits today, but in the Mojave Desert of the United States. The Mountain Pass Mine, discovered in 1949 and opened in 1952, produced bastnaesite ore and, just as importantly, operated the complex refining process that turned it into oxides and metals. From the mid‑1960s into the early 1980s, Mountain Pass supplied between 60% and 70% of global rare earths and remained one of the world’s primary sources until the mid-1990s.

At the same time, engineers in the United States helped to develop rare earth magnets. In 1983, General Motors and Sumitomo, a Japanese company, independently announced the invention of the neodymium‑iron‑boron (NdFeB) magnet—a technologically superior, lower‑cost successor to earlier samarium‑cobalt magnets that enabled miniaturization and mass adoption. To commercialize the invention, General Motors established Magnequench as a subsidiary in 1986, which began producing powders in Anderson, Indiana, and magnets in Valparaiso, Indiana, which were eventually used in M1 Abrams battle tanks and in JDAM precision‑guidance kits. During these years, the United States supplied a dominant share of the world’s rare earths and had a homegrown mine‑to‑magnet ecosystem.

But as the 1980s wore on, asymmetric import competition arrived: Japan, backed by coordinated government industrial policy, established a dominant position, while China, starting from a relatively weaker base, fostered an infant industry with subsidies, tax preferences, and looser environmental enforcement. In 1992, Deng Xiaoping, China’s paramount leader, publicly underscored the significance that his government would place on the sector during a tour of Southern China: “The Middle East has its oil; China has rare earths,” he explained. In the years that followed, Beijing treated rare earths as a strategic priority—funding mine‑to‑magnet capacity and using trade policies such as export quotas, duties, and value-added tax (VAT) rebates to lower production costs for its domestic manufacturers.

China’s industrial strategy did not stop at its borders: it purchased foreign companies to acquire equipment, technology, and process knowledge to further develop its budding industry. This included U.S. businesses. As part of a broader corporate restructuring in the early 1990s, General Motors began divesting businesses it did not consider part of its “core competence,” and subsequently put its rare earth magnet subsidiary up for sale. In 1995, General Motors sold Magnequench for roughly $70 million to a consortium led by Archibald Cox Jr.—son of the Watergate prosecutor—alongside two Chinese state‑owned metals firms, San Huan New Material and China National Nonferrous Metals Import & Export Corporation, whose leadership included Zhang Hong and Wu Jianchang—both sons‑in‑law of Deng Xiaoping. Those family ties underscored Beijing’s strategic interest in the technology.

The U.S. government had the authority to block the transaction on national security grounds. But the Committee on Foreign Investment in the United States (CFIUS), under the Clinton administration, approved the deal, reportedly subject to a mitigation agreement requiring that equipment and jobs remain in the United States for five-years—an obligation the company reportedly violated when it moved production lines and key equipment to China before the term expired. Contemporaneous accounts indicate the sale coincided with General Motors’ push to secure approval from the Chinese government to build an auto assembly plant in Shanghai.

China’s acquisition of Magnequench was a classic example of the industrial strategy it has used to gain an advantage over its trading partners: acquire a strategic asset, replicate and master the production process at home, then shut down operations abroad. By the mid‑2000s, the Magnequench plants in Indiana were closed. Local union leaders condemned the closures in stark terms, calling Archibald Cox Jr. a “traitor” and the company’s decision to offshore the critical capabilities a “criminal act.” A former Pentagon official who had opposed CFIUS’s approval of the Magnequench deal later called the case among the most consequential he had seen. After the closure of the manufacturing facilities in Indiana, he warned, “by controlling access to the magnets and the raw materials they are composed of, U.S. industry can be held hostage to Chinese blackmail and extortion. This highly concentrated control, one country, one government, will be the sole source of something critical to the U.S. military and industrial base.”

The Magnequench sale coincided with mounting problems at Mountain Pass that would soon force a prolonged shutdown. In 1998, after a series of leaks from a wastewater pipeline that carried processing fluids to evaporation ponds, state and federal regulators, including the Environmental Protection Agency, ordered Mountain Pass—the country’s only rare earth producer and, at the time, the second‑largest mine in the world—to halt operations and address the violations. The enforcement actions focused on spill cleanup, pipeline replacement, and stricter waste‑handling, rather than an acute public exposure incident. Government officials suspended the mine’s permits pending remediation and redesign and placed the site in care‑and‑maintenance for much of the 2000s.

With the United States on the sidelines, Beijing took the opportunity to cement its control over the rare earth supply chain. In the early 2000s, Chinese export quotas on rare earths raised costs for foreign manufacturers while keeping domestic prices lower for their domestic manufacturers. An asymmetric VAT system reinforced it: the government provided export rebates to domestic manufacturers of finished magnets, but not to those of rare earths, giving Chinese magnet producers a built-in cost advantage and keeping the higher end of the value chain within its borders. The Chinese government then consolidated hundreds of firms into national champions, centralized quota control, and built a transaction‑tracking regime that not only imposed tighter control on which companies could mine in China but, more importantly, steered supply to advance the objectives of its industrial strategy.

The cumulative effect was dramatic, and structural. By the late 2000s, the United States had no domestic production of rare earth magnets. China came to dominate midstream refining capabilities, while American capacity receded to the margins. Supplier networks and finance followed production across the Pacific.

The story of the Mountain Pass Mine illustrates the difficulty that U.S. and other Western firms face in entering a market now controlled by the Chinese. In 2010—after a Chinese fishing trawler collided with Japanese patrol boats near the Senkaku Islands—Beijing tightened export quotas and effectively halted rare earth shipments to Japan, causing the prices for key oxides to soar. Molycorp, which had acquired Mountain Pass in 2008 and was trying to bring it back online, went public that summer to finance a complete restart of operations. Investors bid up the shares on the expectation that scarcity, created by China’s export quotas, would finally make production profitable. However, once the diplomatic crisis between China and Japan was resolved, Beijing restored the flow of rare earth exports and then expanded government-backed output, pushing prices down to levels any unsubsidized producer could not sustain. The whipsaw decimated Molycorp’s revenues, flattened its margins, and forced the company into bankruptcy. The implication is straightforward: control of the chokepoint lets China squeeze when it needs to—and flood the market when it wants to—using subsidies and state direction to keep competitors from taking root. That is the problem public policy must now solve.

Breaking Free from the Fatal Attraction

In responding to China’s export controls on rare earths, Treasury Secretary Bessent underscored the scale of the policy response necessary to meet the moment. He called for a new “Operation Warp Speed” to secure the rare earth supply chain—modeled on the pandemic-era program that used advance purchase commitments, risk‑sharing finance, and public-private coordination to compress the timeline for vaccine development from years to months. Bessent is correct to underscore the importance of industrial policy to reassert our rare earth independence. In a hyper‑globalized economy, America cannot opt out of industrial policy, it can only decide where it is designed: at home to serve U.S. interests, or abroad by the governments of other nations.

The road back requires a change in approach: mining and refining rare earths and manufacturing rare earth magnets are not separate industries but a single system. Industrial and trade policy are not ends in themselves; they are tools to rebuild the capacity we chose to neglect and to protect it once we re-create it. From that premise, a few concrete policy levers follow. We can deploy public loans and guarantees to de‑risk midstream refining and magnet production, use long‑term offtakes with price floors so projects pencil out and banks underwrite them, and impose tariffs to protect the domestic industry from market-disrupting predation by our trading partners.

Encouragingly, we are moving in the right direction. In 2021, General Motors committed to re‑establishing a domestic magnet supply chain—signing long‑term offtake agreements and backing metals‑to‑magnets capabilities—an important course correction after the Magnequench era. Earlier this year, the Trump administration’s public‑private partnership with MP Materials, which now owns Mountain Pass, paired procurement and financing commitments to reconstitute rare earth mining and refining with magnet production. This is progress, but more must be done.

The choice is straightforward: The United States can design its own industrial policy, or it can absorb the industrial policies of our trading partners. For decades, we tried to live without one and ended up living under China’s instead. What matters is not whether policymakers flatter an ideology that places a blind faith in free markets, but whether they have the will to recreate a mine‑to‑magnet ecosystem that meets the standards and scale necessary for our economy to operate free from the whims of an adversarial nation. If we do, our dependence can become resilience, so that the next time China reaches for the chokepoint, it finds nothing to grab. If we fail, we will have chosen, once again, to let another government dictate the terms of our future.