Rare Earths and Critical Minerals

Rare earth elements — a group of 17 metals including neodymium, dysprosium, terbium, and lanthanum — are not geologically scarce. Economically viable deposits exist in the United States, Australia, Canada, Brazil, and across Africa. The supply chain bottleneck is not mining but separation and processing: converting rare earth ore into purified oxides, metals, and alloys requires chemical processing infrastructure that China has built over four decades of deliberate industrial policy and that does not exist at meaningful scale anywhere else.

China's dominance of rare earth processing traces to a strategic decision made in the 1980s and 1990s to subsidize domestic processing capacity while tolerating the environmental costs — acid mine drainage, radioactive tailings, and toxic chemical runoff — that caused Western producers to exit the market. By the time the United States closed the Mountain Pass mine in California in 2002, China had captured the processing stage of the supply chain so completely that even ore mined outside China was typically shipped to China for separation.

The fabrication stage — converting separated rare earth metals into the permanent magnets used in motors, actuators, and generators — is even more concentrated. China produces an estimated 90 percent of global neodymium-iron-boron magnet output. The two largest magnet producers, Zhongke Sanhuan and Ningbo Yunsheng, are Chinese state-linked enterprises. Japan's TDK and Shin-Etsu Chemical maintain significant magnet production capacity, but both source rare earth inputs from China. There is no meaningful NdFeB magnet production capacity in the United States.

The U.S. defense industrial base's dependence on Chinese rare earth processing is documented across multiple Government Accountability Office and Congressional Research Service reports. The F-35 Joint Strike Fighter requires approximately 920 pounds of rare earth materials per aircraft — in electric motors, actuators, radar systems, and guidance components. The DDG-51 Arleigh Burke-class destroyer requires approximately 5,200 pounds. The Virginia-class submarine requires approximately 9,200 pounds.

Specific applications include: samarium-cobalt magnets in precision-guided munition fin actuators; neodymium-iron-boron magnets in the electric motors of the F-35's Integrated Power Package; terbium and dysprosium as additives that maintain magnet performance at elevated operating temperatures in jet engines and missile systems; lanthanum in night-vision goggle lenses; europium and terbium in display systems. Each of these applications requires processed rare earth materials that flow through Chinese supply chains.

The Defense Department's 2023 report on critical mineral dependencies identified rare earth permanent magnets as the single highest-priority supply chain vulnerability in the defense industrial base. The report noted that no domestic or allied magnet production capacity could substitute for Chinese supply within a five-year planning horizon, and that even if domestic mining and processing capacity were built, the magnet fabrication stage would remain dependent on Chinese production technology and workforce expertise.

In July 2023, China's Ministry of Commerce announced export controls on gallium and germanium, requiring exporters to obtain licenses for shipments of 8 gallium compounds and 6 germanium compounds. In October 2023, China extended export controls to graphite — covering both natural and synthetic graphite products used in lithium-ion battery anodes. The controls took effect December 1, 2023. These were the first Chinese export controls explicitly targeting materials with critical semiconductor and battery applications.

China produces approximately 80 percent of global gallium supply and 60 percent of global germanium supply. Gallium is used in gallium arsenide and gallium nitride semiconductors — the compound semiconductors used in radar systems, satellite communications, 5G base stations, and high-frequency power electronics. Germanium is used in fiber optic cables, infrared optics, and as a substrate for high-efficiency solar cells used in satellites and military applications. Neither material has a near-term substitute in its primary defense applications.

Graphite is the dominant anode material in lithium-ion batteries. China produces approximately 65 percent of natural graphite and 90 percent of the processed spherical graphite used in battery anodes. The graphite export controls directly affect battery supply chains for electric vehicles, grid storage, and the portable electronics used in military systems. The U.S. Geological Survey designated graphite a critical mineral in 2022; there is no operating natural graphite mine in the United States, and domestic synthetic graphite production capacity is limited.

Chinese exports of gallium and germanium fell sharply in the months following the July 2023 controls. Gallium exports dropped approximately 70 percent in the August–October 2023 period compared to the prior year. Germanium exports fell approximately 40 percent. The controls demonstrated that China was willing to use critical mineral access as a policy instrument in response to U.S. semiconductor export controls — establishing a documented precedent for retaliatory mineral restrictions.

The energy transition has created a second category of critical mineral dependency that overlaps substantially with defense applications. Neodymium-iron-boron magnets are used in the direct-drive generators of offshore wind turbines — a single 15-megawatt turbine requires approximately 4 to 5 metric tons of rare earth magnets. Electric vehicle traction motors use NdFeB magnets in quantities ranging from 1 to 3 kilograms per vehicle depending on motor design. Global EV production of approximately 14 million vehicles in 2023 consumed an estimated 30,000 metric tons of rare earth magnets.

Lithium, cobalt, and nickel — the other principal battery materials — have their own concentration profiles. China controls approximately 70 percent of global cobalt refining capacity, primarily processing ore from the Democratic Republic of Congo. Chinese companies have acquired significant stakes in DRC cobalt mines, Australian lithium projects, and Chilean lithium operations, extending Chinese processing dominance upstream into mining. The Inflation Reduction Act's foreign entity of concern provisions attempt to exclude Chinese-processed battery materials from EV tax credit eligibility, but the transition timelines are measured in years.

The solar supply chain presents a related but distinct concentration profile. Polysilicon — the feedstock for silicon solar cells — is produced at approximately 80 percent global share in China, with a significant fraction of that production concentrated in Xinjiang. The Uyghur Forced Labor Prevention Act's rebuttable presumption applies to solar products with Xinjiang supply chain connections, but enforcement has been complicated by the opacity of Chinese polysilicon supply chains and the difficulty of tracing material flows through multiple processing stages.

The Defense Department has used Defense Production Act Title III authority to fund domestic rare earth and critical mineral production capacity since 2020. Documented investments include: $30 million to MP Materials for rare earth separation at Mountain Pass, California (2020); $35 million to Lynas Rare Earths for a heavy rare earth separation facility in Texas (2022); $120 million to MP Materials for rare earth metal and magnet manufacturing (2022); $45 million to USA Rare Earth for magnet manufacturing in Oklahoma (2023). These investments represent the first sustained federal effort to rebuild domestic rare earth processing capacity since the Mountain Pass closure.

The Minerals Security Partnership, launched in June 2022, is a multilateral framework involving the United States, the European Union, Australia, Canada, Japan, South Korea, and the United Kingdom, among others. The MSP is designed to coordinate government financing and diplomatic support for critical mineral projects in partner countries — reducing dependence on Chinese processing by developing alternative supply chains in allied and partner nations. As of 2024, the MSP had identified over 60 projects across lithium, cobalt, nickel, rare earths, and other critical minerals for potential government-backed financing.

The Inflation Reduction Act's critical mineral provisions require that, to qualify for the full $7,500 EV tax credit, a specified percentage of battery critical minerals must be extracted or processed in the United States or a free trade agreement partner, and a specified percentage of battery components must be manufactured in North America. The percentages increase annually through 2029. The foreign entity of concern provisions, effective 2024, disqualify vehicles with battery components or critical minerals sourced from Chinese, Russian, North Korean, or Iranian entities from the full credit.

The CHIPS and Science Act includes provisions directing the Department of Energy and the National Science Foundation to fund research into critical mineral extraction, processing, and recycling technologies. The act authorized $200 million for critical mineral research over five years. Separately, the Bipartisan Infrastructure Law included $140 million for a Battery Materials Processing and Manufacturing grant program and $75 million for a Battery Manufacturing and Recycling grant program, both administered by the Department of Energy.

The gap between current domestic and allied processing capacity and the volume required to substitute for Chinese supply is documented in multiple government assessments. The White House 100-day supply chain review (June 2021) found that the United States had no domestic rare earth separation capacity at scale, no domestic NdFeB magnet production, and no near-term prospect of building either without sustained government investment and demand signals. The review recommended a combination of domestic investment, allied coordination, and demand-side policies to create viable alternative supply chains.

MP Materials' Mountain Pass facility — the only operating rare earth mine and mill in the United States — produces a mixed rare earth carbonate that was, until 2023, shipped to China for separation. The company's Phase 2 separation facility, completed in 2023, produces separated neodymium-praseodymium oxide but does not yet produce the heavy rare earth oxides (dysprosium, terbium) critical for high-temperature magnet applications. Heavy rare earth separation requires different chemistry and feedstocks than light rare earth separation; no domestic heavy rare earth separation capacity exists.

Lynas Rare Earths' Texas facility, funded in part by DoD investment, is designed to process heavy rare earth concentrate from Lynas's Mount Weld mine in Australia. The facility was under construction as of mid-2024, with initial production targeted for 2025. Even at full capacity, the Texas facility will process a fraction of U.S. defense and commercial demand for separated heavy rare earth oxides. The magnet fabrication stage — converting separated oxides into finished NdFeB magnets — remains entirely dependent on Japanese and Chinese producers, with no domestic magnet manufacturing at defense-relevant scale.