On August 27th, a delegation of Chinese officials arrived in the U.S. Treasury Department in Washington, D.C., for what was officially described as a “technical exchange.” The Treasury Department building, a neoclassical fortress modeled on the Paris Bourse, is designed to radiate American financial power. But in this negotiation, it was Beijing’s delegation, led by Li Chenggang, China’s newly installed international trade negotiator, that would  project its own. Li, a lawyer and career technocrat, had been tasked with steadying the relationship with Washington—but only on China’s terms. 

On March 5th, the United States announced plans to impose a new fee on Chinese ships docking at American ports beginning in October. The fee was expected to raise only about $3 billion a year, but China saw it as a strategic threat. The U.S. explicitly tied the move to rebuilding its own shipbuilding capacity; China was worried that if others copied this model China’s dominance of the global maritime industry could be eroded. When U.S. negotiators refused to back down, Li reportedly warned that Beijing would “cause global chaos” if the fees went into effect.

Five days before the new fee took effect, Beijing followed through. On October 9th, China announced export controls on holmium, erbium, thulium, europium, and ytterbium, all rare-earth elements (REE) that China dominates from mining to refining. These elements are essential to the lasers, magnets, and optical components inside the systems that power artificial intelligence. Holmium and erbium amplify light signals in the fiber networks connecting data centers. Thulium and ytterbium drive the high-power lasers used in chip fabrication, including ASML’s lithography machines; Europium enables precision sensors and displays. 

That’s why the export controls matter: they strike at the physical foundation of AI itself. And the restrictions went much further than expected, extending beyond raw materials to any product worldwide containing Chinese-processed rare earths. A firm manufacturing AI accelerator chips using thulium-based laser components in South Korea would need to apply to Beijing for permission to export.

For now, it appears that the export control threat was part of a familiar “escalate to de-escalate” strategy where China and the U.S. deliberately raise the stakes to compel the other side to agree to favorable deal terms. Over the weekend, U.S. and Chinese officials met in Kuala Lumpur, with Chenggang telling reporters after the talks that both sides have reached a “preliminary consensus.” US officials stated they expect China to delay introducing export controls on rare earths.

No matter the outcome of these negotiations, China has introduced a new geopolitical weapon that Washington fears. If the United States controls the flow of global capital, then China is pushing back, signaling that it can still exert financial power by controlling the flow of the physical material. And history has shown once a great weapon is created, its use becomes inevitable.

In response to China’s financial aggression, U.S. Treasury Secretary Scott Bessent has promised an “Operation Warp Speed” to rebuild America’s REE capacity. The question is whether the United States still possesses the capacity — and the will — to complete a large-scale national project.  If successful, perhaps this moment will be remembered as something akin to “Sputnik for the AI era”: the moment that a superpower suddenly rediscovered its sense of urgency. Within a decade of the launch of the Sputnik program, the U.S. had put men on the Moon. But if the U.S. fails to rise to the historical occasion this time, this moment may stand instead as a milestone in managed decline. For now, we can only watch and wait for the national response. 

The Urgency of REEs 

President Trump has long been obsessed with REE. He has touted what he called a “very important Rare Earths Deal” with Ukraine, claiming it would deliver “the equivalent of like $500 billion worth of rare earths.” Administration insiders say Trump’s ambition to ‘absorb’ Greenland was driven largely by his belief that it is a "treasure trove” of rare earths.

Part of the allure of REE for Trump (ever the branding expert) lies in the name. “Rare earths” sound like a kind of unobtanium—a scarce magical resource of near limitless value—but the reality is more mundane. REE aren’t rare at all, and the United States has abundant deposits. One site near Wheatland, Wyoming, is believed to contain at least 2.34 billion metric tons of ore bearing REE.

Roughly 95 percent of global REE demand comes from just six elements—four light rare earths (neodymium, praseodymium, samarium, and lanthanum) and two heavy ones (dysprosium and terbium). The light elements underpin neodymium–iron–boron (NdFeB) magnets, the high-performance magnets essential to multiple iPhone components, Tesla motors, and the control systems and engine-adjacent electrical systems in advanced aircraft like the F-35. The heavy rare earths are added in small amounts to help these magnets maintain their strength at high temperatures, crucial for defense systems that operate under extreme heat and stress. Without dysprosium and terbium, even the best NdFeB magnets could lose their magnetism mid-mission.

Through its own sources and those of close allies like Australia, in theory the U.S. has enough REE deposits to secure its own supply needs. The chokepoints China controls are in the power hungry and environmentally noxious REE processing process and the source material for the ultra-rare heavy earths such as holmium, erbium, thulium, europium, and ytterbium that are found in the ion-adsorption clays clay fields of China’s southern provinces.

The process required to separate the ultra-rare heavy earths from the Chinese clay illustrates the challenge posed to the U.S. REE reshoring effort. It requires hundreds of extraction stages running around the clock, with each step being exquisitely sensitive to temperature, flow rate, and pH drift. Enormous amounts of power are necessary to fuel this process. China solves this problem with its fleet of legacy coal plants, which deliver firm electricity at marginal cost and are located in close proximity to REE refineries. But without cheap, continuous power, the economics collapse. The same combination of clay deposits and dirt-cheap electricity found in southern China simply doesn’t exist anywhere else in the world. America’s primary alternative is to obtain these ultra-rare heavy REE through recycling high-performance magnets, medical imaging and diagnostic equipment, and electronic waste. This is technically feasible, but hasn’t been attempted at scale.

Because of the difficulty, domestic REE refining makes little economic sense. REE refining and separating accounts for roughly 75% of the total cost to produce finished rare earth products yet delivers razor-thin margins—China Northern Rare Earth Group, one of the world’s largest REE producers, reports profits of barely five percent. All to supply a small domestic market; U.S. Geological Survey data show that the United States consumes about 6,600 metric tons of rare-earth oxides each year, which are worth ~$170 million in total (import value, 2024). 

Given much higher U.S. power, labor, and regulatory costs, domestic REE refining and processing only pencil out if buyers pay a premium. In July 2025, the Pentagon became MP Materials’ largest shareholder, signed a 10-year offtake covering output from MP’s new magnet plant, and set a $110/kg NdPr price floor—well above ~$60/kg Chinese spot in July. Economic modeling indicates U.S. projects generally need around $70/kg (blended) to hit a ~20% IRR, depending on ore grade and process route.

The Pentagon–MP Materials deal marks a rare moment of realism in U.S. industrial strategy. When an adversarial state acts according to long-term strategic logic, defaulting to free-market ideology guarantees the loss of industrial capacity and process knowledge that can take decades to restore, if they can be restored at all.

US History with REEs

Once, the United States dominated the rare-earth supply chain. From 1952 to 1990, the Mountain Pass Mine in California’s Mojave Desert supplied nearly all of the world’s REE. But after the Soviet Union fell in 1991, America stopped thinking in strategic-industrial terms. 

At the same time,  rising China viewed the U.S. as its “primary adversary”, in the words of former Chinese Supreme Leader Jiang Zemin. Under Zemin, China methodically captured Western IP and process knowledge by any means available.  Often, no subterfuge was needed; China could just leverage market access to force IP transfers in order to form joint ventures in China or acquire process knowledge and technology through company acquisitions. 

A notorious example of this approach was the 1995 acquisition of General Motor’s Magnequench subsidiary by an American front company, which was backed by a Chinese consortium that included the son-in-law of the former supreme leader of China. The Magnequench subsidiary used REE to manufacture high-performance magnets; Beijing reportedly forced the deal by refusing to approve GM’s Shanghai factory license until GM approved the acquisition. Within a few years, all of Magnequench’s U.S. plants were closed, Magnequench’s machinery was shipped to China, and the Chinese workers who had moved to the U.S. to acquire the process knowledge necessary to build the magnets, returned home to work in newly-built Chinese magnet production facilities.

Meanwhile, America’s own institutions helped dismantle its rare-earth refining capacity. The ore at Mountain Pass contained trace concentrations of thorium and uranium—barely measurable, less than you’d find in a bag of lawn fertilizer—yet the site was still ensnared by the Nuclear Regulatory Commission’s (NRC) “source-material” rules, which are designed to control and track the handling of radioactive substances that could, in principle, be refined or concentrated into nuclear fuel or weapons material. Founded in 1974, the NRC is the same organization that took nearly 40 years to approve a new nuclear reactor design, and when a new design was finally approved (after a 9-year application process that cost the applicant over $1 billion), turned the first power plant projects using the new reactors into regulatory forever wars, resulting them in being over $20 billion over budget. Again with REE, the NRC’s regulatory overreach devastated the U.S.’s ability to build critical infrastructure. 

Due to NRC mandates, the same nuclear-grade radiological standards that are applied to actual nuclear reactors were applied to rare-earth extraction at Mountain Pass. When the NRC’s source-material regulations began to be enforced more strictly in the 1990s, the site’s older facilities suddenly fell out of compliance.

The capital cost of modernization, combined with regulatory burdens, made domestic refining economically untenable — especially since Chinese refiners were expanding rapidly at the time without equivalent environmental or radiological constraints.The mine was shut down in 2002. 

In the late 2000s, Molycorp bought Mountain Pass and initiated a project to rebuild it under a $900 million plan dubbed Project Phoenix. Again, NRC-mandated rules turned the project into a regulatory quagmire. Despite the fact that a person standing on a tailings pile at Mountain Pass for an entire year would receive less additional radiation than on a single cross-country flight, the project site was treated like Chernobyl.

Every modification required a new review by California’s Radiologic Health Branch, which enforced NRC standards, followed by rounds of public comment and paperwork.  When the project finally completed, it was a year late and roughly $600 million over budget. The need for radiation-compliant ponds, containment systems, and waste-handling infrastructure, as well as specialized safety staff, monitoring equipment, audits, and permit fees, added tens of millions of dollars in costs. And by the time the project launched, Chinese dumping had collapsed prices, and Molycorp was forced into bankruptcy and closed Mountain Pass.

With the upstream extraction and preliminary processing parts of the U.S. REE supply chain destroyed, China targeted downstream advanced processing and magnet manufacturing by imposing export taxes and quotas on REEs used in magnets, raising costs for foreign manufacturers, while simultaneously flooding the global market with cheap supply. Running a non-Chinese magnet producer simply became financially unviable and by 2010, the last two U.S. magnet producers were gone.

Bringing the Rare Earths Home

In 2017, JHL, a Chicago-based hedge fund, led a consortium that bought Molycorp’s Mountain Pass mine and related assets out of bankruptcy, investing roughly $100 million through debt purchases and auction financing.  The new company re-emerged as MP Materials, which now sits as the cornerstone of U.S. REE industrial strategy.  Pentagon funding and private capital helped reopen Mountain Pass, which now produces 45,000 metric tons of rare-earth oxides in concentrate at Mountain Pass or roughly 14% of global REE supply, as well as a pilot production facility capable of producing 2,000-3,000 metric tons per year of finished magnets. Thanks to MP Materials, the U.S. once again has a complete mine-to-magnet supply chain.

China attempted to prevent MP Materials from succeeding, again flooding the market with cheap REE to crash prices, as well as launching an influence operation known to researchers as “Dragonbridge”, which filled online forums and social media platforms with comments intended to spread a narrative that U.S. REE mining and refining was environmentally poisonous and needed to be stopped. This time, Pentagon support for MP Materials, including contracts issued using Defense Production Act authority, prevented China from succeeding.

The Pentagon’s offtake agreement with MP Materials enabled the company to secure $1 billion in commercial financing led by JPMorgan Chase and Goldman Sachs to build its new “10X” magnet-production facility in Fort Worth, Texas. When fully commissioned in 2028, the plant is expected to produce around 10,000 metric tons of NdFeB magnets per year, which is enough to meet the entire national-security-related demand for high-performance magnets.

The move aligns with JPMorgan’s recently announced $1.5 trillion initiative to “facilitate, finance, and invest” in industries critical to U.S. economic and national security over the next decade. Together, these efforts show how creative industrial strategy can harness the scale and sophistication of U.S. capital markets, which is fueling America’s AI infrastructure build out and remains one of the country’s major strategic advantages over China.

Another advantage is the U.S. alliance system, which was illustrated last week by the signing of an $8.5 billion U.S.–Australia Critical Minerals Framework agreement.  Australia is the world’s second-largest mining nation by total output, while the United States ranks fifth. Together they form a mining superpower bloc, with a combined production approaching China, and with vast reserves still untapped. 

There are massive potential REE mining sites and refinery projects in early-stage development in both countries. At nameplate capacity, just the known projects under development would have enough output to supply 10 or more magnet plants the size of 10X, cover all U.S. demand for dysprosium and terbium, and provide a credible alternative to Chinese dominance.