China's Hold On Rare Earth Minerals Means Trouble for US Technology Companies
Fresh & Hot curated AI happenings in one snack. Never miss a byte 🍔
This snack byte will take approx 7 minutes to consume.
If you've ever played Scrabble, you know that rare letters like Q, X, and Z score the most points.
In the global technology game, the bottom row of the periodic table functions much the same way. Those 17 elements known as "rare earth metals" – with their tongue-twisting names like dysprosium, praseodymium, and neodymium – aren't just valuable for winning word games; they're the unsung heroes powering our modern world.
And China holds nearly all the cards. Nothing quite compares to the stranglehold China maintains on these crucial elements. As the recent trade tensions with America demonstrate, rare earths represent perhaps the most concerning technological vulnerability in our interconnected global economy.
On April 4th, responding to Donald Trump's tariffs, China restricted exports of seven rare earth elements to America. While not an outright ban, it requires producers to apply for export licenses – a step that could easily morph into a complete embargo. This follows China's previous restrictions on gallium and germanium exports two years ago, and the December ban on exports of gallium, germanium, and antimony to the United States.
The market effects of those earlier restrictions have been dramatic. According to Jack Bedder of Project Blue, gallium purchased in Western markets now costs two to three times more than in China. Market fragmentation has become the new normal, though the apocalyptic scenarios haven't fully materialized – yet. Many buyers had wisely stockpiled materials, existing contracts remained valid, and some supply has trickled through third countries.
But this time feels different.
Why These Seven Rare Earths Matter More
The seven "heavy" rare earths China has targeted – including dysprosium and terbium – represent a strategic masterstroke for three key reasons.
First, they're exceptionally difficult to substitute. The bigger the motor, the weightier the rare earth you need. Dysprosium and terbium regulate heat in powerful magnets essential for offshore wind turbines, jet engines, and spacecraft. The other five elements play crucial roles in AI chips, MRI scanners, lasers, and fiber optics – the backbone of our technological future.
Second, China's dominance in heavy rare earths is even more absolute than with lighter varieties. It controls most mining operations both domestically and in Myanmar, and – crucially – processes an estimated 98% of all extracted material globally. Unlike gallium or germanium, which emerge as byproducts when processing aluminum or zinc, heavy rare earths require specialized separation techniques from complex chemical compounds – demanding expertise that few outside China possess.
Third, China has sophisticated tools to enforce restrictions. The Chinese government has the capability to track every ton of rare earth mined and processed domestically, monitoring where materials end up and maintaining surveillance on global demand patterns. This enables them to spot any anomalies that might indicate third-country workarounds.
"You could get a lot of collateral damage if China cracks down," warns Melissa Sanderson, a mining veteran formerly with the U.S. State Department, "because they would be concerned about closing loopholes." This reality makes other countries hesitant to assist America in circumventing restrictions.
How did we arrive at this precarious position? The story begins, ironically, in America. The first significant rare earth deposit was discovered at Mountain Pass, California, in 1949. For decades, the United States led global production.
But something changed in the 1980s. China, recognizing the strategic importance of these materials, launched what we now understand was a deliberate national policy. As Deng Xiaoping famously stated in 1992: "The Middle East has oil; China has rare earths."
While Western companies focused on quarterly profits, China played a long game – investing heavily in mining capabilities, processing technologies, and metallurgical research. Beijing subsidized production, tolerated significant environmental damage, and undercut global prices until foreign competitors couldn't survive.
By the early 2000s, China controlled over 90% of global production. The Mountain Pass mine shut down in 2002, unable to compete with Chinese prices or meet California's environmental standards.
China's Global Mineral Empire
China's strategy extends far beyond its borders. Over the past fifteen years, Chinese companies have systematically acquired mining interests and processing facilities worldwide.
In the Democratic Republic of Congo, Chinese firms control approximately 70% of cobalt production – another critical battery material. In Indonesia, Chinese investments dominate the nickel industry. In Greenland, Chinese companies have aggressively pursued rare earth deposits, though facing some resistance from local governments.
Perhaps most significantly, China has established a commanding presence in Africa. Through its Belt and Road Initiative, Beijing has provided financing for infrastructure projects across the continent, often securing mining rights as collateral. Chinese companies now control rare earth operations in Burundi, Madagascar, and Namibia.
In Latin America, similar patterns emerge. In Brazil's state of Minas Gerais, Chinese investors have acquired significant stakes in rare earth projects. Argentina's lithium triangle has seen massive Chinese investment, with companies like Ganfeng Lithium and Tianqi Lithium securing prime positions.
This global expansion serves two purposes: ensuring raw material supplies for Chinese industries and maintaining leverage over global markets. Even when mines operate outside China, the raw materials typically return to China for processing – the crucial technical step where true value and control reside.
The Technological Implications
The implications of China's rare earth dominance extend across virtually every high-tech sector. Let me break down a few examples:
Electric Vehicles: Each EV requires approximately 1-2 kg of rare earth elements. Neodymium and dysprosium are particularly crucial for permanent magnets in motors. Tesla attempted to design motors without rare earths but eventually returned to rare earth magnets for most models due to performance advantages.
Renewable Energy: A single offshore wind turbine contains about 600 kg of rare earth elements. Neha Mukherjee of Benchmark Minerals predicts dysprosium prices would hit $300 per kilogram from $230 now if China implements a full ban – potentially making some renewable projects economically unviable.
Defense Applications: Modern military systems are perhaps most vulnerable. Each F-35 fighter jet contains nearly 420 kg of rare earth materials. Missile guidance systems, radar installations, and night vision equipment all depend on these elements. While the Department of Defense maintains strategic reserves, these would rapidly deplete in any prolonged conflict.
Consumer Electronics: From smartphones to laptops, rare earths enable miniaturization and performance. The vibration function in your phone? Thank a tiny rare earth magnet. Your earbuds? Similar story.
Medical Technology: MRI machines require significant amounts of rare earth elements for their powerful magnets. Advanced cancer treatments like proton therapy use rare earth components in beam-focusing systems.
The technological consequences of a severe supply disruption would cascade throughout these sectors. Initially, we'd see price spikes as companies scramble to secure remaining inventory. Next would come production slowdowns, followed by redesigns that sacrifice performance for material availability.
Civilian industries would feel the impact first, but defense applications would eventually suffer too. The United States might be forced to prioritize military applications over consumer products, creating shortages of everyday technologies.
America's Belated Response
The U.S. has finally awakened to this vulnerability, though perhaps decades too late. Current efforts include:
Domestic Mining: The Mountain Pass mine in California has reopened under new ownership (MP Materials), though it still sends most material to China for processing. Additional projects are underway in Texas, Wyoming, and Alaska.
International Partnerships: The U.S. is sponsoring new mines in Brazil and South Africa, and working with Australia and Canada to develop alternative supply chains.
Processing Capabilities: Using the Defense Production Act of 1950, the government is funding the first major heavy-rare-earth processing facility outside China, in Texas. However, expertise remains limited.
Magnet Manufacturing: Perhaps most crucially, America lacks the ability to turn processed rare earths into high-performance magnets – another area where China has restricted exports.
Analysts estimate it will take America three to five years to build a complete mine-to-magnet supply chain independent of China. That's assuming everything goes according to plan – a rarity in complex industrial projects.
Lessons from Japan's Experience
Japan's experience offers some insights. In 2010, amid a fishing dispute, China halted rare earth exports to Japan. Within months, Japan made concessions and exports resumed.
But Japan also learned valuable lessons. Toyota and other manufacturers redesigned products to reduce rare earth dependence. The government invested in recycling technologies and alternative materials research. Today, Japan imports 58% less rare earth material per unit of economic output than before the crisis.
Japanese recycling facilities now recover rare earths from discarded electronics – a technological marvel extracting gold from digital trash. While not a complete solution, it demonstrates how innovation can respond to resource constraints.
A complete Chinese export ban would severely harm America's technology sector, but would also damage China's own interests by destroying demand for its products. More likely, we'll see selective restrictions targeting America's most vulnerable sectors – unless the trade conflict escalates further.
This Scrabble game of critical materials has profound implications. For consumers, it might mean higher prices for electronics and green technologies. For companies, it necessitates rethinking supply chains and material choices. For nations, it demands strategic planning around technological sovereignty.
When I look at my children playing with their tablets – devices containing at least eight rare earth elements – I wonder if they realize how geopolitically complex their toys really are. The invisible ingredients of modern life suddenly seem far more precious than gold or diamonds.
Perhaps the greatest irony? Despite their name, most "rare earths" aren't actually that rare in the Earth's crust. What's rare is the willingness to develop the messy, complex processing capabilities needed to transform them from dirt into technological marvels.
As one mining executive told me recently with a wry smile: "We spent decades optimizing global supply chains without considering who controlled them. Now we're surprised that the controller has power?
That's like giving someone your car keys and being shocked when they drive away with your car."
About the author: Rupesh Bhambwani is a technology enthusiast specializing in the broad technology industry dynamics and international technology policy. When not obsessing over nanometer-scale transistors, energy requirements of AI models, real-world impacts of the AI revolution and staring at the stars, he can be found trying to explain to his relatives why their smartphones are actually miracles of modern engineering, usually to limited success.
very interesting and useful Thanks.