China’s Dominance in Critical Minerals Poses Strategic Risks for U.S. Supply Chains

China’s overwhelming dominance in the production and processing of critical minerals has become a strategic chokepoint with significant implications for the United States and global supply chains. These minerals are indispensable for a wide array of products, including everyday electronics like smartphones and advanced defense platforms such as the F-35 fighter jet. For instance, a conventional gasoline-powered vehicle may use up to forty rare earth magnets in components like seats and brakes, while electric vehicles require even more.

Last week, China expanded its export control regime, potentially restricting global access to critical mineral products, including rare earth magnets. This move builds on earlier semiconductor-related restrictions and extends to products containing as little as 0.1 percent of Chinese rare earths or utilizing Chinese-developed mining, separation, or magnet-making technologies. The policy mirrors the United States’ Foreign Direct Product Rule and requires export license applicants to submit product schematics, granting China access to proprietary intellectual property.

China’s strategic position in critical minerals is the result of decades of deliberate industrial policy. During his 1992 Southern Tour, Deng Xiaoping famously remarked, “The Middle East has oil; China has rare earths,” highlighting the country’s focus on these resources. Although rare earths are not geographically rare nor exclusive to China, the government’s sustained investments have fostered dominance across the entire value chain—from mining and refining to production and recycling. Additionally, China has expanded its influence by acquiring foreign mines worldwide.

The critical bottleneck in the supply chain lies not in mining but in refining and processing capacity and intellectual property. China controls up to 90 percent of global processing capacity and more than 99 percent for three rare earth elements essential for heat-resistant magnets. This supremacy was achieved through subsidies, pricing strategies that undercut competitors, and significant innovation, resulting in ownership of the industry’s most valuable intellectual property. Meanwhile, environmental concerns and regulatory hurdles have limited mining and refining expansion in the United States and other developed countries.

Addressing this dependency presents two major challenges for the United States: time and financial investment. Developing new mines and processing facilities is a lengthy and costly endeavor. According to S&P Global, the average U.S. mine takes nearly twenty-nine years to become operational due to exploration, permitting, and construction delays. These projects require billions in upfront capital, and without mechanisms such as price floors, offtake agreements, tax incentives, and regulatory relief, attracting private investment remains uncertain.

The Biden administration has prioritized this issue by providing grants and loans and engaging with international partners to foster collective action. The Trump administration took further steps, notably when the Department of Defense acquired a 15 percent stake in MP Materials, a U.S.-based rare earth producer, for $400 million, establishing a price floor and offtake agreement. Treasury Secretary Scott Bessent recently affirmed the continuation and expansion of this approach across multiple industries to prevent future supply disruptions.

Collaboration with allies is critical to accelerating the development of a diversified and trusted global critical minerals supply chain. Bessent emphasized the need for a coalition of countries to coordinate responses, noting that “bureaucrats in China cannot manage the supply chain or the manufacturing process for the rest of the world.” This multilateral approach aligns with proposals advocating for “coalitions of the ambitious” to collectively address supply vulnerabilities.

However, lingering tensions from previous U.S. tariff policies complicate alliance-building. The United States could leverage financial institutions such as the International Development Finance Corporation (DFC) and the Export-Import Bank to incentivize partner nations. For example, the Lobito Corridor project—a railway connecting Angola’s Atlantic port to Zambia through the Democratic Republic of Congo—is financed by the DFC alongside the African Development Bank, Africa Finance Corporation, the European Commission, and host governments. This infrastructure will facilitate mineral exports and stimulate further private investment.

China’s recent export control announcement may be strategically timed ahead of a potential summit in South Korea and upcoming discussions between Treasury Secretary Bessent and Chinese Vice Premier He Lifeng. Despite China’s efforts to portray itself as a defender of the multilateral trading system, its export restrictions risk positioning it as a disruptive actor alongside the United States.

The current moment presents an opportunity for the United States to strengthen partnerships and reduce reliance on China’s critical mineral supply. While progress will take years or even decades, coordinated investment and policy measures can build a resilient supply chain that supports economic and national security interests.

The journey toward supply chain diversification begins with concerted steps by governments and industry worldwide.