China seized mines and built factories. Japan took note and invested in Australia. But the United States did little despite concerns about supply control. China shocked the world in 2010 when it imposed an embargo on exports of vital rare-earth metals to Japan. Panicked Japanese executives appeared on television to warn that the critical raw materials were running out.
The embargo, triggered by a territorial dispute, lasted just seven weeks. But it changed the global supply chain for these metals. When the embargo ended, China took firm control of its minerals. Top officials in Beijing rooted out corruption, cracked down on smugglers, and consolidated the industry under state control.
After the embargo, there is no excuse for ‘ignorance’
The world has been put on notice, especially Japan and the United States, two of China’s biggest customers for rare earth metals used in everything from cars to smartphones to missiles.
The governments of both countries have drawn up detailed plans for how to mitigate their dependence on China. Japan has largely followed through on its plans and can now source the minerals from Australia.
But not the United States. Even after 15 years, the country remains almost entirely dependent on China for the processing of rare earth metals. As a result, American automakers, aerospace companies and defense contractors have been left vulnerable.
Furious over President Trump’s tariffs, China has suspended all exports of some rare earths, as well as the even more valuable magnets made from them.
Rare-earth magnets are cheap, but there are no substitutes
These small but powerful magnets – no bigger than a ring on a person’s finger, but 15 times stronger than a conventional iron magnet – are a cheap and often overlooked component of electric motors.
They are used in electric and gasoline-powered cars as well as in robots, drones, offshore wind turbines, missiles, fighter jets and many other products.
America’s failure to devise an alternative to its reliance on Chinese supplies has endured through Democratic and Republican administrations.
Control of rare earths centralized in Beijing
Beijing’s embargo on Japan in 2010 was undermined by Chinese organized crime syndicates (Triads) that controlled much of the industry in south-central China in collusion with local officials. The gangsters smuggled up to half of China’s annual rare earth production out of the country.
Weeks after the embargo ended, Beijing retaliated. Government forces acting under national security orders invaded the valley near Longnan in Jiangxi province, where much of the world’s heavy rare earth minerals are produced.
They seized private mines and imprisoned thousands of people across southern China. Regulation of the industry was transferred from local governments to Beijing.
The mines were later nationalized and consolidated into a single state-owned company, the China Rare Earth Group. During a visit last week to the valley without the knowledge of local authorities, there was no sign of the thugs who used to guard the rare earth mines of southern China.
China has also taken up rare earth processing
China has recently developed its own magnet industry rather than sending materials to magnet factories in Japan. Beijing has poured money into building advanced magnet factories in Ganzhou, a city near Longnan. This is a major part of its current industry.
China now produces 90 percent of the world’s magnets. Further construction was underway at two of the largest magnet factories in Ganzhou last week.
Dependence on China is important, the Chinese say
China’s top leader, Xi Jinping, said in a 2020 speech that it is important for China’s national security that Western supply chains remain dependent on his country.
“We must develop our strengths and consolidate our international lead in industries where we have an advantage,” he said a few months after visiting the most advanced magnet factory in Ganzhou.
He called for “increasing the reliance of international industrial supply chains on China, building a strong ability to counter and prevent deliberate supply disruption by foreigners.”
Japan has chosen to build strategic reserves
Japan has also taken extensive action since the 2010 embargo. Its manufacturers have begun stockpiling enough rare earths to cover their own needs for up to two years. They have also begun looking abroad.
The Sumitomo Group, with financial support from the Japanese government, helped develop Lynas, an Australian mining company.
Lynas mines and refines 60 percent of Japan’s light rare earths, which are mixed with small amounts of heavy rare earths to make rare earth magnets. And the company is preparing to begin refining heavy rare earths for Japanese manufacturers this summer in Malaysia, although initially in small quantities.
Japan’s largest magnet manufacturers – Proterial, Shin-Etsu Chemical Company and TDK Corporation – have moved some production from Japan to China to have reliable access to rare earths, as well as to Vietnam, where labor costs are low. But they have also maintained significant production in Japan.
The American rare earth industry has gone to China!
The American rare earth magnet industry began with a General Motors subsidiary in northern Indiana in the 1980s. But the factories have closed and moved to China and Singapore.
After the 2010 embargo, the Japanese company Hitachi Metals, which changed its name in 2023 to Proterial in response to concerns from the administration of former President Barack Obama, built a rare-earth magnet factory in North Carolina from 2011 to 2013.
The Hitachi Metals plant, with a few dozen employees, had higher costs than the giant complexes being built in Ganzhou.
The persistent Chinese
American companies proved unwilling to pay extra for magnets produced in the United States and turned to Chinese suppliers. Hitachi closed the plant in 2020 and the equipment went into storage.
Today, the only active rare earth mine in the United States is located in Mountain Pass, California. The operator, MP Materials, plans to begin commercial production of rare earth magnets by the end of the year at a plant in Texas.
But even when operating at full speed, the facility will produce the equivalent of China’s daily output in a year.
Rare Earth Mining in the U.S.
Chinese factories supply thousands of tons of rare earth magnets each year to the country’s electric car and offshore wind turbine manufacturers — two industries that Mr. Trump has criticized.
Like magnet production, rare earth mining has had a chequered history in the United States. The Mountain Pass mine produced the majority of the world’s rare earths from 1965 until 1995, when China began flooding the global market with all manner of low-cost exports.
The mine closed in 2002, in part because of California’s increasingly stringent environmental regulations. A $1.5 billion upgrade began in 2010, but mining didn’t resume until 2017, when the mine had to ship its ore to China for processing at low-cost refineries there.
The mine has only just begun refining a large portion of its output.
Environmental regulations make it difficult to open a mine in the U.S.
Zoning and environmental regulations make it difficult to open a rare-earth mine in the U.S. It takes 29 years to open a rare-earth mine in the U.S., said Mark Smith, president and CEO of NioCorp Developments, which has received building permits for a mine in Nebraska.
“You can spend a whole career building and operating a mine,” Smith said.
In contrast, mines in China can open quickly and do not have to undergo the same rigorous regulatory approval. The root of all the problems is that the global market for the mineral is tiny compared to other types of mining, such as copper.
Few American companies have been willing to make big investments in rare earths simply to deal with the risk, as Hitachi found, that customers prefer cheaper products from government-backed industries in China.
