Why it's nearly impossible for America to meet its rare-earth needs after China's export restrictions

Yahoo

16-04-2025

A previous version of this story identified Luisa Moreno as president of Defense Metals Corp. She is the former president and current director of the company.
China has managed to hit the U.S. where it hurts the most in response to the Trump administration's tariffs, with restrictions on global exports of seven rare-earth elements that the U.S. has little ability to produce or refine.
Americans are 'doom buying' coffee, olive oil and soap. What's the one thing I should stockpile to avoid tariff price hikes?
I begged my adviser to sell amid the market turmoil. He dragged his feet and I lost $20,000. Do I have any recourse?
S&P 500 tallies its first 'death cross' in 3 years. Here's what happens next.
'Are we out of our minds?' My husband and I are in our 70s. Should we use $600K of our savings to buy our dream home?
Why this strategist is expecting a lost decade for U.S. stocks, even without a recession
In the near term, it's not possible for the U.S. to meet its own needs for the rare earths included under China's export restrictions, said Luisa Moreno, a director at Defense Metals Corp. CA:DEFN, a mineral-exploration firm focused on the acquisition of rare-earth mineral deposits.
The U.S. produces virtually 'none of the materials that have just been restricted,' and China cannot be completely replaced as provider for these, she said. The U.S. can try to source some of these materials from other countries, but that is not really an option for the 'heavy' rare earths — which have a higher atomic number, are less abundant and are more difficult to extract.
Earlier this month, China implemented 'export control measures' on certain rare earths: samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium.
In a tweet, China's Ministry of Commerce said it aims to better safeguard national security and interests, wording reminiscent of U.S. President Donald Trump's executive order from March 20 to increase American production of critical minerals to enhance national security. The ministry's tweet did not mention the U.S. specifically, and according to reports, the export controls have led to a pause in global exports of these rare earths.
The fact that the export restrictions target heavy rare earths is 'really significant, because China processes near 100%' of these, making the U.S. particularly vulnerable, said Gracelin Baskaran, research director at the Center for Strategic and International Studies, during a press briefing held on Zoom Tuesday. 'We currently do not have any capability to do this domestically.'
China's restrictions are not actually a ban on the exports of these rare earths to the United States, she said.
There's a 'runway of export policies,' Baskaran said, that generally start with 'non-automatic licensing.' That means Chinese exporters need to apply to get a license to export a given good. Next there are quotas and tariffs, and the final level of restriction would be a total ban.
The licensing system hasn't been rolled out, so there will be a pause in China's exports of these goods while that happens, she said.
Jena Santoro, senior manager of intelligence solutions at Everstream Analytics, said a short-term supply disruption is expected as exporters 'apply for new licenses and shipments remain stuck at Chinese ports, while the government creates the new regulatory enforcement system.'
It's expected to take at least 45 days from April 13 for new export licenses to be issued and shipments to resume as normal, she said.
Rare earths have a wide range of technological uses. They are crucial components of smartphones, spacecraft, electric cars and medical devices such as magnetic resonance imaging machines.
Heavy rare earths, in particular, are 'absolutely vital for our defense,' said Baskaran. They're used in F-35 fighter jets, submarines and Tomahawk missiles.
China's move comes just weeks after the U.S. Air Force said it awarded a contract to Boeing BA to lead development of the F-47, the world's first sixth-generation fighter aircraft.
The F-35 combat aircraft requires more than 900 pounds of rare-earth elements, while an Arleigh Burke DDG-51 warship requires 5,200 pounds, and a Virginia-class nuclear-powered submarine needs 9,200 pounds, according to the U.S. Department of Defense.
Reuters reported on April 11 that Chinese exports of seven rare earths stopped on April 4. That helps explain the recent drop in the S&P 500 Aerospace & Defense stock index XX:SP500.20101010, according to a note Monday from Ed Yardeni, president of Yardeni Research. The index saw a nearly 6% decline from its record high on March 25 through the close on April 11.
Even before these restrictions, the U.S. defense sector 'industrially has struggled with limited capacity and limited surge capacity to respond in the instance of conflict,' Baskaran said.
These restrictions on rare earths 'will only widen that gap,' she said, because while the U.S. does have limited stockpiles, 'they will not tide us over forever, and it enables China to strengthen its military capabilities faster than the United States. So that has profound consequences.'
A lot of our 'capabilities are quite nascent,' said Baskaran. That was only 'further compounded' in December 2023, when China banned the export of technologies for making rare-earth magnets, according to Reuters.
'It's not just a capital problem. It's a know-how problem' for the U.S. and other countries, Baskaran said. In the U.S., the Mountain Pass Rare Earth Mine, owned by MP Materials Corp. MP, is the nation's only active rare-earth mining and processing facility.
The reality is that the U.S. produces less than 1% of the world's rare earths, said Baskaran.
And on the processing side, 'there are parts of the rare-earths supply chain … that we never actually learned how to do,' such as the solvent extraction technology used to separate rare-earth elements, she said. 'So there's an element of this getting up to speed on the technical side that we're doing in parallel to constructing capabilities, in addition to issuing the capital.'
Could the U.S have known that these issues would emerge given China's dominance in rare earths? The short answer is yes, according to Baskaran.
'We've had a long runway, and our inaction is ultimately giving China very, very powerful currency at the negotiating table,' she said. Ultimately, the U.S. will 'need to source rare earths from elsewhere.'
The Trump administration has a clear understanding of that, and acknowledges it, she said. 'That's why we've seen rare earths feature prominently in the context of places like Ukraine and Greenland.'
The Financial Times recently reported that the Trump administration is drafting an executive order to create stockpiles of deep-sea critical metals to offset China's dominance in the sector. Critical metals include rare earths, as well as other metals essential for economic and national security.
For the U.S. to be able to produce its own heavy rare earths, it may take five to 10 years in the best-case scenario, Defense Metals Corp.'s Moreno said.
The U.S. has to stay focused and continue to invest in companies like Australia's Lynas Rare Earths Ltd. AU:LYC and 'upstream' industries such as exploration and production, she said.
For now, restrictions on these materials will lead to higher prices for consumer products that depend on them, including electric motors, toys, wind turbines, electric vehicles and medical equipment, Moreno said.
U.S. consumption of these materials is 'largely indirect' because China controls much of the global supply chain, she said. That means American consumers will primarily feel the impact through tariffs on Chinese imports, she said.
Meanwhile, in the case of military equipment, 'increased defense spending to secure these materials may come at the expense of funding for social services, infrastructure and other public needs,' said Moreno.
'The whole thing feels predatory': My grandma, 97, pays $170 a month for a $10,000 life-insurance policy. Should we stop payments?
Bond market is the Achilles' heel of Trump's 'big, beautiful' budget bill, say investors
'My house and car are paid off': I have $1 million in stocks — so where do I invest $100,000?
Stocks that benefit from chaos are helping a husband-and-wife investing duo beat the competition
I'm administrator of my sister's estate. Her bank won't tell me the names of her beneficiaries. Is that legal?