Rare Earth Supply Chain Vulnerability: Strategic Risk Assessment for US Market Expansion

U.S. rare earth imports fell 6.28% in value to $151.08 million according to market reports and 9.12% in volume during 2024. China maintained overwhelming control, supplying 74.5% of import value and 84% of volume, underscoring continued strategic reliance despite tariff exemptions for critical sectors. Paradoxically, proxy prices climbed 19.06% over five years, partially offsetting the impact of lower volumes. This price increase stems directly from China's tightened export controls, which have driven European rare earth prices up sixfold compared to Chinese benchmarks according to IEA analysis.

New sources emerged in France, Austria, and South Africa, but these barely dent China's dominance. The U.S. remains fourth in global mining output, while China refined 91% of the world's supply and produced 60% of mined material. Export restrictions imposed in 2024-2025 have particularly strained industries depending on rare earth magnets for electric vehicles, wind turbines, and defense systems. MP Materials' Mountain Pass mine remains America's primary domestic source, but constraints persist as China expanded export bans on processing equipment and materials.

The situation creates tangible risks: China's 58,000-tonne rare earth magnet exports in 2024 continue to overshadow U.S. production capabilities. While diversification efforts exist, the persistent 74.5% Chinese value share signals vulnerable over-reliance. Export controls now present dual threats-raising costs for Western manufacturers through inflated prices while simultaneously restricting supply chains for advanced manufacturing. This creates a challenging environment where price resilience cannot fully compensate for strategic dependency.

Domestic Expansion: Execution Threats and Liquidity Constraints

Mountain Pass and White Mesa represent the US rare earth industry's core expansion capacity. Mountain Pass processes over 40,000 tonnes of light rare earths annually in Nevada, while White Mesa adds about 2,000 tonnes of heavy rare earths in Utah. Together, these facilities form the backbone of America's efforts to reduce dependence on Chinese rare earth processing, which dominates 80-85% of global capacity. Federal support totals $1.4 billion to advance these operations against a backdrop of aggressive defense policies.

These policies include a looming 2027 ban on Chinese-origin magnets in US weapons and a 25% tariff on Chinese imports starting in 2026. While these measures create urgent demand for domestic supply, they also impose significant upfront compliance costs that strain producers' balance sheets. Companies must invest heavily in new capabilities and certifications to meet defense purity standards and tariff-related logistics shifts before full production ramps.

The $400 million guaranteed offtake deal for Mountain Pass offers some relief. This government-backed arrangement provides price floors and demand certainty, helping MP Materials counter intense Chinese price competition. However, this support addresses only short-term viability. It doesn't resolve chronic scaling obstacles facing both facilities or White Mesa's lack of equivalent federal backing. Processing bottlenecks remain unaddressed, and the offtake agreement doesn't cover White Mesa's operations.

The core challenge lies in bridging the gap between policy ambition and financial reality. The $1.4 billion funding, while substantial, must cover expansion, compliance, and operational scaling simultaneously. This creates liquidity constraints that threaten execution timelines. Further complicating matters, the 2027 magnet ban and 2026 tariffs accelerate cash outflows for compliance before corresponding revenue streams materialize. Without additional capital infusions or faster scaling, these liquidity pressures could delay domestic rare earth production goals critical to national security supply chains.

Strategic Vulnerabilities: Geopolitical Leverage and Policy Uncertainty

Previous analysis highlighted China's rare earth dominance, but October 2025 brought new layers of risk. Beijing dramatically expanded its export controls, adding five specific elements-holmium, erbium, terbium, yttrium, and gadolinium-to its restrictive list. A striking feature was the introduction of extraterritorial jurisdiction, meaning products containing these rare earths made anywhere in the world using Chinese technology or equipment could now fall under Chinese export rules. This move significantly intensified China's strategic leverage over global supply chains for critical minerals essential in defense and high-tech manufacturing. According to China Briefing analysis

This escalation prompted swift diplomatic intervention. A bilateral trade agreement reached in November 2025 resulted in a temporary suspension of these newly imposed controls, providing a narrow window of relief until November 2026. While this pause offers short-term respite for industries scrambling to adjust sourcing, it masks a deeper vulnerability. The agreement did not eliminate the broader control framework; crucially, it retained stringent licensing requirements for twelve out of seventeen rare earth elements, including key military-relevant materials like samarium and dysprosium. According to Clark Hill analysis

This temporary reprieve creates a dangerous illusion of security. Despite the suspension, China's overwhelming dominance in the complex and capital-intensive separation capacity for these elements-estimated at 80-85% globally-remains unchallenged. The underlying risk persists: controls could snap back into force if geopolitical tensions flare before the November 2026 deadline. Companies relying on this pause for long-term planning must recognize the fragility of this concession and the persistent threat of renewed restrictions to their supply chain resilience.