Rare Earths at War: U.S. Mobilizes $5B to Break China's Grip

The United States has unveiled a $5 billion investment initiative aimed at bolstering domestic rare earth element (REE) mining and processing capabilities, in response to growing supply chain vulnerabilities and China's dominance over global rare earth production and refining. This strategic move seeks to reduce the U.S. reliance on China, which currently accounts for nearly 95% of global refining and separation capacity for rare earths, and 60–70% of global rare earth mining.

The new funding is part of a broader effort to address supply chain disruptions exacerbated by China’s recent de facto export freeze on seven rare earth elements and related magnets. This freeze, implemented in April 2025, reportedly targets the U.S. defense industry and involves a complex export licensing process that requires detailed end-use declarations, sensitive IP-related information, and other disclosures. The move has already caused significant disruptions, with inventories running low and prices for certain elements like dysprosium and terbium spiking outside China to double or triple domestic prices.

The U.S. government’s initiative is also motivated by the strategic importance of rare earths in emerging technologies, including electric vehicles (EVs), wind turbines, and advanced defense systems. China’s control over the processing segment of the supply chain means that even rare earths mined outside the country are often sent back for refinement, creating a bottleneck that the U.S. aims to circumvent. The $5 billion program will likely support domestic mining projects, refining infrastructure, and innovation in recycling and by-product recovery.

Industry analysts and policymakers have highlighted the need for a coordinated multinational approach to rare earth supply chains. Initiatives between the U.S., Japan, and Australia are already under way to diversify sources and strengthen refining capabilities. Meanwhile, new exploration projects in Brazil, Uganda, and Southeast Asia, particularly for ion adsorption clay (IAC) deposits, offer quicker production timelines and potential access to heavy rare earths. These efforts align with broader geopolitical goals of reducing single points of failure in critical material supply chains.

The U.S. plans to work closely with domestic and international partners to build a more resilient and regionally balanced rare earth supply chain. This includes supporting companies like Lynas in Malaysia, MP Materials in the U.S., and Neo Performance Materials in Estonia, which are expanding local refining capacities. Additionally, innovation in manufacturing techniques, such as grain boundary diffusion, is helping to reduce the dependency on highly sensitive rare earths like dysprosium and terbium, mitigating potential supply shocks.

Despite these efforts, challenges remain. Legal and contractual complexities arise as companies navigate export restrictions and comply with export licensing requirements. Contracts often contain force majeure, hardship, and price-adjustment clauses that may or may not cover export restrictions, depending on the interpretation of the governing legal framework. Buyers and suppliers are now under pressure to review and renegotiate contracts to address risks associated with supply chain disruptions.

The U.S. initiative is expected to play a pivotal role in reshaping the global rare earth landscape, reducing geopolitical risk, and fostering a more diversified and resilient supply chain. As the world transitions toward a more digital and electrified future, rare earths will remain at the center of industrial transformation. The success of the U.S. strategy will depend not only on financial investment but also on international collaboration, technological innovation, and regulatory agility.