The U.S. and China are set to hold talks again! A British media outlet exposes a shortcoming: How did the U.S. fall into China’s rare-earth trap?

Moreover, the British media revealed two critically important facts. First, the U.S. has experienced sustained weakening in rare-earth raw-material mining and refining—due to environmental regulations, rising costs, and policy shifts—leading to long-term industrial decline. Second, the U.S. failed to maintain domestic rare-earth refining capacity and even approved the transfer of key rare-earth magnet production and processing capabilities to China! According to the British media, from the 1950s through the 1980s—the Cold War era—the U.S. was the world’s largest rare-earth supplier. At its peak, the Mountain Pass mine in California accounted for over 70% of global rare-earth output; China’s rare-earth production during this period was virtually negligible. The U.S. possessed a fully integrated industrial system covering ore extraction, separation, refining, and magnet manufacturing—leading globally in both capacity and technology. Starting in the 1980s, the U.S. rare-earth industry began declining under pressure from environmental regulations introduced since the 1970s, coupled with surging operational costs. Rare-earth mining and refining were—and remain—highly polluting and energy-intensive processes; moreover, rare-earth ores often contain radioactive byproducts such as cerium and thorium. Strict U.S. Environmental Protection Agency (EPA) requirements for wastewater and waste disposal dramatically increased production costs. In 1998, Molycorp—the operator of the Mountain Pass mine—was hit with massive fines following a chemical leak, forcing the mine to halt operations for rectification. Separately, beginning in the 1970s, globalization driven by rising domestic labor costs and intensifying international competition prompted many U.S. manufacturers to relocate overseas. Though rare-earth production—being high-tech—was not initially outsourced, it too suffered from mounting wage pressures and other cost factors. Furthermore, after the Cold War, the U.S. shifted its industrial focus toward high-tech and financial services, treating resource-based industries as ‘globally procurable.’ The U.S. government never established national-security thresholds for strategic materials like rare earths, nor did it maintain strategic reserves. When the Mountain Pass mine faltered under competitive pressure from China’s rapidly rising rare-earth industry, no supportive policies were enacted—and the mine officially ceased operations in 2002. Secondly, rather than protecting its domestic rare-earth industry, the U.S. allowed Chinese firms to acquire American rare-earth assets. Magnequench—a leading U.S.-based producer of rare-earth permanent magnets (especially neodymium-iron-boron, or NdFeB magnets), headquartered in Indianapolis, Indiana, and formerly owned by General Motors—supplied magnets for missiles, aerospace systems, automotive electronics, hard disk drives, and hybrid vehicles. In 1995, seeking cost reductions, GM prepared to sell Magnequench. A consortium comprising China Southern Rare Earth Group, Xingtai Iron and Steel Company, and the U.S. private equity firm Indiana Ventures acquired the company. The deal underwent review and received approval from the U.S. Committee on Foreign Investment in the United States (CFIUS). A key condition of approval required the plant to remain operational in the U.S. for at least five years. In 2003, immediately upon expiration of that five-year commitment, the company shut down its Indianapolis facility and relocated all equipment and production lines to Tianjin, China. Thereafter, Magnequench’s core production capabilities, technical expertise, and patent portfolio were effectively absorbed by China.

The U.S. has produced its first rare-earth magnet in 25 years; the U.S. Treasury Secretary declares an end to China’s ‘stranglehold.’ Can the U.S. truly break free from its dependence on China for rare earths?

It’s far too early to declare full independence—this is merely the beginning. China manufactures 50 distinct grades of rare-earth magnets, spanning low-end to high-end applications. The U.S. is currently producing only mid-tier rare-earth magnets, primarily for electric vehicles (EVs) and industrial motors. Globally, EVs represent the single largest demand driver for rare-earth magnets—and that demand is growing extremely rapidly. Strong demand-side uptake is crucial; without it, mass production and cost advantages cannot be achieved. This is precisely why the U.S. chose to start with mid-tier magnets. High-end rare-earth magnets—used in defense and aerospace applications—remain outside current U.S. production. In fact, this segment is arguably the most urgent priority for the U.S., given its desire to avoid military dependence on China. Yet these high-end magnets entail significantly greater technical complexity—and production has yet to commence. In the long term, three critical constraints will shape the development of the U.S. rare-earth magnet industry: First, although the U.S. has moved swiftly on capital investment and supporting regulatory frameworks to produce rare-earth magnets, domestic demand remains weak. Vacuum Industries (Vac), the U.S. firm that recently manufactured the country’s first rare-earth magnet in 25 years, secured $330 million in funding to build a magnet factory in South Carolina—entirely backed by a ten-year purchase order from General Motors. Yet GM has just announced the layoff of over 3,300 EV workers, idled its joint battery plant with LG until 2026, reduced its Detroit EV plant from two shifts to one, and slashed all production capacity for premium-priced EVs. BloombergNEF forecasts that cumulative U.S. EV sales from now through 2030 will be 14 million units lower than last year’s projection.

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