US targets rare earth bottlenecks in China fight

The U.S. Department of Energy is aggressively accelerating domestic critical minerals processing to fortify semiconductor supply chains and assert technological sovereignty amid China's tightening grip on strategic resources. This urgency is underscored by legislative calls, notably from Senator Joe Manchin, who stresses urgent permitting reforms as essential to unlocking critical mineral development within a balanced energy policy framework. However, current policies have been criticized for their overly broad, categorical approach, which dilutes focus and resources across an expanded USGS critical minerals list that grew from 35 to 60 materials, many with marginal exposure to Chinese interference, thereby undermining efforts to reduce dependency on China.

In response, U.S. legislative and industrial policy is pivoting toward a sharply prioritized framework targeting approximately 25 critical minerals—primarily heavy rare earths and materials like gallium—that China has historically leveraged through export controls. This strategic narrowing enables tailored financial instruments such as equity investments, price floors, and offtake agreements, which provide direct, capital-intensive support to domestic producers and supply chains. For example, the Defense Production Act Title III funds have been deployed more strategically to restart domestic mines for antimony in Montana and Idaho, signaling near-term opportunities to meaningfully reduce import reliance.

Complementing this prioritization, the U.S. government is embracing a diverse toolkit of targeted interventions beyond traditional tax credits and price floors, including equity deals and accelerated permitting assistance, to overcome coordination challenges across agencies and market actors. Experts like Farrell Gregory highlight that while traditional tools remain marginally helpful, the future lies in more direct, capital-intensive measures tailored to the unique market dynamics of each mineral. Yet, as analyst Jordan Schneider notes, effective coordination remains a significant hurdle, complicated by the need to avoid duplicative efforts in a market distorted by China’s monopolistic control, prompting calls for political interventions such as sectoral tariffs to protect domestic industries.

This legislative and industrial policy evolution reflects a broader strategic imperative: achieving 100% domestic and ex-China supply for the prioritized critical minerals within a decade to secure U.S. leadership in AI, defense, and clean energy technologies. Investments have already yielded tangible outcomes, such as the first U.S. graphite production in over 50 years, addressing a critical vulnerability given China's 97% share of global synthetic graphite. Meanwhile, minerals like lithium, despite their high profile, are receiving comparatively less targeted support due to abundant domestic deposits and market-driven capital flows, underscoring the nuanced, risk-based prioritization reshaping U.S. policy.

The escalating US-China rivalry over critical minerals has become a defining geopolitical frontline, deeply reshaping global supply chains and trade policies. China's near-monopoly—controlling up to 99% of heavy rare earth production and 95% of permanent magnet manufacturing—has enabled it to weaponize export controls, sharply curbing supplies of gallium, germanium, and rare earths since 2023. This strategic leverage threatens US clean energy goals, semiconductor supply chains, and defense technologies, with potential disruptions risking trillions in global economic activity annually. As Joris Teer highlights, China’s export restrictions are not isolated but part of a broader coercive strategy that has impacted nearly all countries, prompting urgent policy responses from the US, EU, and allies to reduce dependency and secure strategic autonomy.

In response to China's tightening grip, the US and its allies have intensified efforts to diversify critical mineral supply chains through legislative and multilateral initiatives. The 2026 G7 pledge to limit any single nation's share of rare earth imports to 60% by 2030 exemplifies a coordinated attempt to break China's dominance, which currently accounts for nearly 70% of global rare earth production. However, challenges remain, including high capital costs for refining and production outside China, and divergent priorities among allies—where the US favors domestic projects while partners like Japan advocate for broader friendshoring strategies. Experts like Joris Teer advocate for a multilateral buyers’ club involving mineral-rich countries such as Malaysia and the DRC to align procurement policies and impose tariff barriers against China, aiming to dismantle its critical raw material weapon.

The US-China techno-nationalist rivalry extends beyond raw material control to the very architecture of emerging technologies, with the US dominating AI software infrastructure while China controls the physical supply chains of critical minerals essential for AI, defense, and clean energy sectors. This dual dependency complicates allied coordination and heightens national security concerns, especially amid China's increasingly aggressive posture in the Taiwan Strait. The Pentagon's backing of firms like MP Materials signals a strategic push to develop domestic rare earth processing capabilities, addressing supply chain vulnerabilities underscored by high market volatility and the need for recycling and long-term asset security. As Farrell Gregory notes, US policy must prioritize targeted investments in minerals where China has demonstrated export control leverage, rather than broadly subsidizing all materials equally.

The United States is grappling with a critical minerals and infrastructure crunch that imperils its semiconductor expansion, clean energy targets, and technological sovereignty. This strain is exacerbated by the collision of an aging electrical grid with soaring power demands from AI data centers, revealing deep vulnerabilities not only in raw material supply but also in the broader infrastructure needed to sustain these sectors. As tensions in the Middle East escalate and AI-driven demand surges, the fragility of these supply chains threatens to undercut America’s ambitions for geopolitical tech autonomy and defense readiness.

Despite a remarkable surge of over 200% in mineral resource shares by mid-2026, Wall Street’s shortsighted mispricing of critical metals like copper masks persistent shortages that underscore systemic supply chain fragilities. This disconnect presents a rare window for disciplined investors to capitalize on America’s strategic copper plays amid the broader race for tech sovereignty, yet it also highlights how market signals fail to fully account for the geopolitical and infrastructural risks that could disrupt supply continuity.

Beyond the well-charted semiconductor supply chain, the U.S. power electronics sector—critical for grid modernization and clean energy resilience—faces underappreciated bottlenecks due to limited domestic manufacturing capacity for components such as converters and DC filters. Unlike the semiconductor industry, which has been extensively mapped and understood, power electronics remain a blind spot in economic security discussions, even as their supply chain interdependencies become increasingly vital amid global infrastructure battles and economic coercion.

Critical minerals supply vulnerabilities are heavily concentrated in a narrow band of elements like rare earths and gallium, which pose acute medium-term procurement risks, especially under scenarios of geopolitical conflict with China. While prices for most metals spike during such escalations, these few indispensable elements could become virtually unobtainable without Chinese trade, underscoring the precariousness of U.S. supply chains and the urgent need for diversified sourcing and domestic processing capabilities.

The United States is decisively shifting from a broad, categorical approach to critical minerals policy toward a sharply prioritized framework that targets approximately 25 key minerals most vulnerable to Chinese supply chain interference. This refined list, dominated by sixteen rare earth elements—especially heavy rare earths where China controls 99 percent of production—and nine other strategic non-rare earth minerals like gallium and germanium, reflects a nuanced understanding that not all critical minerals face equal geopolitical risk. As Farrell Gregory emphasizes, these are the materials where China has historically imposed export controls, making them the focal point for targeted government investment and policy tools such as equity investments, price floors, and offtake agreements to effectively reduce reliance and enhance strategic autonomy.

This strategic prioritization is reshaping U.S. trade and industrial policy by concentrating resources on minerals where government intervention can realistically mitigate supply risks, rather than diluting efforts across an expanded USGS list that has ballooned from 35 to 60 materials since 2018. Minerals like copper and lithium, despite their market prominence, are deprioritized for direct capital support due to their large, complex markets and relatively stable supply chains, with solutions focusing more on permitting reforms than subsidies. Conversely, byproduct minerals such as gallium and germanium, which are critical for semiconductors and optics and where China holds near-monopolies, are prioritized for integration into existing domestic processing, illustrating a tailored approach that balances economic scale with strategic vulnerability.

The U.S. approach also carefully excludes minerals whose supply risks stem from stable, allied trade partners like Canada and South Africa, underscoring a strategic autonomy effort focused squarely on materials susceptible to geopolitical weaponization by China. This focus extends to rebuilding domestic capabilities, such as restarting mines for antimony and tungsten, reestablishing magnesium smelting capacity under Defense Production Act authorities, and jumpstarting synthetic graphite production after a 50-year hiatus, all aimed at securing supply chains critical to defense, AI, and clean energy technologies. The Defense Logistics Agency’s National Defense Stockpile, currently nearly $10 billion below wartime-ready levels, is also being bolstered with these prioritized minerals to provide a strategic buffer against future Chinese export controls.

Ultimately, the U.S. government has set an ambitious ten-year goal to achieve 100 percent domestic and ex-China supply for this prioritized subset of critical minerals, signaling a comprehensive industrial policy realignment amid escalating global techno-nationalism. This targeted strategy moves beyond unfocused incentives like the 45X Advanced Manufacturing Production Credit, which previously spread benefits thinly across a broad mineral spectrum, toward precise capital deployment and policy instruments that directly address the chokepoints identified by both Chinese strategists and American economists. By doing so, the U.S. aims to secure supply chains essential for AI, defense, and clean energy futures, effectively breaking China’s grip on these strategic resources.