America Didn't Lose Its Rare Earth Industry. It Sold It
America Didn't Lose Its Rare Earth Industry. It Sold It
By Kirsten Asdal, Tom Koch, and Tao Tan Originally published October 14, 2026
The Geopolitical Chokepoint
In October 2025, the government in Beijing implemented aggressive restrictions on the export of rare earth elements. While these controls have been intermittently paused, these "reprieves" are temporary and typically occur only after the United States makes specific concessions. This cycle highlights a stark reality: China possesses immense leverage in the global supply chain.
Even during periods of suspension, Beijing has continued to throttle sales. Furthermore, in June, China added two pivotal American firms—MP Materials and USA Rare Earth—to its export control list. These are the very companies Washington is relying upon to break the Chinese monopoly.
"Treasury Secretary Scott Bessent described these export controls as essentially pointing a bazooka at the industrial base and supply chains of the entire free world."
The Funding Paradox
The U.S. has the money. Under the One Big Beautiful Bill Act, there is up to $100 billion in loan authority dedicated to critical minerals. However, capital alone isn't the solution. The real obstacles are:
- A lack of aligned interests between suppliers and end-users.
- A political climate that lacks the patience for a decade-long industrial rebuild.
The authors, operating at the nexus of national security and finance, argue that traditional capital markets are designed for efficiency, not for insurance against a predatory monopoly.
Rare Earths as a Market Failure
The current crisis is not an accident of history, but a result of deliberate statecraft.
The Chinese Strategy
The Chinese Communist Party (CCP) adopted the Soviet model of industrial capacity building. In 1964, Deng Xiaoping identified the strategic value of rare earths near the Mongolian border, ordering a dual focus on steel and these critical minerals.
Current Market Dominance:
| Material Category | China's Global Refining Share |
|---|---|
| General Rare Earths | |
| Heavy Rare Earths |
This dominance extends to the processing of heavy elements essential for advanced semiconductors and precision-guided munitions.
The Math of the Chokepoint
The economic asymmetry is staggering. We can express the relationship between the market value of the materials and the global economic risk as:
This is the textbook definition of a chokepoint. General Secretary Xi Jinping has explicitly stated that maintaining global reliance on Chinese industrial chains is a primary objective.
The Myth of "Loss" vs. The Reality of "Sale"
Many policymakers view the current situation as a failure of oversight. However, the U.S. didn't "lose" the industry—it accidentally dropped it intentionally sold it.
Why the U.S. Exited
- Environmental Costs: The Mountain Pass mine in California was ecologically disastrous, leaking gallons of radioactive waste into the Mojave Desert.
- Economic Pressure: Rising regulatory costs and falling margins made domestic production untenable. The mine became fully idle by 2002.
- Comparative Advantage: China subsidized losses and ignored pollution, allowing them to undercut U.S. prices.
- Strategic Miscalculation: In 1995, General Motors sold
Magnequench(its magnet unit) to a Chinese consortium. The logic was that integrating China into the global trade system would transform it into a "responsible stakeholder."
A Proposed Solution: The CoCo Bond
The authors argue that current government incentives are failing because they use market tools to fix a market failure. To bridge the gap, they propose a Contingent Convertible Security (or "CoCo bond").
How it Works
Instead of a standard loan, the government would issue a security with a specific trigger:
if beijing_weaponizes_supply == True:
security_type = "Equity/Ownership"
# The security converts to ownership to ensure
# the supply chain remains operational regardless of price.
else:
security_type = "Debt/Interest-bearing"
# The investor earns a return while the market remains stable.
Implementation Checklist
- Align private investor incentives with national security goals.
- Establish clear "trigger" events for security conversion.
- Ensure long-term political commitment (10+ years).
- Shift the perception of rare earths from a
commodity marketgeostrategy asset.
About the Authors:
Kirsten Asdal
Tom Koch
Tao Tan