"The Economics Show": Breaking China’s rare earths chokehold

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2:09And in this show, Sumaya looks into Beijing's ultimate trade trump card, rare earth metals. The crucial metals that we're learning go into everything from fighter jets and cruise missiles to computers and electric vehicles. Beijing is by far the biggest global producer. As we've discussed on Trumponomics before as well, the US and its allies are desperate to break their reliance on China for those crucial inputs. But are they succeeding? So search for The Economic Show wherever you listen to podcasts and enjoy this episode on us. The Chinese have honed a fearsome economic weapon. At the stroke of a pen, they can shut down manufacturing around the world, which is exactly what happened last year.

2:55These high-powering magnets, they're all processed in China, and they go in your speakers and your auto system. They go in your motors for your wipers and your seats. That's Ford CEO Jim Farley sounding the alarm in June of 2025 after China imposed export controls on seven rare earth metals and the magnets that contain them. We're educating the administration. We're educating the Chinese leadership about how important these jobs are. We have had to shut down factories. It's hand to mouth right now. Farley wasn't the only one panicking. The Chinese were squeezing manufacturers around the world, withholding the materials they needed in response to trade aggression from the Trump administration.

3:39Ultimately, the weapon proved so potent that the Americans climbed down, and enough trade resumed that the carmaker's production lines restarted. But that wasn't the end of it. Today, China's trading partners are racing to make sure that a crisis like that doesn't happen again.

4:00This is The Economics Show with Samaya Keynes. In this special episode, I am looking at rare earth metals. China spent more than 30 years becoming their dominant supplier. Now, the US, Europe and their allies are in a race to reduce their dependence on Chinese supplies. Over a year after the starting gun was fired, how much progress have they made? There are three main ways to reduce China's chokehold over rare earth supply chains. Number one, build stockpiles. Number two, build alternative supply chains. And number three, innovate your way out of needing Chinese supplies. I'll get to each of those, but let's start with the quickest, buying up existing supplies and hoarding them for when the Chinese use their trade weapon and cut you off.

4:52Now, given the complaints you just heard from Jim Farley, you might think it would make sense for the private sector to be building stockpiles of their own. Then they wouldn't have to educate policymakers on what they need to make their supply chains work. We're dealing with a capitalist society where ultimately the quarterly earnings calls for these companies need to show kind of the best possible outlook. So keeping a ton of raw materials, magnets, more so than you actually need for your manufacturing system does not make economic sense for you. That's Abigail Hunter. She's executive director of a nonprofit advocacy group, the Safe Center for Critical Mineral Strategy, based in Washington, D.C.

5:34As she explains, the private sector isn't going to stockpile enough on its own. Companies tend to run lean operations that don't build in a lot of redundancy. If not, they risk being undercut by their competitors and pressured by their shareholders. And there's another factor. You know, these are highly complex supply chains. Not everybody has total visibility in what they need and where they're sourcing from. The private sector isn't going to fix this, which is why the government has had to step in. Here's President Donald Trump announcing just that in February 2026. For years, American businesses have risked running out of critical minerals during market disruptions.

6:14Today we're launching what will be known as Project Vault to ensure that American businesses and workers are never harmed by any shortage. We don't want to ever go through what we went through a year ago. Project Vault is a strategic critical minerals reserve, including all but one of the rare earth elements. It sounds like a good idea, but a complicated one. Building a rare earth stockpile isn't quite as straightforward as hoarding bags of powdered food for when the apocalypse comes. Manufacturers need very specific materials in very specific forms at very specific purity levels. Building a stockpile means matching exactly what industry needs.

6:57And so the way that it's supposed to function is it is supposed to be designed for the private sector, with the private sector, and governed by the private sector. So manufacturers say, I need this thing in this amount, at this quality, at this cost, and then work with the trading agencies to go out and get it, and then house it until they need it. And so you're leveraging the in-house expertise and the logistics infrastructure knowledge, connections that trading agencies have, trading houses, and then you're making sure that you're actually getting things that our manufacturers truly need, right?

7:29Several big companies have already signed up to Project Vault, including General Motors, Lockheed Martin, and Alphabet. It all sounds very promising, though we shouldn't get too excited.

7:41Abigail Hunter:It's very much still in the design phase, I think. They haven't made any purchases. My FT colleague Camilla Hodson has been following this story of Project Vault. So still in the design phase, do you get the sense that they're making progress? Is the buying part of this imminent? I think so. We spoke to Ex-Im Bank quite recently and it sounded like they're gearing up for first purchases maybe this year. Also, some of the trading houses that are involved have been getting their act together, talking to potential suppliers and I think trying to figure out what they might be able to buy and from who.

8:15Okay, so now tell me what's happening in other countries. So what's the EU doing? The EU is slower on this. Surprise.

8:25Abigail Hunter:Surprise. They are definitely talking about stockpiling. It's a conversation. I think they're still at the point of some quite complex logistics. Like, if the EU is stockpiling, is that a central EU pot of metal? Or is that member states stockpiling? and if it's all in Germany, what happens if France has a crisis? So, like, this is a messy thing to sort out. I think the big picture is similar, that they want reserve stocks and they recognise that that's important. But in terms of the mechanics, I don't think that's been thrashed out. Some buyers are worried that when the stockpiling does start, given supply is already constrained, it will just push up prices.

9:05And there's an awkward detail. Much of the material that is supposed to go into the stockpiles comes from China. And funnily enough, China isn't rushing to help out. As part of its export restrictions, the Chinese are watching out for unusually large orders and demanding information on what any exports of rare earths will be used for. Stockpiling isn't allowed. This came up when I was researching my book, How to Win a Trade War, and I have some advice. Don't write, build stockpile to reduce dependence on China on the form. And once you do build a stockpile, don't shout about it. Otherwise, the Chinese might ask why they should keep selling you more.

9:47The stockpiling strategy clearly has a long way to go. But even when completed, it won't be enough to eliminate dependence on China. It's a backstop in case of an emergency. But stockpiles run out. If countries really want to reduce China's dominance, they need to do something much harder. Build new supply chains all together. Constructing a full mine-to-magnet supply chain is hard. Stage one involves finding a mine. If you're the EU, bad news. You don't have any active rare earth mines. The UK has never had one. But the US does. A big one called Mountain Pass. It's one of the most travelled stretches of freeway in the entire country, Interstate 15 from LA to Las Vegas.

10:36To get there, drivers head through Mountain Pass. But what most drivers probably don't notice is the mining operation just off the freeway. Mountain Pass produces somewhere between 10 and 15 % of the world's rare earths. Neodymium and praseodymium, key components of the strongest industrial magnets, are used in consumer electronics, cars, and wind turbines. The massive 500-foot-deep pit at the site, one of the largest rare earth mines in the world. Mountain Pass is owned and operated by the US company MP Materials. All this sounds very promising. The US has a massive mine, that's stage one. Now we can move to the next stages, or mining the rare earths and turning them into homemade magnets without risk of Chinese coercion.

11:23Unfortunately, rare earths don't come out of the ground ready to use. The rocks containing them have to be crushed. The ore is separated from waste rock, broken down, dissolved. The oxides are isolated, converted into pure metals, formed into alloys, pressed into shapes, fused into blocks, shaped, coated, and finally put into a strong magnetic field until they become magnets themselves. That's a lot. Which is why, right up until 2024, MP Materials was digging up rare earths in California, putting them on a ship, and sending them for processing to China. It's the processing stage where the Chinese are really dominant, with over 90 % of the world's capacity.

12:17Creating new processing capacity in the US is difficult. And the private sector hasn't exactly been champing at the bit to do it. Margins are thin, buyers are wary of committing to pay for new supplies of unknown quality and capacity to scale. And there's always the risk that China floods the market, sends prices crashing and wipes out your investment. The US government has been trying hard to stimulate that new capacity anyway. with deals including price flaws and guaranteed demand, or offtake agreements, as they're known in the industry. These deals offer certainty to companies that their large upfront investments will pay off.

12:57Now, these deals are very unusual, but they're a sign of just how much of a strategic priority rare earths have become. They also raise the obvious question, are they working? Camilla Hodgson again.

13:11Abigail Hunter:So MP Materials, for example, used to send everything that it mined to China to be processed. That doesn't happen anymore. It now produces much of what it mines domestically. It's not going to China. Its production is domestic. And the amount that it's producing is also growing. The kind of weird quirk there is that now what it produces largely goes to other Asian countries, Korea and Japan, because that's where magnet manufacturing, for example, is. So the whole supply chain is not in the US, and that is going to take a while. it's not quick to build a magnet factory. But I think that our material changes happening is just slow.

13:50What about companies other than MP Materials, though? I mean, my inbox seems to be a mix of press releases announcing some new funding deal or breakthrough that would revolutionize US capacity to create that mine to magnet supply chain. I think they want me to be excited. Should I be?

14:09Abigail Hunter:Yeah, it's a bit of a soup at the moment, an announcement soup. You have to be careful. A lot of these announcements are very conditional. So we might give you a million dollars if you do these things at some vague point in time, and maybe it will never happen. Equally, there are some companies that do seem to be getting real money, but they're in the very early stages. And mining is difficult at the best of times. And even companies with great plans and great people fail to make the mine that they said they were going to make. So I think there are a lot of risks. There's a lot of uncertainty around what will actually happen.

14:44Even if that uncertainty is resolved in a good way, US production can only deliver so much. If the American government really wants to reduce dependence on China, it's going to have to look further afield. That's mostly because of basic geology. The US only has proven supplies of some kinds of rare earths, the light ones. For heavy rare earths, which are just as important for high-end manufacturing, it's almost certainly got to go elsewhere. Rare earths are often not located at scale in the countries where refineries are being built. That's Gracelyn Baskarin, director of the Critical Minerals Security Program at the Center for Strategic and International Studies in Washington, D.C.

15:26So rare earths we financed in Brazil, while the refining facility might be in the United States, or the rare earths might be in Angola, but the closest processing facility might be in Saudi Arabia. Governments and companies around the world have recognized that building new supply chains not centered on China is a good idea. Global cooperation was motivated by the fact that every corner of the globe was impacted by China's rare earth export restriction. We know that Ford stopped manufacturing in Chicago. Suzuki stopped manufacturing the Swift model in Japan. The European Vehicle Manufacturers Association raised the alarm in Europe.

16:03So what happened was the rare earth restrictions and permanent magnet restrictions were not targeted at the United States. They were very global in nature. So for all of these countries that relied, whether it was on the midstream or the manufactured end good, they were impacted. So all of a sudden, at a time when countries were deciding how to engage with the U.S. after President Trump's election, it mobilized that coordination and cooperation at a scale. Let's just say that America's relationships with many of its allies have become complicated. Though when it comes to cooperating on rare earths, that's not necessarily a deal breaker.

16:42So there's a reduction in trust, but there's also an increase in the acknowledgement that we are in an era of transactional foreign policy. And the benefit of transactional foreign policy is that you know what you're going to get out of this deal, and I know what I'm going to get out of this deal. So we have deployed financing aligned to our critical mineral security goals. And in exchange, countries are getting investments in infrastructure and energy and other benefits. That said, America's allies aren't all running at the same speed. Some countries are investing more into rare earths than others.

17:19We've seen Japanese investment in rare earths, whether you go to the Lofdal Mine in Namibia, the separation facility in Malaysia, so on and so forth. But you have other countries. I mean, the United Kingdom in total has allocated$50 million to critical minerals, not rare earths, but critical minerals at large. And that is a woefully inadequate amount for a country that has sectors like automotive manufacturing that still rely on those rarers. So countries are certainly not carrying their weight in equal amounts, but we are starting to see more and more capital allocated to the sector globally.

17:56The U.S. is plowing ahead. As well as working to stimulate new supply chains in the U.S., work is happening to form and strengthen them elsewhere. In April, USA Rare Earth, a company in which the US government has a 10 % stake, spent almost$3 billion buying Brazilian mining company Cerro Verde. In doing so, it effectively bought the world's most important heavy rare earth mine outside of China. Heavy rare earths that the US mine mountain pass can't help with. The range of policies being deployed to expand rare earth supply chains is extraordinary. with U.S. government departments taking equity stakes in mining companies, offering financing, and also those off-take agreements to guarantee demand.

18:43It may have to go even further. When we're talking about developing rare earth projects in places like Africa, which are actually four of the top ten jurisdictions for rare earth exploration last year were in Africa, we're not just talking about building a mine. We're talking about building ports, rail, water, energy. You're talking about building permanent magnet facilities in the global north. So it's not enough. It's a start, but we have to acknowledge that China has been putting billions every year into this strategic goal for 35 years. As the U.S. and allies tried to create new mine-to-magnet supply chains, they still face the challenge that the Chinese don't really want that to happen.

19:24People don't always realize that China is acquiring rare-earth mines all around the world at rapid speed. So they're not going to give up this fight very easily. China also just established a single entity to manage its mine acquisitions globally. So while the U.S. largely operates reactively, you know, we find out there's an acquisition and then we try to intervene often too late. China's making a very aggressive play in a coordinated manner to use diplomatic pressure, strategic financing, etc. to secure these assets. So when you take it in whole, they're ahead of us. China is ahead on technology, human capital with its many mining engineers, and even infrastructure, having been honing its critical mineral operations for a long time.

20:11And today it's trying hard to sustain its lead. So people don't realize that, you know, some of these mines, while it's Western financed and Western owned, the only railroad going into that mine is Chinese, right? And I'm particularly thinking about Cerro Verde in Brazil, where the railroad is Chinese. And so you don't want a single point of failure where these refining capabilities have one mine feeding into that, that if that's disrupted owing to government problems or infrastructure problems, it stops. For years, China has restricted exports of the equipment and technology required to set up alternative supply chains.

20:49I asked my colleague Camilla whether there were any other examples of strategic behaviour.

20:55Abigail Hunter:Yeah, completely. I think this is very well thought through and planned. I don't think this is reactionary. And I think there are a few different things going on. The licensing system enables China to gather an enormous amount of data on who wants what metals and what for. So it enables China to sort of map out the rest of the world's supply chains, which is obviously interesting information. In terms of thwarting the West, talking to people in recent months, what it has sounded like is that it's been easier to get finished things, finished products like magnets exported from China, as opposed to the rare earths, the component materials.

21:36Abigail Hunter:And so the goal there, obviously, is to keep the rest of the world buying from China and to minimize the generation of an industry that uses the rare earths themselves. I think also China is being clever in how the licensing system works in the sense that, yes, it's a headache. Yes, companies are not getting everything they need, but it's not so impossible to get the stuff that it's triggered a global crisis and meltdown of supply chains. China has an interest in keeping supplies of rare earths and permanent magnets just high enough that it doesn't seem worth it to build alternatives. The principal challenge that we have is economics.

22:15So it's about how do you make these supply chains economic? And what the U.S. and our allies have done over the last year is primarily supply side efforts, more rare earths from more places. However, if we don't find a way to get the demand for these minerals up, what's going to happen is the market is going to continue in disequilibrium. However, what people don't realize is there's no consensus globally on who's going to pay for that price floor. Is it coming off of the fiscal balance sheet of a country? Is it the end user who goes to buy the car, but then that disincentivized is buying the car?

22:50At the end of the day, we have to find a way to get the demand for these rare earths up, or we're not going to keep these assets open. By now you've spotted the pattern. Escaping China's rare earth chokehold is very difficult. Trump's detractors have been super cynical about whether the U.S. government is going to do it. But I've heard that there will be more progress than those critics say. I asked Gracelyn what she thought. When China imposed the rare earth and permanent magnet export restrictions, there are no facilities outside of China. And if you look at where we are now, Linus's facility in Malaysia can now separate heavy rare earths.

23:31It became the first facility to do that outside of China. You see that MP Materials has commissioned its 10x permanent magnet facilities. You see that Novion Magnetics has started making those permanent magnets. So while we remain highly, highly reliant on China, those facilities are now in production and ramping up. These are massive steps that can't be understated. However, going from 100 % reliance to 25 in two years is also unrealistic. So we have to acknowledge that we made a lot of progress in terms of getting these facilities online, but that ramp up sourcing new sources of feedstock will take some time.

24:10There seems to have been a shift in the industry's mood. Camilla again.