US, China once had rare-earth aces in the hole but the US folded

“The Middle East has oil,” Deng Xiaoping is reported to have remarked. “China has rare earths.”

Deng was visiting one of China’s biggest rare earths mines, in Baotou, Inner Mongolia, in 1992 when he made that observation about the vast deposit of critical minerals in his country. At that time, no one took his statement seriously – except the Chinese leadership and Chinese Communist Party.

Beijing had shown its interest in the importance of rare earths as a strategic asset by including it in early Deng-era national planning documents (1981-1985) of its five-year plan.

Deng’s vision and American missteps combined to give China what is today a huge critical edge.

Mining and processing are the hard parts – not finding

The 17 critical metallic elements in the middle of the periodic table that are grouped under the term rare earth elements make up the invisible backbone of the modern technological world. Smartphones, electric vehicles, wind turbines, military drones and even sophisticated aerospace systems (F-35) and radar all depend on rare earth elements.

Rare earth minerals aren’t rare. They are called “rare” because they are highly unlikely to be found in pure form or in economically viable high concentrations in nature.

These minerals are either dispersed or mixed with other minerals, making it challenging and costly to extract and refine them. The process is also not environmentally friendly.The difficulty is precisely what fuels their strategic importance.

Dirty work

The Chinese didn’t decide to dominate the rare earth years ago. The US and others in the West decided to dump the “dirty work” and China became the one left doing it.

Until the 1980s,the United States was the world’s leading producer of rare earth minerals, but the Americans gradually shifted the production to China, enticed by lower environmental standards and lower labor costs.

In 1980, the Nuclear Regulatory Commission and the International Atomic Energy Agency
tightened regulatons on rare earth elements, terming them “source material.” That made handling the elements and disposing of byproducts too expensive to do domestically.

By 1996, America had outsourced so much mining of minerals – including rare earths – that Congress as a cost-saving measure had seen fit to shut down the US Bureau of Mines, the government’s main regulatory and research agency focused on the mining industry.

As the US stepped back, China picked up the slack and learned the rare earths craft. It accepted the environmental burden and channeled massive resources into developing its rare earths industry.

Apart from having the highest reserve of rare earth elements ( 44 million metric tons ) in the world, China currently controls approximately 70% of global rare earth mining production, 85% of refining and 98% of processing capacities worldwide.

Today China controls 80% of the rare earths patents. China has 39 universities offering training programs in rare earths and seven universities offering courses in rare earths processing. Although institutions such as the University of Texas now seek to pick up the challenge, the US presently is far from being in China’s league. All of this makes China’s domination of the industry hard to challenge.

Beijing has seen opportunity and has long supported its rare earths industry, even when it wasn’t immediately profitable creating a self-sufficient, world-leading ecosystem. It has made a strategic choice to nurture this industry and maintain leadership in production, refining and processing. Washington and the West have overlooked this industry for decades, but it was always there in the background of globalization.

A moment of realization occurred to the US in April 2025 during the trade war. After the White House raised tariffs on Chinese goods to 145%, Beijing retaliated by imposing export controls on seven types of rare earths and magnets. The export controls that China put in place on April 4th gave an indication of the pain it could inflict on the US and its pace of innovation.

Rare earths accounted for only a tiny share of China’s exports to the US but they are used in the most critical sector of the US economy. So the April move, while causing relatively little economic pain in the US, provoked an outcry from American defense manufacturers.

The point is that rare earths have become one of China’s most powerful bargaining chips. China plays its rare-earths card as an ace when the US presses on chip sanctions.

China’s chokehold on America innovation

In 2024, a study by RAND Corporation warned that a rare earth supply disruption lasting just 90 days could shut down production lines at 78% of US defense contractors. After China’s retaliations, two rounds of high-level negotiations followed. They led to a 90-day truce between Washington and Beijing, giving indication that America does have a choke point.

This dependency goes beyond defense to include cutting-edge technology in which America is a leader such as next generation computing, robotics, medical devices and quantum hardware. It’s a kill switch. Today American innovation is determined by China-controlled supply chains and export measures. Chinese government approval for using rare earth magnets in the US or other military is a strategic leverage point.

Today Rare earth elements aren’t just commodities. They are, from any nation’s perspective, strategic assets shaping the geopolitical landscape. For any nation in the world, securing its future is essential for economic stability, technological advancement and national security.

And that gets us to Greenland

Donald Trump’s interest in Canada and Greenland is by no means accidental. Both countries sit on vast reserves of rare earth minerals. Greenland’s Kanana region holds some of the world’s richest deposits of heavy elements such as disprosium and terbium. A 2023 survey showed that 25 of 34 minerals deemed “critical raw materials” by the European Commission were found in Greenland.

But according to RAND estimates it will take the US at least a decade or more and $10-to-$15 billion to build a self-sufficient rare earths supply chain. How America approaches the rare earths strategy in the near future will be a litmus test for the kind of nation it wants to be in decades ahead. But even if everything goes smoothly and all the complications are properly addressed, the outcome is far from guaranteed.

Engineering new supply chains isn’t just a question of finding a new mine. It requires entire ecosystems for extraction, refining, production and downstream applications. China has taken more than four decades to get where it is today. Interestingly, China has pushed the purity standard from 98% to 99.9999%. Higher purity means better cutting edge technology.

There is no doubt that it’s Deng’s pragmatic vision – whether it’s a white cat or a black cat, if it catches mice it’s a good cat – that shapes China’s fortunes. Oil was the white cat for America and rare earths will be the black cat for China – but what Deng forgot to add is that the cat that catches the mice fastest will be the best cat.

Today in the AI and automation economy, rare earth minerals – not oil – will be the backbone of the global economy. Whichever controls the supply will be the fastest cat driving innovation.