What China’s Ban on Rare Earths Processing Technology Exports Means
China announced a ban of rare earth extraction and separation technologies on December 21, 2023. This has significant implications for U.S. national, economic, and rare earth security. Rare earth elements—a group of 17 metals—are used in defense technologies, including missiles, lasers, vehicle-mounted systems such as tanks, and military communications. They are also used in computers, televisions, and smartphones, along with various clean energy technologies central to decarbonization.
At present China produces 60 percent of the world’s rare earths but processes nearly 90 percent, which means that it is importing rare earths from other countries and processing them. This has given China a near monopoly. Benchmark Minerals Intelligence has flagged that the United States is particularly exposed to processing restrictions for heavy rare earths, given China separates 99.9 percent of them. The United States has been aware of this vulnerability but has only meaningfully acted on it within the last several years through the following funding decisions:
- November 2020: A $9.6 million Defense Production Act (DPA) Title III contribution to MP Materials efforts to build separation capacity for light rare earths to its Mountain Pass, California, extraction operations site—the United States’ only rare earth extraction operation
- February 2021: A $30.4 million DPA Title III award to Lynas Rare Earths Ltd to develop domestic separation capabilities for light rare earths
- June 2022: A $120 million DPA Title III award to Lynas Rare Earths Ltd to build a large-scale separation and processing facility for heavy rare earths
- February 2022: A $35 million Department of Defense award to MP Materials Corp. to separate and process heavy rare earths at the Mountain Pass site, creating a full value chain operation, from extraction to manufacturing magnets at a single facility
In December 2023, the Select Committee on the Strategic Competition between the United States and the Chinese Communist Party published a report titled Reset, Prevent, Build: A Strategy to Win America's Economic Competition with the Chinese Communist Party.
It recommended that “Congress should incentivize the production of rare earth element magnets, which are the principal end-use for rare earth elements and used in electric vehicles, wind turbines, wireless technology, and countless other products.” Specifically, it advocated that Congress should establish tax incentives to promote U.S. manufacturing.
There are substantial global reserves of rare earths outside of China, including 19 percent in Vietnam, 18 percent in Brazil, 6 percent in India, and 4 percent in Australia—which amounts to nearly half of the world’s supply. These are countries the United States and its allies are friendly with, which means there is ample opportunity to diversify sources. But rapidly scaling up domestic processing capacity is critical to protecting national and energy security. Leveraging industrial policies, such as tax incentives and fiscal subsidies, to reduce the cost of doing business for processing firms becomes critical to achieve this.
The United States’ delay in developing processing capacity will hinder its ability to build both national, energy and economic security. There are two main reasons for this. First, China has technical know-how in this area that other countries lack. For example, it has an absolute advantage in the solvent extraction processing for rare earths because Western companies have struggled to roll out these advanced technical operations alongside pollution concerns. Second, although several separation, processing, and manufacturing facilities are under construction, it can take years to complete construction and fully operationalize them.
The rollout of major export restrictions for graphite, gallium, germanium, rare earth extraction, and separation technologies in less than one year should be a powerful signal to U.S. policymakers that although they are late to the critical minerals game, there is a significant need to both build domestic capabilities and leverage international cooperation to facilitate rapid sourcing and developing of processing capacity.
Gracelin Baskaran is research director and senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.