China Goes Nuclear: 0.1% Rare Earth Minerals Rule

On October 9th, China’s Commerce Ministry unveiled sweeping new trade restrictions that sent shockwaves through global markets. According to Beijing, any company selling products with more than 0.1% of their final value attributed to rare earth minerals sourced from China would have to get their permission.¹ Aside from the sovereignty issues are the practical issues, as proving that products fall below the threshold would be extremely onerous. Today, China controls 85% of global rare earth mineral processing capacity, and these new restrictions would jeopardize global supply chains. To counter China’s economic warfare, the U.S. is investing in domestic production that is too critical to fail for the economy of the future.

The 17 rare earth minerals such as neodymium, cerium, lanthanum, and praseodymium are not as well-known as copper and gold. However, these 17 rare earth minerals are the foundation of modern society, being used across all economic sectors. The most important product of these critical minerals are magnets which account for over 40% of all global rare earth mineral demand.² These magnets power iPhones, electric vehicle batteries, wind turbines, and F-35 fighter jets.

Source: Barron's. September 2025. "How the U.S. Will Break China's Rare Earth Dominance—and How to Play It"

"These rare-earth minerals and the ability to refine them are just the basis of modern civilization," said Dean Ball, former White House AI policy adviser. The rules "could cause a U.S. recession if implemented aggressively because of how important AI capital spending is to the economy."³ "It's an economic equivalent of nuclear war, an intent to destroy the American AI industry," said Dmitri Alperovitch, co-founder of the Silverado Policy Accelerator think tank, calling it a "blackmail tactic" ahead of a potential Trump-Xi meeting.⁴ President Trump and Xi Jinping were expected to meet for trade talks in the coming weeks, but with China’s radical move, those talks may be off the table as the two sides attempt to gain maximum leverage. President Trump announced a steep increase in tariffs on China in response to the move.

In the mid 1980’s, the U.S. controlled roughly half of the global rare earth mineral production while China was ramping up activity.⁵ In the following decades, China operated at profit margins that no western company could accept and ran competitors out of business. For example, Shenghe Resources Holding, a publicly traded Chinese rare earth producer whose largest shareholder is the Chinese government, has generated a net income margin of about 4% over the past decade. That net income margin is roughly half of other major producers such as Australian miner BHP. Now, by controlling 85% of the market supply, China can dictate the marketplace through enormous economies of scale.⁶ Many other Western companies have tried to compete along the way. Molycorp, which operated in the Mountain Pass in California, went public in 2010 with a $1.5 billion plan to vertically integrate. Competing against China’s 4% margins proved too difficult and Molycorp declared bankruptcy in 2015.

Source: Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”

China has repeatedly weaponized their market position by slashing export quotas, threatening restrictions, and holding up export licenses that led U.S. automakers to warn of plant shutdowns.⁷ While the rare earth market is only $2 billion annually, the asset punches well above its weight in critical necessity, and the U.S. is fighting back.

In 2017, a finance professional named James Litinsky purchased the Molycorp mine in the Mountain Pass out of bankruptcy for $20.5mm and called the new company MP Materials. In 2020, MP Materials raised $545mm through a SPAC merger to once again attempt to vertically integrate.⁸ This time around, the U.S. government is acknowledging their exploitable weakness in the rare earth minerals market and is going to do everything they can to promote success with the Mountain Pass mine, including making an unprecedented deal. In July of 2025, the Department of Defense struck an agreement with MP Materials to do three key things:

Government Ownership: The U.S. took warrants and a $400 million preferred equity stake, making the U.S. government MP's largest shareholder.

Price Floor Protection: The U.S. Government implemented a $110 per kilogram price floor for neodymium-praseodymium products, roughly double market rates, ensuring China can't bankrupt MP by flooding the market.

Volume Guarantees: DOD guarantees all output from the new "10X" magnet facility will be sold to the government or third parties.

Through this agreement, MP is almost assured of $650 million in annual EBITDA when all magnet facilities reach full capacity. The 10X facility should be completed by 2028, and MP Materials’ stock more than doubled since the deal was announced in July.⁹

Source: MP Materials. October 2025. “Mountain Pass History”

The government taking a stake in a private company goes against traditional free market values in the US. However, China had exploited those free market incentives by drowning competitors in the short-term and taking advantage of consumers once market dominance was established. Now, the U.S. is playing the long game rather than solving for short-term efficiencies and taking away one of China’s key weapons. With the price floor, China can no longer flood the market with below-cost producers to drown out competitors.

The deal with MP Materials for rare earth minerals production will be a trial of what other potential deals could look like. MP aims to produce roughly 10,000 metric tons of magnets annually while the U.S. consumes about 50,000 tons.¹⁰ Other companies such as USA Rare Earth or Ramaco Resources are seeing the success of MP Materials thus far and will begin to follow suit. Further, Ukraine has an estimated $350 billion of critical mineral deposits which is why the U.S. so badly wanted a mining royalty deal to secure rare earth mineral supply. It took China a generation to establish their current market dominance, and it will take years for the U.S. to break their stranglehold. However, with the deals being struck today, the U.S. is on its way to rare earth mineral independence.

Source: European Conservative. March 2025. “Ukraine’s Rare Earths: Who Will Get the Mineral Advantage?”

Rare earth minerals have gone from a niche market to weapons of economic warfare. While the U.S. has traditionally leaned on free market values, China has shown an ability to exploit those values through drowning out competition in the short-term and exploiting their monopolistic position in the long-term. Now, the U.S. is fighting back. By providing equity, implementing price-floor guarantees, and committing to volume purchases, the U.S. is taking away China’s ability to drown out American producers. Further, through a mineral rights deal with Ukraine, the U.S. is looking to other countries to secure supply from anywhere but China. Restoring balance will take years, but the U.S. is well on their way through long-term thinking. The rare earth minerals supply chain is too critical to offshore, and American producers will find success as they are too critical to fail with the backing of the U.S. government.

Sources:

1. WSJ. October 2025. “China's Rare-Earth Escalation Threatens Trade Talks—and the Global Economy”
2. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”
3. WSJ. October 2025. “China's Rare-Earth Escalation Threatens Trade Talks—and the Global Economy”
4. WSJ. October 2025. “China's Rare-Earth Escalation Threatens Trade Talks—and the Global Economy”
5. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”
6. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”
7. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”
8. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”
9. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”
10. Barron's. September 2025. “How the U.S. Will Break China's Rare Earth Dominance—and How to Play It”