CONTRIBUTORS
Steve Land, CFA
Portfolio Manager, Research Analyst
Franklin Equity Group
Tyler Whitehead
Associate Research Analyst
Franklin Equity Group
Key takeaways:
- Beijing’s recent temporary easing of rare earth minerals, and magnet restrictions does little to mitigate long-term vulnerabilities of US supply chains.
- China’s vast ore deposits and rare earths processing dominance will likely continue to grant it significant leverage over the global economy, posing critical materials-sourcing risks for the United States and the rest of the world.
- Current and potential future rare earth export restrictions could severely impact critical industries such as autos, semiconductors, aerospace, defense and energy, underscoring the necessity for new critical mineral supply chain investment.
Rare earths: short-term relief, long-term vulnerabilities
In recent negotiations, China has agreed to ease restrictions on rare earth minerals and magnets for six months. While this short-term truce helps to avert immediate supply chain disruptions, it fails to address the long-term vulnerabilities of the United States surrounding rare earths.
As we discuss in this paper, for over a decade, China has steadily expanded its control over the extraction and processing of vital metals and minerals. Today, China mines approximately 70% of the world’s rare earth minerals and processes around 90% of them.1 These minerals are essential for everything from fighter jets and electric vehicle (EV) batteries to nuclear reactor control rods and semiconductors. Leveraging this dominance, China’s recent restrictions and outright bans on shipments of rare earths caused significant supply chain disruptions, exposing national security risks and creating ripple effects across multiple industries.
The United States has worked to reduce reliance on China for rare earth magnets and other essential inputs by prioritizing domestic production, exploring strategic partnerships, utilizing substitutes, and redoubling recycling efforts. However, achieving critical mineral independence may be a long and challenging journey for the United States and many other countries.
Escalation of US-China Trade Restrictions
Timeline of Persistent Trade Tensions Spanning the Biden and Trump Administrations
Source: Franklin Templeton.
Our conclusion
Recent shortages highlight a significant challenge for US industry: developing a modern, tech-intensive manufacturing base without relying on inputs monopolized by China. Establishing vertically integrated supply chains will require considerable time and investment, leaving the United States and much of the world vulnerable in the interim.
Despite substantial efforts to enhance processing capabilities domestically or through reliable allies, estimates suggest that Washington is still at least a decade away from achieving critical mineral independence from Beijing. However, we are already seeing significant funding support from the United States and other governments for critical mineral supply chain development. This support includes loans, tax incentives and credits, strategic investments and government stockpiles, and it is already impacting investment in the mineral industry.
Near term, we believe trade cooperation—not retaliation—is paramount. Until other nations can achieve mineral independence from China, critical minerals represent mutual interdependence rather than unilateral dependence, making mineral weaponization a risky and ultimately self-defeating strategy for China.
The trade environment remains volatile, with both sides retaining the potential to escalate tensions at any time. Investors should carefully assess the profound implications of potential critical mineral restrictions on manufacturing and end products. The stakes are high, and strategic foresight is essential.
Endnote
- Source: “China currently controls over 69% of global rare earth production.” Mining Technology. January 18, 2025.
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