U.S. Manufacturing Shaken by Rare Earth Supply Chain Instability, Clouds Over Self-Sufficiency Drive

Raw Material Price Surge Raises Production Concerns
Skepticism Spreads Despite U.S. Push for Rare Earth Independence
Industry Frustration Mounts, Relocation of Production Bases Under Discussion

As China weaponizes rare earths in response to U.S. tariff pressure, American industries are facing a severe crisis. Key sectors such as electric vehicles and defense remain unable to reduce their reliance on China and are voicing concerns over supply disruptions, with some companies even considering relocating operations to China despite cost pressures. The U.S. government has elevated rare earth self-sufficiency as a top policy priority, but a shortage of refining facilities and technical know-how means it will take years to materialize. This growing instability in rare earth supply chains is extending beyond industry grievances to raise fundamental doubts over the feasibility of Washington’s industrial strategy.

China’s ‘Strategic Pressure’ Yields Early Results

According to OilPrice on September 16, U.S. automakers are grappling with a dual burden: the geopolitical turmoil of EV mineral supply chains and rising costs from tariffs on imported metals such as steel and aluminum. Yet industry anxiety is centered above all on rare earth instability. While steel tariffs add only several hundred dollars to the production cost of a vehicle, bottlenecks in rare earths can halt production entirely for EV motors, power electronics, and sensors.

Those concerns are already playing out. Earlier this year, Beijing restricted exports of certain heavy rare earths essential for EV motors, directly translating into supply instability. The Alliance for Automotive Innovation (AAI), representing U.S. automakers, sent a confidential letter to the Trump administration warning that factory operations could be halted. Prices for materials such as dysprosium surged more than 20 percent in a single month. Some companies attempted to diversify import channels, but customs delays and tighter licensing rules left them bearing the burden of delayed vehicle launches.

The defense industry faces similar challenges. Samarium, germanium, and gallium are critical for military equipment, and tighter Chinese export controls have destabilized both pricing and delivery. One drone parts manufacturer was forced to delay shipments by about two months while seeking non-Chinese suppliers, while another said it was offered samarium at sixty times its usual peacetime price. Research by defense software firm Govini found that at least 80,000 components used in U.S. Department of Defense weapons systems rely on Chinese rare earths.

Industry consensus is that this deep dependence on China cannot be resolved quickly. The International Energy Agency (IEA) has estimated China’s share in rare earth refining at 92 percent. Without simultaneous efforts to expand U.S. strategic reserves, diversify suppliers, and develop rare earth-free alternatives, the same shocks will inevitably recur. As long as China continues to leverage rare earths as a strategic weapon, U.S. manufacturing faces simultaneous threats to production continuity and national security.

Lack of Short-Term Responses, Long Road to Self-Sufficiency

Washington has therefore made rare earth self-sufficiency an official priority. But practical constraints are daunting. Corey Combs, deputy director at Trivium China and a supply chain expert, assessed that it will take “at least another ten years” for the U.S. to build an independent rare earth supply chain. He cited China’s dominance in refining and alloying capacity, the regulatory, environmental, and community hurdles of coordination with allies, the capital expenditure and skilled workforce needed for new refining facilities, and the time required for technology verification and pilot production. In other words, “ten years” is not just a forecast but a conservative estimate based on licensing, capital investment, technical validation, and operational timelines.

The gap stems from divergent historical choices and industrial policies. Since effectively shutting down refining facilities at California’s Mountain Pass in 2002, the U.S. has neglected rebuilding its refining and alloying capabilities, outsourcing most refining, processing, and magnet manufacturing overseas. China, by contrast, has built an integrated value chain encompassing exploration, mining, refining, alloying, magnet production, and recycling. It has also consolidated control by amassing more than 25,000 patents related to rare earths.

The U.S. government has now moved to direct intervention. In July, the Department of Defense invested $400 million to acquire preferred stock in rare earth mining and processing company MP Materials and extended a $150 million loan. It also guaranteed a minimum price of $110 per kilogram for neodymium-praseodymium (NdPr), essential for high-performance magnets—nearly double the Q2 average market price of $52. The intent is to provide a “demand anchor” that reduces investment risk even if market prices collapse.

This marks the first time the Pentagon has gone beyond supporting private-sector facility expansion to directly taking an equity stake and guaranteeing long-term prices. It signals a determination to avoid relying solely on private contracts to secure the defense supply chain. Still, with no public details on supply volumes, specifications, or refining efficiency, uncertainty remains over whether domestic production can substitute for large-scale U.S. automotive and defense demand in the near term.

Widening Policy-Industry Gap, Growing Discontent

With supply chain instability already disrupting production, frustrations in U.S. manufacturing are mounting. General Motors, Ford, and others are reportedly considering shipping unfinished EV motors to China for magnet assembly and re-importing them, seeing Chinese facilities as a way to mitigate short-term uncertainty. The Wall Street Journal observed that “Trump’s tariff pressure on rare earths is ironically reinforcing dependence on China.”

The fallout extends beyond the United States. The European Association of Automotive Suppliers (CLEPA) reported that “since April, only one in four rare earth export license applications filed by members have been approved,” and that “some local Chinese authorities are even demanding intellectual property and customer lists.” Japanese automaker Suzuki also halted production of its Swift compact car due to supply difficulties. The industry’s willingness to consider Chinese sourcing despite tariff burdens reflects a broader global risk of production shutdowns.

This directly contradicts the “reshoring” strategy promoted by Washington. While the Trump administration has championed steep tariffs to drive manufacturing back home, companies are instead weighing reassembly in China or relocating production facilities to keep lines running. The rare earth supply chain crisis is no longer merely a corporate challenge; it casts fundamental doubt on the viability of America’s industrial policy itself. Industry frustration, once dismissed as complaints, now stands as a stark reminder of the hard realities ahead.