The Lowest Price for Freedom: Breaking Through China’s Rare Earth Trap

As the Trump administration announced its intention to establish a minimum price for rare earths produced in the U.S., critics were quick to label it as a breach of free market ideals.

This, however, seems more like a matter of economic self-preservation. For nearly thirty years, efforts to revitalize the U.S. rare earth industry have faltered, primarily due to China’s manipulation of the market.

Rare earth elements are crucial for modern technology—they’re used in electric vehicles, fighter jets, smartphones, and wind turbines. The U.S. once dominated the mining and processing landscape, but in the 1990s, it became evident that China aimed to take control of these resources and used every tool at its disposal to achieve that goal.

Dumping Strategy

As reported recently, the Chinese government has categorized rare earths as “strategic resources.” In 1991, it prohibited foreign ownership, supported domestic production through subsidies, and consolidated numerous local mines into a few major enterprises. Whenever Western producers started to regain traction, China simply flooded the market, causing prices to plummet.

For instance, when Molycorp reinitiated operations at its Mountain Pass mine in California a decade ago, a state-owned Chinese company inundated global markets with rare earths, driving prices down below sustainable levels. Molycorp ultimately declared bankruptcy in 2015. Similarly, when MP Materials and Australia’s Lynas sought to expand, China raised production quotas by 25% for consecutive years, leading to successive declines in prices, resulting in significant losses for Western investors. With each setback, China’s dominance became more entrenched.

This wasn’t a case of innovative competition; rather, it was state-sponsored exploitation. A government that can afford to sell at a loss consistently outmatches privately-owned firms dependent on quarterly earnings.

Some proponents of free-market principles argue we should benefit from inexpensive Chinese exports, perhaps stockpiling them while waiting for prices to rise before resuming domestic production. However, this approach undermines investor confidence, preventing competition with China for capital. Currently, China holds a de facto monopoly over rare earth processing, allowing it to charge potentially higher prices than a competitive market would dictate.

Moreover, processing rare earths demands substantial investments—both financial and intellectual. This situation isn’t easily reversible when China decides to hike prices. It emphasizes the need for a permanent rare earth mining and processing sector in the U.S. It’s crucial to encourage education in science and attract workers into this field. Without firm investments, areas of interest could stagnate, particularly if China were to alter its strategies.

Why Floors are Important

The most effective method to counter this approach is by implementing a price floor—a guaranteed minimum price for domestically produced rare earths. This could help restore a manipulated market to a functional one.

By establishing a minimum threshold that the Chinese government can’t undermine, it may help break the cycle of boom and bust. Should China choose to cut off supplies, U.S. producers would still operate above this minimum standard and avoid collapse.

This mechanism would attract private capital. Predictable returns would enable the financing of new mines and magnet production facilities under normal commercial agreements.

Additionally, it would save taxpayers money. Price floors supported by forward purchase contracts are often less costly than ongoing or emergency relief measures.

To be blunt, this situation has been years in the making. A price floor could act as a wake-up call for Washington’s policymakers.

Strategic Stockpile

Reestablishing national stockpiles of essential minerals would complement the price floor. The Pentagon previously maintained reserves for wartime supply but disposed of them in the 1990s, believing globalization rendered them obsolete. That belief faltered when the Chinese government restricted rare earth exports earlier this year, leading to brief shutdowns in U.S. auto production.

If stockpiles are restored, demand could stabilize, helping absorb excess production during downturns. There would be no scarcity of defense contractors needing vital materials, plus it could strengthen U.S. standing in future negotiations with China.

Still, price guarantees and stockpiles face hurdles. What if it takes another decade to reopen mines? Environmental reviews and litigation often prolong these projects, leading investors to withdraw. A fast-tracking system for critical minerals, modeled after other infrastructure exemptions, could reduce approval times significantly without compromising safety.

A Market Worth Protecting

China didn’t gain control of the rare earth industry through sheer efficiency; it did so via a state-driven strategy that labeled these resources as “strategic,” weaponizing pricing and compelling global reliance on them. The only way to dismantle this control is to cultivate a domestic market that’s immune to manipulation.

The established price floor ensures that the U.S. remains resilient, even if the Chinese government pursues aggressive pricing strategies. Is this central planning? Well, perhaps it is. However, whether the processing of rare earths is managed centrally is inevitable. The real question is whether this will be orchestrated from Washington or Beijing.