Last October, Beijing introduced a new regime of restrictions on the export of rare earth metals, expanding its repertoire of economic statecraft into aggressive new territory.
In the short term, the move — which cut off America’s supply of materials components used in electric vehicles and fighter jets — appeared to have its intended effect. The U.S. auto industry panicked, and the Trump administration pivoted away from the most extreme of its tariff threats. By the end of the month, the U.S. and China had reached what Beijing called an “important consensus” on trade.
Yet, as the dust settled, some analysts began to wonder whether China had overplayed its hand — whether, in the long term, Beijing’s decision to weaponize rare earths would be remembered as the moment when the U.S. finally pushed to build its own supply chain. Eight months later, that effort is starting to take shape.
Last week, the U.S. House Select Committee on China introduced new legislation designed to spur the growth of America’s domestic magnet industry. The bill, which is cosponsored by Representatives John Moolenaar of Michigan and Ro Khanna of California, introduced financial incentives along the magnet supply chain, from rare earth oxide production to weapons-ready magnet manufacturing.
“This bill creates the market incentives needed to reshore a vital supply chain and helps ensure American manufacturers lead the growing future of magnet production,” Moolenaar said.
The legislation would provide a 15% tax credit for American motor manufacturers who source their magnets from domestic suppliers. The bill also limits credits to American manufacturing with inputs from NATO allies, including Japan, Australia, South Korea, Canada and Mexico.
China spent decades building up its manufacturing proficiency in the extraction and processing of rare earth metals. It now controls more than 90% of the supply chain for the materials, including 99% for heavy rare earths, which are used to make the strong, temperature-resistant magnets that hold together the engines of an F-35.
The crisis over rare earths has prompted the Trump administration to take a decidedly un-free market approach to the magnet industry. Last July, the U.S. government acquired a 15% stake in MP Materials, which operates America’s only remaining active rare earth mine in Mountain Pass, California.
Since then, it has acquired a 10% stake in Trilogy Metals to support a critical minerals project in Alaska, a 10% stake in Korea Zinc for the development of a new smelter in Tennessee, and is in talks to acquire roughly 8% of Critical Minerals, which owns the largest rare earth mining site in Greenland.
In an interview with “60 Minutes” last November, Trump predicted that the U.S. would have “everything we need” in a year and a half. Most experts say that building up the infrastructure necessary to meet America’s rare earth demand would take much longer than that — five years at the very least, possibly 10. The tax credits in the new House bill would not phase out until 2039, “as the domestic industry matures,” the Committee on China said.
The White House said after Trump’s summit with Xi Jinping (習近平) last month that, “China will address U.S. concerns regarding supply chain shortages related to rare earths and other critical minerals.” The Chinese readout from the same meeting did not mention rare earths.
China’s exports of the minerals have been steadily rising this year, but are still below where they were a year ago. In January, China imposed restrictions on rare earth exports to Japan, the latest shot in the two countries’ diplomatic spat over the status of Taiwan. The United States asked China to lift those restrictions last month, but it has so far refused.
Both Taiwan and Japan, which is in the midst of building up its military for the first time since World War II, are key partners for the U.S. in its efforts to build tech supply chains that are less reliant on China. Last December, both countries signed on to Pax Silica, the U.S.-led multilateral effort to cooperate with democratic partners on chips and rare earths.
The reshoring of tech manufacturing jobs remains an area of bipartisan agreement in a divided U.S. Congress, bridging the gap between China hawks like Moolenaar and pro-worker progressives like Khanna.
“The Magnets Value Chain Support Act will level the playing field,” Khanna said. “It will address a critical chokepoint by rebuilding the entire magnet supply chain here at home and creating incentives for American magnet production that power everything from electric vehicles to military systems.”
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