The US has $100 billion to break China’s rare-earth grip. Can it stop Beijing from holding America’s supply chain hostage?

The United States has access to a financial tool that could help rebuild its domestic critical minerals industry: up to $100 billion in loan authority earmarked for critical minerals. Yet Washington still faces a difficult question. Can money alone loosen China’s grip on the rare earth supply chain? It is not just about locating deposits or funding the mining of more resources. America lacks the capacity to process the raw materials, manufacture products, and have business enterprises that will make it competitive against a well-established industry in China.

Even when American companies are backed by their government, they still have to deal with a competitor that can dictate prices and control exports.

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In a report published by Lawfare Media, finance and national security specialists Kirsten Asdal, Tom Koch and Tao Tan argue that existing funding mechanisms do not adequately address this problem.

They argue that private capital would be hesitant to support alternative supply chain networks that might stay unprofitable for many years to come despite being vital during a period of geopolitical unrest.

What they are essentially saying is that there is a difference between being able to pay for rebuilding an industry and motivating the same.

China’s rare earth advantage goes beyond mining

The Chinese dominance is the result of years of investments in the entire rare earth value chain, from mining and refining to the manufacture of specialised magnets needed for advanced production.

According to Lawfare, China processes more than 90% of the world's rare earths and almost 99% of the heavy rare earths that are essential in manufacturing precision-guided munitions and other electronics.

The United States used to be one of the leading players in the sector.

However, domestic production lost its attractiveness as environmental regulations became harder to comply with and profitability declined due to cheaper imported processed materials provided by China. The US corporations made business decisions based on economics while China kept developing its industrial capacities.

Consequences of this development are not limited to high costs of raw materials. The rare earth oxides market is quite small, but shortages can have an impact on big industries that require them. Lawfare says it gives the rare earths their strategic chokehold value because having control over a small section of the supply chain provides disproportionate power.

Beijing’s export restrictions have demonstrated that risk. Lawfare reported that China introduced sweeping controls in October 2025 and subsequently granted temporary reprieves.

Similarly, in June 2026, China blacklisted MP Materials and USA Rare Earth, which are vital players in U.S. initiatives to establish alternate sources.

What makes it difficult for the US is that it cannot set up fresh capacity when it comes under embargo. The process could take up to a decade or more.

Why $100 billion may not persuade private investors

The problem is that commercial investors and the government evaluate rare earth projects from different perspectives. Commercial investors always strive for profits, predictability, and low risk.

However, a domestic supply chain aimed at securing national interests might be viable even when it loses money due to cheaper Chinese imports.

According to Lawfare, traditional subsidies and financing by governments cannot solve this mismatch.

If Chinese producers continue offering products at low prices, US companies will have difficulties competing. If restrictions on exports are in place, the strategic importance of local manufacturing will increase drastically, yet developing new capacities during an emergency takes time.

This creates a financing dilemma.

Investors may hesitate to support expensive facilities that could lose money during normal market conditions, while governments may be reluctant to commit funds for years without a clear financial return.

The Pentagon’s July 2025 agreement with MP Materials illustrates the scale of support already being deployed. As described by Lawfare, the arrangement included $400 million in convertible preferred stock, loans, equity warrants, a guaranteed price floor lasting 10 years and a 10-year commitment to purchase output.

Such measures can support investment and provide producers with greater certainty.

However, Lawfare argues that combining the government’s role as a lender with its role as an insurer against geopolitical disruption creates a difficult balance. Taxpayers may absorb losses during ordinary market conditions without having a clearly defined way to benefit if a supply crisis dramatically increases the value of domestic production.

The authors therefore argue that funding must be structured around the unusual risks of the rare earth industry, rather than treating it like an ordinary commercial investment.

A different financing model could change the equation

Lawfare proposes a financing instrument known as a contingent convertible security, or CoCo bond, designed to adjust according to a producer’s progress and the behaviour of its overseas suppliers.

Initially, the instrument would function like a loan. Once a company achieved specified production or capacity milestones, investors could receive a share of its free cash flow.

If China subsequently disrupted supplies through defined export restrictions or other forms of material interference, investors could gain the right to convert their holdings into equity.

The proposal aims to give investors a financial reason to support capacity that might otherwise appear unattractive. Producers would receive funding and protection against prolonged periods of low prices, while investors could share in the returns generated by the capacity they helped establish.

The model could also bring in private co-investors, including defence contractors and automakers with a direct interest in securing reliable supplies.

According to Lawfare, government participation would not necessarily have to cover the entire financing requirement.

This proposed tool would supplement, but not substitute for, stockpiles, price guarantees, and purchasing agreements.

The former tool deals with providing temporary stocks of the commodity in times of disruption, price guarantees help producers deal with prolonged low prices, and purchasing agreements increase predictability for the producer.

In order for the CoCo bonds proposal to succeed, triggers, legal basis, and governance structure must be properly outlined. Meanwhile, Lawfare points out that a funding mechanism needs to be established that will withstand changeovers in administrations and priorities in Congress.

However, the key lesson for Washington is that reducing dependence on China is about more than simply investing money. It is about maintaining a viable alternative to a supply chain over years of lower imports and securing commitment from the investors.

The United States may have substantial lending capacity available, but turning that financial authority into durable industrial independence will require a strategy built for the long term.