Highlights
- Daniel Gros argues that U.S. rare earth dependence is exaggerated because America exports higher-value compounds while importing cheap metals, but this overlooks strategic consequences where small volumes can halt F-35 or EV production.
- China's enduring dominance lies in midstream processing—such as Dy/Tb separation, sintering powders, and oxide-to-alloy conversion—not mining, making U.S. compound surplus fragile and dependent on Chinese separation chemistry.
- For investors, future returns hinge on who controls separation throughput, oxide purity, and magnet conversion capacity, with critical questions remaining about commercial-scale HREE oxide production outside China by 2028.
Table of Contents
What Happened — and Who’s Claiming Victory
Economist Daniel Gros contends that U.S. rare earth dependence on China is overblown. His argument: America exports higher-value rare-earth compounds (where China runs a deficit) while importing relatively cheap rare-earth metals—a tiny slice of total trade. If Beijing tightens exports, Gros claims, it risks starving its own manufacturers of processed inputs.
What Holds Water
Gros deserves credit for separating metals from compounds—a nuance most headlines skip. Indeed, 2025 trade data confirm that:
- China’s recent export-licensing curbs targeted mid- and heavy-REEs (Dy, Tb, Y).
- The U.S. and allies are racing to expand separation and magnet-making capacity.
- China still dominates the midstream—the step that turns ore into oxide and oxide into alloy.
He’s also right that threats of export restriction often backfire, catalyzing substitution, friend-shoring, and new refining projects—just as after the 2010 price spike. That lightbulb moment for the rest of the world.
Where the Logic Slips on the Ice
Scale matters. Gros calls U.S. rare-earth metal imports “negligible.” True in dollar terms—but not in strategic consequence. A few missing kilos of dysprosium can stall F-35 production or an EV motor line.
A surplus isn’t a shield. America’s supposed compound surplus relies on fragile pilot-scale production, often refined or toll-processed by allies that still depend on Chinese separation chemistry.
Heavy-REE capacity outside China remains vanishingly small. That “surplus” could disappear overnight if Beijing slows customs or restricts reagents. The missing assumption: Gros implies an open global trade system. Yet post-2023 China treats REE exports as a strategic valve, not a market good. The entire premise of mutual dependence collapses if one player uses the tap politically.
Bias, Framing, and the Hidden Midfield
Project Syndicate is thoughtful but policy-narrative-driven, not data-audited. Gros usefully deflates “China-as-juggernaut” tropes, but his essay underplays Beijing’s enduring technical moat—Dy/Tb separation, sintering powders, magnet-grade feedstock, and integrated oxide-to-alloy lines. The midstream remains China’s scoreboard, tariff truce or not.
The Investor Angle — Capacity Rules Reality
For Rare Earth Exchanges readers, the lesson is simple: value creation sits in processing, not mining headlines. Future returns hinge on who controls separation throughput, oxide purity, and magnet conversion—not who digs the rock.
Still-open questions:
- How durable is the U.S. “compound surplus” if China tightens again?
- Who, ex-China, can deliver commercial-scale HREE oxides by 2028?
- What premium will OEMs pay for non-Chinese magnet assurance?
Source: Daniel Gros, “China’s Rare-Earth Own Goal,” Project Syndicate, Nov 5 2025.
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Surely Lynas offers the west’s supply and processing solution, at least for the next few years.