America Didn't Lose Its Rare Earth Industry. It Sold It

China’s tightening of rare-earth export controls since October 2025 exposed a deliberate chokepoint: although the global rare-earth-oxide market is worth less than $10 billion, China refines more than 90 percent of supply and almost all heavy rare earths, giving it asymmetric leverage over technologies from chips to precision weapons. Decades of state subsidies and strategic industrial policy allowed China to buy up capabilities that U.S. firms willingly sold when environmental cleanup and low margins made domestic production unattractive. That market-driven divestment - Mountain Pass’s shutdown, GM’s 1995 sale of Magnequench and the relocation of refining and magnet production - left the United States dependent on a supplier willing to treat the industry as geopolitical leverage rather than a pure market. Short-term trade truces and episodic reprieves have only reinforced the instability: private capital will not underwrite capacity that can be instantly undercut by a state actor willing to sell at or below cost.

Market signals and existing government interventions are misaligned with the decade-plus timeline required to rebuild resilient supply chains. Conventional subsidies and loans invite political blowback, blur the line between ordinary financing and crisis insurance, and fail to attract private investors seeking returns in good years while avoiding downside risk. A tailored financial tool could fix that: a contingent convertible security (CoCo) issued to government and private lenders, paired with a guaranteed offtake at a price floor, that converts into equity if objectively defined Chinese actions weaponize supply. That design separates routine support from crisis insurance, aligns incentives across stakeholders, and makes long-duration, politically durable capital credible enough to rebuild alternative capacity.