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

Key Points:

• Since October 2025, China has imposed and intermittently suspended strict controls on rare earth exports, leveraging these restrictions to extract concessions from the U.S. and maintain geopolitical leverage over critical supply chains.
• The U.S. efforts to rebuild an independent rare earth supply chain have been underfunded and hampered by misaligned interests among government, private investors, and political cycles, despite significant loan authority available through legislation.
• The rare earth market is a strategic chokepoint dominated by China, which controls over 90% of global refining and uses state-backed subsidies to maintain dominance, creating a classic market failure where private investors avoid building alternative capacity due to risk of Chinese dumping.
• The authors propose a novel financial instrument—a contingent convertible security (CoCo bond)—that acts as a hybrid loan and equity stake triggered by Beijing’s supply restrictions, aligning government and private investor interests to finance supply chain resilience without nationalization or corporate welfare.
• This CoCo bond would provide government and private investors a price floor during normal times and convert to ownership if China weaponizes supply, incentivizing capacity build-out and risk-sharing while potentially deterring Chinese export manipulations; further legal and policy work is needed to implement this approach.