U.S. races to break China's hold on rare earth magnets

• The contentious trade relationship between the U.S. and China has amplified the economic and security risks of that reliance.
• Global automakers are "in full panic" that China's limits on rare earth exports will trigger supply chain shocks like the pandemic-related semiconductor shortages that occurred in 2021 and 2022.

The big picture: It's not a new problem.

• U.S. officials have been talking about the need to mitigate American dependence on China for years.
• China also dominates processing of metals like lithium, cobalt, nickel and graphite used in batteries.

The latest: U.S. and Chinese officials met Monday and Tuesday in London to try to iron out their trade issues, amid reports that China was willing to expedite export licenses for U.S. and European automakers if the U.S. loosened export controls on jet engine parts and software.

• Late Tuesday both sides said they'd reached a framework of a deal, pending approval from both countries' leaders, that would in theory resolve the most recent export issues.

Yes, but: There's still an urgency to find alternative sources.

• President Trump in April called for an investigation into national security risks posed by U.S. reliance on imported processed critical minerals, including rare earth elements.
• He has also used a series of executive orders to try to bolster domestic supply chains, like fast-tracking environmental reviews for U.S. mining projects.

In Congress, meanwhile, rare earth competition with China has galvanized both parties.

• A spate of bills would create a tax credit for production of high-performance rare earth magnets, use Defense Production Act authority to direct emergency funding, and establish an Energy Department program to finance minerals projects.
• Two Republicans and two Democrats are pressing legislation that allows the president to strike free trade agreements exclusively focused on critical minerals and rare earth elements.
• "There is fairly broad bipartisan support around becoming more resilient, especially in areas that invoke national security — and this is clearly one of them," Sen. Todd Young, an Indiana Republican leading that bill, told Axios last month.

Zoom in: One deal that's getting a lot of attention is a potential partnership between California-based MP Materials and Saudi Arabia's flagship mining company, Maaden.

• The deal was inked in May on the sidelines of the U.S.-Saudi Investment Forum, coinciding with a broader agreement between the U.S. and Saudi Arabia to cooperate on energy and critical minerals.

• MP Materials operates California's Mountain Pass, the only rare-earths mine in the U.S., which produces 12% of the global supply.
• At maximum production, Mountain Pass could yield enough rare earths to supply more than 6 million electric vehicles, the company says. But the bottleneck is magnets, which MP Materials is just beginning to produce.
• Maaden, a fast-growing, government-controlled mining company, is developing mines for a variety of critical minerals, but doesn't produce rare earths today.

What to watch: Together, the companies seek to jointly develop a vertically integrated rare earths supply chain in Saudi Arabia—mining, separation, refining and magnet production—for global consumption.

• Zoning and environmental regulations in the U.S. make it hard to open a rare earth mine, but Saudi Arabia moves more quickly and is anxious to wean its economy off of oil.
• Saudi expertise in petrochemical refining can be leveraged for minerals processing, while MP brings experience across the entire rare earths supply chain, including mining, refining and magnet production.

Reality check: The preliminary deal is non-binding, so it could still fall apart.

• Any production is still years away, so it won't solve the current shortage of rare earth magnets.
• Demand is only going to increase with AI and robotics.

The bottom line: The U.S. needs both short-term, and long-term solutions, to its supply chain problems.