Why Electric Car Manufacturers Are In A Panic, And How China Holds The Key
"If we want electric-vehicle production to continue...in the United States, this has to be solved." These chilling words of a senior automotive executive, brought to us by Wall Street Journal reporter Sean McLain in his April 26, 2025, article, Dyspro-what? Why An Obscure Element Has The EV Industry In A Panic, summarize why President Trump has been investing money, time and attention to China's stranglehold on rare earth minerals. Beginning with President Clinton, and until President Trump, China has secured and maintained more than 90 percent of the world's rare earth minerals. Rare earths, or REEs, are a set of 17 elements essential to manufacturing the most critical products in the four most important U.S. industries: high-tech, pharmaceuticals, defense and energy. It's not just electric vehicles at stake for the United States and the West, but "green" technology depends on REEs. Consumers depend on REEs in hi-def, flat-screen televisions, smart phones and watches and laptops. American armed forces equipment and weaponry, such as satellite systems, night vision goggles, guided missiles, fighter jets and SONAR systems, are dependent on REEs. And of note, the REEs China now holds are critical in refining petrolium into gasoline and other sources of energy--energy needed to run cars, refrigerate food, heat homes in the summer and cool them in the winter. Again, it is China that mines, processes and produces 90 percent of the world's REEs. The United States--and the West--currently depend completely on China for these REEs.
How Exactly Did We Get To This Point? In short, the U.S. gave to China all its magnetics business, resources and technological know-how. Discovered in Sweden's Ytterby mine, near Stockholm, in 1787, this black mineral containing rare earth minerals received no attention to speak of for nearly 150 years. However, at the outset of World War II, scientists tried using REEs to purify uranium and discovered how to split the atom to make, and detonate, the atomic bomb. Thus, scientists saw the obvious importance of REEs. Shortly thereafter, the hunt was on for more of this material. An enormous mine was opened in REE-rich Southern California in the mid 1950s. This mine, later known as the Mountain Pass California Mine, became proficient at providing the material and extraction methods necessary to control this important natural resource. REEs achieved little commercial notice through the 1960s, except for the discovery of color television, though still controlled completely by the United States. It was then General Motors caught interest in REEs, secured Pentagon grants and discovered HREEs--Heavy Rare Earth Elements--which could be transformed into a new category of magnets called permanent magnets. Permanent magnets were soon in demand due to their superior power compared to first generation magnets. U.S. industries immediately began using them for speakers in stereos, earphones, televisions, computers, cars, to refine fuel and for better MRI imaging. The demand for these revolutionary magnets took attention and resources away from GM's core competency which was, of course, making cars, so they decided to spin off the magnetics business and creeate a separate magnetics division, Magnequench, to manufacture its magnets. Magnequench solidified its international control of the production and sale of permanent magnets until 1994.
From here, it gets ugly.
GM made a puzzling decision in 1995. It sold its lucrative magnetics subsidiary for only $70 million to a consortium headed by Archibald Cox, Jr., son of the Watergate prosecutor. Cox was not acting alone, but with two Chinese state-owned metals firms: San Huan New Material, and China National Nonferrous Metals Import and Export Company (CNNMIEC). The latter had been pestering GM to sell Magnequench since 1993, but had been unsuccessful until Cox appeared in the picture. The successful deal had the two Chinese firms controlling at least 62 percent majority of Magnequench shares. San Huan New Metals chairman was Mr. Zhang Hong, son-in-law of former Chinese leader Deng Xiaoping, who spearheaded the "Super 863 Program" to develop and acquire cutting-edge technologies for military applications. The other Chinese investor in Magnequench, the CNNMIEC representative, was another Deng Xiaoping son-in-law. The deal received little if any media attention at the time. The relatively small asking price for a company that provided a treasure trove of advanced technology designed for military and commercial uses going to a partially foreign owned company would seemingly create serious concerns and careful investigation by then President Clinton, but it did not.
In fact, the U.S. government permitted the Chinese to simply walk in and take over a significant U.S. high-tech firm. Through a 1988 federal law from the Reagan era, President Clinton had the power to block any financial transaction made between an American and a foreign-owned company if credible evidence the foreign interest exercising control might take action that threatened to impair national security. However, Clinton, or more precisely, CIFUS--the Committee on Foreign Investment In The United States--did not find any "credible evidence." Its only requirement for the deal to go through was that Magnequench's Chinese companies could not remove Magnequench's equipment or jobs from the United States for a period of ten years. The sale went through and, shortly after the Chinese took over, Magnequench's magnet production line was duplicated in China and the U.S. plant was closed, ostensibly to "see if it (the China operation) worked," according to one employee. The employee added, "I believe the Chinese entity wanted to shut down the plant from the beginning."
And it gets even uglier. Check here for more later.