Par Yossi Sheffi, MIT Professor | Supply Chain, Resilience, & Risk Management Expert
Overdependence on one source creates risks for both industry and the country.
Until recently, the average U.S. citizen knew very little about rare earth minerals and what makes magnets work—if they had heard of them at all. Yet these materials are critical components of products individuals, businesses, and governments depend on every day: cell phones, automobiles, computer hard disk drives, industrial robots, medical diagnostic equipment, military aircraft, satellites, and more. Without rare earth minerals and magnets, our economy and our 21st century way of life would be at risk.
This is not a far-fetched scenario. China dominates rare earth mineral extraction and processing, and it controls an estimated 90 percent of the world’s production of rare earth magnets. The perils of that near-monopoly became clear earlier this year, when the Chinese government began restricting exports of these essential materials in response to trade disputes with the United States. In November, China temporarily paused most of those restrictions for a year, but they could be reimposed sooner if circumstances change.
The rare earth situation is an example of how the Chinese Communist Party (CCP) is “weaponizing” supply chains to gain advantages over its rivals. As Livia Shmavonian and Josh Hodges of the U.S.–China Economic and Security Review Commission explained in a recent MIT Center for Transportation and Logistics “Supply Chain Frontiers” podcast, the CCP controls both extraction and processing, and it can shut down or manipulate foreign and domestic companies at will to advance its policies. By engaging in unfair trade practices like dumping and subsidizing export production, China keeps its prices so low that Western manufacturers struggle to compete at home and abroad. (Think about how hard it is to find retail merchandise that is not made in China.) It is not scaremongering to say that China’s trade policies are undermining the United States’ ability to manufacture a wide range of products, including critical ones.
The commission’s 2025 report to Congress warns that China is taking advantage of our growing dependencies on its products to create supply chain chokepoints, not only for critical minerals but also for commodities like semiconductors and medical supplies. During the Covid pandemic, when China stopped exporting personal protective equipment (PPE) and nationwide shortages arose, we all saw the consequences of depending on one country for entire categories of critical products. Even so, U.S. companies do not seem to fully recognize the extent of the supply risk hanging over them.
Excessive dependency on a single source for critical products and materials is not only a serious risk for the companies that use them, but it also represents a danger to our economy—and that, in turn, could potentially lead to a national security crisis. I believe we should therefore think about this threat in two spheres: the future of businesses and industries, and the national interest.
For private industry, that may mean assessing vulnerabilities and adjusting their sourcing strategies. I am not advocating that we stop buying from China; our economies are too deeply entwined to even consider that. But companies must recognize the implications of their current and future dependence on China and take action to mitigate those risks. One example is the effort by some automakers to design cars that do not depend on Chinese rare earth magnets. Another is a “China+1” strategy of diversifying from only Chinese suppliers to adding suppliers from a different country.
For government, an industrial policy that considers both the economic and security implications of depending on a single country for critical materials and products is imperative. Both the Biden administration and the Trump administration have recognized the threat and supported private investments in batteries and critical minerals supply chains. The Trump Administration redoubled the efforts and is investing billions of dollars in private companies that produce essential products like semiconductors, steel, and rare earth minerals and magnets. However, rather than reacting to crises, national security requires long-term, thoughtful planning and risk management.
I agree with Commissioners Hodges and Shmavonian that business leaders and policymakers must prepare for a future where supply chain strategy is inseparable from national security. If your supply chain relies on Chinese suppliers, I urge you to listen to our podcast, “Weaponizing Supply Chains: U.S.-China Trade and National Security.” You can also read the U.S.-China Economic and Security Review Commission’s enlightening 2025 report to Congress here.
