05 Jan Warning – U.S. Chip Plants Vulnerable: Trapped by China’s 92% Rare Earth Hold and 78% U.S. Need
By,
Luis Noguerol, Co-Founder and Senior Fellow, MSI²
America’s profound reliance on China for rare earth elements (REEs) exposes a critical vulnerability in U.S. semiconductor production, as unambiguously outlined in the U.S. Geological Survey’s 2025 Mineral Commodity Summaries (U.S. Geological Survey, 2025). The data reveals that the United States sources 78% of its imports of these essential materials from China, which dominates 92% of global refining capacity, materials indispensable for the high-performance magnets that drive chip factory cooling systems (U.S. Geological Survey, 2025, p. 144).
The United States Geological Survey (USGS), which is the federal agency that tracks global mineral production, reserves, and supply chains (like rare earths) numbers lay it bare: 78% hooked on China’s 92% rare earth lock, sealed by 2025 export rules strangling TSMC Arizona chillers and U.S. Artificial Intelligence (AI) lead dysprosium/terbium’s heat-proof muscle has no quick swap like silicon’s easy abundance, turning factories into Beijing hostages that idle on a license denial (U.S. Geological Survey, 2025; Center for Strategic and International Studies, 2025).
This is extremely concerning. To minimize this control, the U.S. must immediately stockpile 5-year reserves, invest no less than $10B (estimated rough number – no calculation) in domestic mines/refineries (Australia/Wyoming partnerships), fast-track e-waste recycling, and mandate the Department of Defense (DoD) contracts requiring US-only supply chains.
Powerful magnets in chip factories are super-strong permanent magnets made from rare earth metals like neodymium that power the high-efficiency electric motors in cooling fans, pumps, and liquid chillers, keeping semiconductor fabrication plants, or “fabs” [factories where advanced computer chips are manufactured] ice-cold during 24/7 production (Rare Earth Exchanges, 2025).
Fabs like Taiwan Semiconductor Manufacturing Company (TSMC’s) produce over 90% of the world’s most advanced chips (3nm/2nm nodes powering AI, military systems, smartphones), and the U.S. depends on Taiwan for 92% of these high-end chips, making rare earth supply chains critically important, as any disruption from China’s 92% refining monopoly could halt U.S. tech/military production, costing trillions and posing massive national security risks (Contrary Research, 2025; U.S. Geological Survey, 2025).
Please note that in this context, nm means nanometers, the measurement of transistor size in chips (3nm = 3 billionths of a meter wide). This is relevant to understand the U.S. limitation as Smaller nm = more transistors = faster, more powerful chips (AI, phones, military). TSMC leads at 2nm/3nm production; the U.S. cannot make these at scale yet. In other words, the U.S. is not capable of producing chips of these characteristics at the present time.
The Trump administration gets how dangerous it is for the U.S. to depend on China’s rare earth monopoly, so they are working hard to build our own production. This means new deals like partnering with Australia and giving incentives to make refining and magnets here at home, securing supplies for defense, AI chips, and tech before any global problems hit.
REEs are a set of 17 metallic elements in the periodic table, comprising the 15 lanthanides (from lanthanum to lutetium) plus scandium and yttrium (Bipartisan Policy Center, 2025). These elements, though not geologically scarce, are challenging to extract and process due to their dispersed deposits and chemical similarities, making refined supply chains complex and costly (CSIS, 2025a).
Out of those 17 metallic elements, two are of supreme importance, and those are Dysprosium and Terbium. Here is a simple breakdown: dysprosium and terbium are heavy rare earth metals (not actually rare in the earth, but hard to pull apart from rocks, as noted before) because they mix chemically with other elements (U.S. Geological Survey, 2025, pp. 143-144). Dysprosium (symbol Dy) makes magnets tough against heat and shaking; a tiny bit added (3-5%) to basic neodymium magnets lets them hold power up to 200°C in the rough conditions of chip factories (U.S. Geological Survey, 2025, pp. 143-144). Terbium (Tb) keeps them stable even hotter and during cold snaps to -40°C in cooling pumps (U.S. Geological Survey, 2025, pp. 143-144).
Think of them as the “muscle enhancers” for magnets in chillers that keep chip-making fluids at exact 0.1°C temperatures for tiny 2nm circuits (Center for Strategic and International Studies, 2025). Each big TSMC Arizona factory needs over 1 ton a year for 480 pumps, 78% comes via China (Center for Strategic and International Studies, 2025). Without them, magnets weaken fast, chillers fail, and chips get ruined (Statista, 2025). In other words, the U.S.’s 78% dependency on China represents a humongous disadvantage in terms of technological dependency.
Unlike silicon or germanium (the everyday stars of chip “wafers”) dysprosium and terbium are not the chips themselves but the invisible heroes in the factory machines (U.S. Geological Survey, 2025). Silicon (99% of “wafer” material) and germanium (used in lasers and fast transistors) are abundant, mined worldwide, and refined easily into pure slices for circuits; the U.S. makes plenty with no China chokehold (U.S. Geological Survey, 2025). But dysprosium/terbium are niche enablers: silicon fabs run without them in theory, but advanced 2nm ones’ grind to halt without their magnet boost, making rare earths the hidden “off-switch” China holds, far riskier than silicon’s steady supply (U.S. Geological Survey, 2025).
China’s Export Controls: Turning Magnets into Weapons
China’s December 1, 2025, rules (Ministry Notice No. 61) require licenses for any magnets or chip parts with even a trace of their rare earths, hitting advanced factories hard (Ministry of Commerce of the People’s Republic of China, 2025). This grabs re-routed supplies and ties U.S. expansions to Beijing’s say-so, delaying builds and forcing negotiations (Ministry of Commerce of the People’s Republic of China, 2025). U.S. imports jumped to 78% reliance last year, with China refining 92% globally, real factories now wait on Beijing approvals (U.S. Geological Survey, 2025). This is a very concerning disadvantage to the U.S. and President Trump’s agenda to keep leadership in terms of the AI industry.
The Center for Strategic and International Studies (CSIS) models show a cutoff delays 2nm chips 18 months, costing $290 billion in AI sales as NVIDIA and defense stall, with fabs sitting idle and jobs lost (Center for Strategic and International Studies, 2025). This is another supply risk concern.
Trump Administration (more concerns)
The Trump administration views U.S. reliance on China (which again, dominates 80-90% of global REEs processing) as a profound national security risk, especially after China’s 2025 export curbs on elements like samarium disrupted defense production (Trump White House Archives, 2020; CSIS, 2025b). Policies like Executive Order 13817 (2017) and 13953 (2020) declared supply vulnerabilities a national emergency, invoking the Defense Production Act to fund domestic mines (e.g., Mountain Pass) and ally deals with Australia (Capital Ethiopia, 2025).
In short, the Trump administration recognizes that REEs are essential for economic strength and military dominance, as disruptions could stop F-35 jet production (just to cite one example), or electric vehicle manufacturing, giving rivals a major advantage (BBC, 2025). Trump’s plan, using tariffs, streamlining permits, and investing over $10 billion, focuses on U.S. self-sufficiency to safeguard jobs and maintain tech leadership during trade conflicts (Holland & Hart, 2025).
Critics who decry President Trump’s tariff strategy fundamentally misunderstand the strategic imperatives of national security and economic sovereignty, or worse, they advance agendas antithetical to American interests. Dismissing tariffs as mere protectionism ignores their proven role in compelling adversaries to negotiate fairer terms, as evidenced by reshoring critical supply chains and bolstering domestic manufacturing resilience amid global trade hostilities.
Those who oppose President Trump’s strategy risk abandoning U.S. technological and military superiority to rivals, undermining the very foundations of prosperity and defense that tariffs safeguard. This is not the first instance where certain politicians and lawmakers have cavalierly dismissed the imperative of preserving U.S. dominance in advanced technologies, thereby granting communist regimes like China an undue and perilous advantage that profoundly undermines American national security and innovation (Center for Strategic and International Studies, 2025).
The progressive faction in Congress and the Senate must urgently prioritize America First, reviving the spirit of the Monroe Doctrine to safeguard our sovereignty. MAGA is not merely desirable; it is an immediate necessity that brooks no delay (U.S. Geological Survey, 2025).
CHIPS Act Misses the Real Problem
The CHIPS Act allocated $52 billion to construct semiconductor factories but devoted only $450 million to lighter REEs like neodymium, while entirely overlooking heavier ones such as dysprosium and terbium, which account for 41% of U.S. magnet production needs and are heavily consumed by these facilities (Lynas Rare Earths Limited, 2023).
The U.S. does mine some rare earths at Mountain Pass, California, but ships the bulk to China for final processing, creating a dangerous dependency vulnerable to a single embargo or supply cutoff (U.S. Geological Survey, 2025). Without urgent fixes, factories will scale up slowly, “hemorrhaging” funds on prolonged delays and idle capacity. This, again, represents by itself a dramatic risk to the U.S. technical sovereignty.
Huge Factory Needs and Dollar Costs
Powerful magnets in chip factories are super-strong permanent magnets made from REEs like neodymium that power the high-efficiency electric motors in cooling fans, pumps pushing 1.5 Tesla (T) magnetic fields to drive high-speed impellers circulating ultra-cold coolant nonstop, and liquid chillers, keeping semiconductor fabrication plants, or “fabs” (factories where advanced computer chips are manufactured), ice-cold during 24/7 production (Rare Earth Exchanges, 2025).
Fabs like TSMC’s (Taiwan Semiconductor Manufacturing Company) produce over 90% of the world’s most advanced chips. It clearly and indisputably means that any disruption from China’s 92% refining monopoly could halt U.S. tech/military production, costing trillions and posing massive national security risks (Contrary Research, 2025; U.S. Geological Survey, 2025).
Another reason why (from the technological standpoint), the alliance between the U.S. and Taiwan needs to be seriously considered. As explained, the U.S. does not have the capacity to compete on this topic at the present, and relies on China for 78% of the imports. Imagine the huge practical impact of China’s control over U.S. factories. Unfortunately, this is the raw reality nowadays.
Arizona’s TSMC plans scale to 6 tons total across phases, 78% China-tied; shortages could wipe $48 billion in revenue per line yearly from bad yields and downtime (Statista, 2025). All 12 new U.S. factories consume 15% world supply, embargo hits the U.S. Gross Domestic Product (GDP) by $1.2 trillion over 2 years, killing AI growth and car chips (Center for Strategic and International Studies, 2025).
Fix It Step by Step: Build Independence Now (this is what Trump’s administration is prioritizing.) What should be and needs to be done?
- Right away: Use Defense Act to stockpile 12 tons for six factories at $1.2 billion cost, swap in Australian supplies via Lynas contracts to keep lines running short-term (Texas Mineral Resources Corp., 2022).
- Next: “Pump” $2.8 billion into Texas Round Top mining and Louisiana plants for pure magnets you control, ban Chinese parts in tools to cut risks fast (U.S. Global Investors, 2025). Test retrofits on existing chillers to avoid full shutdowns.
- Later: Require all-new tools magnet-free of China, fund cheaper versions cutting dysprosium need by 20% through better designs, full control by 2030 (U.S. Geological Survey, 2025).
- After: Break Free from China’s Magnet Grip or Lose the Chip Race.
The Biden administration pioneered Executive Order 14123 on June 14, 2024, establishing the White House Council on Supply Chain Resilience to coordinate federal efforts in mitigating supply chain risks for economic prosperity, public health, and national security, including quadrennial reviews with the first report due no later than December 31, 2024 (Executive Order No. 14123, 2024).
This order supplements Executive Order 14017 by directing the Council, co-chaired by the Assistants to the President for National Security Affairs and Economic Policy to identify vulnerabilities like excessive supplier concentration, recommend best practices for data coordination, and foster global partnerships with allies (Executive Order No. 14123, 2024).
The Trump administration appears to support these prior warnings, maintaining the framework without repeal and building on it through recent actions like the December 5, 2025, presidential order addressing security risks from price-fixing in food supply chains (White House, 2025). The CHIPS Act funding skipped key rare earth minerals, even though chip factories use up 41% of the world’s magnet supplies, which could cause 18-month shutdowns, $290 billion in losses, and wipe out NVIDIA by 2027, with no chips left for cars or jets (Center for Strategic and International Studies, 2025). If it happens, we should fail as a country.
We need to act fast by spending $2.8 billion (estimated amount considering existing statistics, not calculated) through the Defense Department rules to stock up from Round Top mines, build plants in Louisiana, lock in deals with Lynas, and switch tools, cutting our reliance by 60% by 2028 and making factories tough enough to keep running no matter what (U.S. Geological Survey, 2025). Silicon is common and safe everywhere, but rare earth shortages can kill entire plants, move now to control the chip future that powers all tech, or a single quota cut by rivals hands them the win (U.S. Geological Survey, 2025).
If there is curiosity about why Louisiana, and no other states, here you go: Louisiana stands out for rare earth processing plants due to its unmatched combination of world-class chemical industry for essential reagents, skilled industrial workforce, pre-qualified development sites like the Port of Vinton, Gulf Coast logistics for cheap shipping, and aggressive state incentives that speed up builds, advantages that let companies like Aclara ($277M heavy rare earth separation facility by 2027-2028) and Ucore (Louisiana Strategic Metals Complex for heavy REEs) launch first-of-kind U.S. operations faster than anywhere else.
No other state matches this full package: Texas leads overall with big DOD-funded projects (Lynas in Hondo/Seadrift, MP Materials and Noveon in Fort Worth/San Marcos) but faces permitting delays on wastewater that halt heavy REE sites; Wyoming has a $60M demo plant nearing operation but lacks scale and chemicals; New Hampshire’s Phoenix Tailings is small and e-waste focused; California mines ore but processes little; others like Oklahoma or Colorado are minor pilots without Louisiana’s chemical/logistics edge. This makes Louisiana the optimal spot to rapidly scale magnet-grade dysprosium/terbium output and slash China’s reliance by 2028.
Conclusions
The United States confronts an existential crisis in its semiconductor manufacturing capacity, where vulnerability to China’s overwhelming dominance in REEs refining transforms state-of-the-art fabrication facilities into precarious liabilities, susceptible to abrupt export restrictions that could instantaneously paralyze artificial intelligence innovation, military hardware production, and the foundational engines of national economic prosperity.
President Trump’s comprehensive and resolute strategy encompassing strategic stockpiling under the Defense Production Act, multibillion-dollar commitments to domestic mining operations and refining infrastructure, robust partnerships with reliable allies, and targeted tariffs to compel equitable trade practices, stands as the indispensable corrective measure, methodically dismantling this perilous dependency, fortifying American production against foreign coercion, and securing indisputable leadership in the technologies that define global power.
This approach is not merely prudent; it is an imperative of unparalleled urgency, presciently addressing the CHIPS Act’s critical oversights and eclipsing prior efforts like Executive Order 14123 by delivering actionable self-reliance without equivocation or delay.
Equally vital is the imperative to solidify the strategic alliance with Taiwan as the linchpin of advanced artificial intelligence chip production, leveraging Taiwan Semiconductor Manufacturing Company’s unparalleled expertise in fabricating the world’s most sophisticated nodes to ensure uninterrupted access to cutting-edge semiconductors, circumvent China’s insidious supply manipulations, and catalyze the maturation of the United States capabilities from dependency to dominance.
Critics who attack these tariffs and investments as antiquated or overly aggressive betray a fundamental misapprehension of national security realities or, more alarmingly, pursue interests divergent from American primacy, repeating historical irrationalities that have ceded technological supremacy to authoritarian adversaries.
The progressive elements within Congress and the Senate must abandon partisan obstructionism, embrace an unequivocal America First doctrine resonant with the Monroe Doctrine’s enduring wisdom, and rally behind the Make America Great Again imperative, which brooks no postponement in this high-stakes contest for the future.
Failure to act decisively under President Trump’s proven blueprint risks not temporary setbacks, but the irreversible forfeiture of economic sovereignty, military deterrence, and innovative preeminence to those who wield supply chains as weapons. History will judge inaction as surrender, while bold execution heralds enduring victory.
Finally, the U.S.-Taiwan alliance must be a top U.S. priority, as Dr. Luis O. Noguerol and Dr. Rafael Marrero powerfully expose in Dragon in the Matrix: Technical Realities of Covert Operations – Taiwan’s chip dominance is the kill switch against China’s Latin America tech takeover, slamming the brakes on Beijing’s AI-fueled covert ops before they lock in hemispheric control (Noguerol, L. O., & Marrero, R., 2025).
References
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The opinions expressed in this article are those of the author and do not necessarily reflect the views of the Miami Strategic Intelligence Institute (MSI²).