In this edition of Critical Thinking, Peter Hütte writes that access to critical minerals has been eclipsed by processing capabilities as the central concern among Western countries. China’s dominance consists not in mining, but in the midstream, where true value is captured. But the West can close the gap, through long-term commitment, trusted partnerships, and a realistic understanding of the costs involved.

For Western countries, access to critical minerals is no longer the most pressing concern. Rather, policymakers in the US, Europe, and their partner states have shifted their focus to processing—without relying on China.

The bottleneck is the midstream, not the mine

China’s dominance has always consisted in the midstream processes that connect raw ore to finished components. According to the International Energy Agency (IEA), China is the dominant refiner for 19 of 20 strategic energy-related minerals, with an average refining share of roughly 70 percent. In rare earths the concentration runs deeper: China accounted for 60 percent of mined production of magnet rare earths in 2024 but 91 percent of refined output and 94 percent of sintered permanent magnet production.

The United States, by contrast, produced roughly 1.2 million metric tons of mined copper in 2024, but held the smelting capacity for only half that amount. The rest of its ore and concentrate was shipped abroad for processing, to Mexico, Canada, Japan, and China. Even where America mines at scale, it frequently cannot capture the value downstream.

Why processing outside China costs more

Policymakers understand this, shifting their focus to processing, offtake agreements, stockpiles, and price floors. But building processing outside of China is not only more expensive but also more exposed. An incumbent that already controls supply can let prices fall, or push them down, until a half-built Western refinery is uneconomic and its financing collapses. (Veracity published a piece on Chinese lithium dominance in August 2025.)

That threat is enough to keep private capital on the sidelines even when the strategic case is clear. The IEA, for its part, estimates capital costs for critical mineral projects in diversified regions run about 50 percent higher than for incumbent producers, and warns that diversification will not happen through market forces alone.

Consider lithium: the Natural Resource Governance Institute and the consultancy iLiMarkets estimate that Chinese refineries are cheaper to run by US$2,500-3,500 per ton of lithium carbonate equivalent, and also cheaper to build, at roughly US$6,000-10,000 per ton of annual capacity, than in the US and its partner states, such as Australia and South Korea. According to Stanford-led analysis, US battery-grade graphite costs more than twice that of importing a comparable product from China.

A premium, not a permanent tax

This gap is not permanent, or at least not entirely. China’s edge is often attributed to cheap labor, subsidies, and historically looser environmental rules, and all of those mattered. But the deeper advantage is cumulative: clustered chemical supply chains, low-cost equipment and construction, experienced engineers, large-scale operations, and decades of learning-by-doing. In rare earths in particular, this was not an accidental outcome. From the mid-1980s through the 1990s, the Chinese state used tax incentives, strategic-mineral designations, restrictions on foreign participation, export controls, and direct or indirect support for domestic producers to build capacity that was often unattractive on a stand-alone commercial basis. Some producers reportedly operated with thin or negative returns, but the result was a processing base that Western competitors could not match at prevailing prices. Whether fully by design or partly by circumstance, that sustained, state-backed accumulation is now one of the main barriers to diversification—and also the precedent: an advantage built over time through policy, capital, and industrial learning can, in principle, be narrowed by comparable commitment elsewhere.

The resilience premium is therefore better understood as front-loaded than as a perpetual tax. It is an investment that descends a cost curve if volumes are large and durable enough to justify the climb. The catch is that several forces push against the descent at once: AI data centers, electrification, and defense production are all bidding for the same power, capital, and skilled labor, and AI in particular runs on the very inputs at issue, from permanent magnets to copper wiring. Given the standing threat of price suppression, non-Chinese capacity may never scale up enough for it to be economically viable for buyers or, commercially, for the miners, refiners, and processors along the supply chain. Whether the premium falls over time is, in the end, a policy choice about whether to guarantee that volume.

Today, Western governments are not just subsidizing individual projects but trying to build investable markets in a sector where Chinese scale has long set the clearing price. The IEA puts the bill at around US$60 billion over the next decade to meet demand for magnet rare earths outside the dominant supplier, with refining accounting for nearly half and magnet manufacturing about a third—a reminder that the expensive part is what happens after the ore comes out of the ground.

The costs that stay off the balance sheet

The cost is not only financial. Moving processing out of China does not make it cleaner, only more visible. Rare earth separation is chemically intensive, drawing on reagents and water and producing residues and radioactive byproducts that have to be managed. Western jurisdictions tend to price those burdens openly, through permitting, liability, and community opposition.

The most resilient supply chains are built across geographies, because no single one holds all the advantages. The United States brings capital and demand, Australia ore and a growing processing base, Japan and South Korea deep midstream chemistry, and the Gulf states energy and proximity to African supply. The proximity logic that explains China’s edge points the same way: let each region do what it does best and trade the rest within a trusted bloc, rather than have every country build everything at a premium.

That logic is already visible in practice. In Western Australia, Alcoa, Japan’s Sojitz, and the US and Australian governments are jointly funding gallium recovery that could supply up to a tenth of global output. Australia’s US$1.6 billion Arafura Nolans NdPr rare earth project won approval in 2026 on export-credit financing from the US, Canada, Germany, and South Korea, with offtake to Hyundai, Kia, and Siemens Gamesa. Korea Zinc is bringing Korean smelting technology to a US$7.4 billion critical-minerals smelter in Tennessee. MP Materials, the US government, and Saudi Arabia’s Maaden have agreed to build a rare earth refinery in the Kingdom, drawing on Gulf energy for US and allied demand. Although, as we point out in our last Critical Thinking piece, the Iran war complicates and may delay the Gulf piece of that puzzle.

Fully “China-free” supply chains are not plausible in the near term. The goal must be China-reduced supply: enough non-Chinese capacity to blunt coercive leverage, provide a fallback, and give buyers a pricing alternative.

Who pays the premium

So who pays the resilience premium? First we must name what is being bought: insurance, that is, optionality against coercion, and a fallback if access is reduced. The benefits accrue to the manufacturers and buyers who gain a second source, and to the governments whose strategic autonomy it protects. The premium will therefore sit with end-users, through prices and long offtakes that genuinely share risk, and with taxpayers, through public finance that underwrites the cost curve until volumes mature.

For companies, the relevant map is no longer just where a mineral is mined but where it is processed, whether the energy and offtake behind that processing are secure, and whether the policy support can outlast a price cycle, an election, or an external shock like the Iran war.

The West can build more resilient supply chains. The premium is real, but it need not be permanent—provided it is priced openly, placed where the benefit lands, and paired with demand-side measures that shrink the bill. Reducing dependence on Chinese processing is, in many sectors, clearly justified. The real test is whether that commitment is honest about who carries the cost, and whether it can hold up against the realities of cost, politics, and time.