Rare Earth: China Wins?

Trump’s recent rare earth deal with Ukraine aimed to give the U.S. access to Ukraine’s critical mineral resources, like lithium, titanium, and graphite, in exchange for wartime aid and investment. The idea was to reduce U.S. reliance on China, which refines about 85-95% of the world’s rare earths. And that’s where the major problem still lies: The U.S. doesn’t have much domestic refining capacity, nor does Ukraine. So, there’s a real chance those raw materials could still end up being shipped to China for processing in the short-term to mid-term.

As covered previously, the rare Earth deal sets up a joint U.S.-Ukraine fund where Kyiv contributes 50% of future proceeds from state-owned resources. But it doesn’t include building refineries. The U.S. has one rare earth mine in California (Mountain Pass), and while it’s ramping up, its output still often goes to China for refining because that’s where the infrastructure and cost efficiency are. Ukraine has no active rare earth refining either and its mineral sector has been stalled by war and outdated Soviet-era tech. Experts say standing up a new refining industry in Ukraine or the U.S. could take 5-10 years and billions of dollars, assuming the war doesn’t derail it first.

Even if Trump’s pushing for a non-China supply chain, the reality is that refining elsewhere isn’t competitive yet. Some analysts point out that Australian firms like Lynas are trying to break into this space (they refine in Malaysia), but it’s still a drop in the ocean compared to China. So, unless the U.S. fast-tracks its own facilities, or Ukraine manages to build some while they are being bombed, those Ukrainian rare earths might indeed take an ironic detour through China before they hit U.S. factories.

Since Volodymyr Zelenskyy’s abysmal Oval Office performance, it looks like a deal will still be on which focuses on future resource revenues rather than existing assets. The deal’s structure reportedly includes three components: Investment procedures, profit-sharing mechanisms, and security guarantees, though the latter remains unresolved and subject to further negotiation.

Meanwhile, Russia has complicated the situation by offering the U.S. a counter-deal involving minerals in Ukrainian territories it occupies, a move interpreted as an attempt to undermine the U.S.-Ukraine agreement. Trump has expressed openness to economic development deals with Russia, citing their "massive rare earth" reserves, but no commitment has been made.

The fact that Ukraine does not even currently produce rare earths, and much of its mineral wealth (estimated at 5% of global critical raw materials) is in the Russian-controlled regions like Donetsk and Zaporizhzhya, means that this roadmap could essentially start with Russia and end with China unless something dramatically changes. Experts question the feasibility of rapid development, noting that building operational mines could take 15-20 years and billions in investment, especially amidst the ongoing conflict. Getting Zelenskyy to agree with Trump may be the smallest challenge in this situation.