Imagine a world where the future of artificial intelligence, the U.S. economy, and even national security hinges on a handful of obscure minerals. Sounds like a sci-fi plot, right? But this is our reality. Rare-earth elements, crucial for AI infrastructure, are largely controlled by China, creating a vulnerability that could derail America’s economic growth and technological dominance. And this is the part most people miss: without these elements, the AI boom—and the stock market gains it fuels—could grind to a halt.
Artificial intelligence isn’t just a buzzword; it’s a cornerstone of modern economic growth. In fact, Harvard economist Jason Furman estimates that a staggering 92% of U.S. GDP growth in the first half of 2025 can be attributed to AI spending. Without it, GDP growth would have been a mere 0.1% annually—a sobering thought. Capital spending on AI has been a major driver of U.S. stock market returns, with companies in the S&P 500 pouring significant resources into this sector. But here’s where it gets controversial: the very foundation of AI—semiconductors, data centers, and cooling systems—relies heavily on rare-earth elements, and China controls the lion’s share of their production and processing.
Why does this matter? Rare-earth elements are the unsung heroes of modern technology. They’re essential for everything from disk drives and semiconductors to radar systems and lasers. AI’s insatiable demand for high-performance computing and memory makes these elements indispensable. Yet, the U.S., once a leader in rare-earth production, ceded this advantage to China decades ago. In 1995, two pivotal decisions shifted the balance: the sale of Magnequench, a U.S. rare-earth magnet company, to China, and China’s entry into the World Trade Organization, which allowed it to dominate the global rare-earth market.
China now controls approximately 70% of the world’s rare-earth output and a staggering 90% of processing capabilities. This monopoly gives China immense leverage in trade negotiations and poses a strategic risk to the U.S. For instance, during the 1970s, America’s dependence on foreign oil led to economic turmoil. Could rare-earth dependence become the 21st-century equivalent? What if China decides to restrict supply? The U.S. Department of Defense aims to meet defense-related rare-earth demand by 2027, but even if successful, commercial needs—especially for AI—will remain unmet.
Efforts to diversify supply are underway, with allies like Australia and Canada offering potential solutions. Meanwhile, innovations in recycling and alternative technologies could reduce reliance on rare earths. However, these measures are still in their infancy. Is it enough to challenge China’s dominance? Some argue that rare-earth independence should be as urgent a priority as energy independence was decades ago. Others question whether the U.S. can—or should—break free from this supply chain entirely.
For investors, this isn’t just a geopolitical issue—it’s a market risk. AI-related stocks, a significant portion of the U.S. market, could be vulnerable to supply chain disruptions. Should policymakers focus on trade deals, domestic production, or technological alternatives? What’s your take? The future of AI, the economy, and national security may depend on it. Let’s discuss—the stakes have never been higher.