The Magnequench Betrayal The most devastating blow came not from Chinese industrial espionage but from American corporate short-sightedness. In 1995, General Motors sold Magnequench for $56 million to what appeared to be Sextant Group, led by Archibald Cox Jr. In reality, Sextant was a front for two state-linked companies with ties to Deng Xiaoping’s family. Pentagon officials advised against the sale, recognizing that Magnequench supplied 85% of the rare earth magnets used in American guided missiles and smart bombs. They were overruled by the US State Department, which was eager to better relations with China Cox promised workers that production would remain in the US for at least a decade. Instead, he began shutting down American plants within three years. By 2004, the last US Magnequench facility closed, with 450 workers fired and machine tools shipped to China. America’s defense industrial base had been hollowed out for $56 million: the cost of a single F-35 fighter jet China simultaneously targeted other critical nodes in the supply chain. When Molycorp’s Mountain Pass mine faced environmental challenges and regulatory pressure, Chinese competitors exploited the opportunity. The facility closed in 2002, ending American rare earth production entirely. Today, the US is at least 10-15 years behind China in state-of-the-art permanent magnet manufacturing at scale. The numbers are staggering: China produces 300,000 tonnes of NdFeB magnets annually, while US capacity is projected to reach barely 6,000 tonnes by 2027, less than 2% of Chinese output. The capability gap extends beyond raw production volumes. China controls 90% of global rare earth processing, the complex separation chemistry required to transform mined ore into magnet-grade materials. Even when the US mines rare earths, the concentrate often goes to China for processing because America lacks the technical infrastructure. This dependency creates cascading vulnerabilities. The US Navy’s entire fleet relies on Chinese magnets. American automotive manufacturers operate on “hand-to-mouth” inventory systems, vulnerable to supply disruptions.

America cannot build a single guided missile without permission from Beijing. That is not a hyperbole. It’s the stark reality of America’s dependence on Chinese rare earth magnets, the hidden components that power everything from F-35 fighter jets to wind turbines to Tesla Model 3s.  China’s Monopoly, America’s Vulnerability Until a few weeks ago, China’s overwhelming dominance of the magnet sector went mostly unnoticed. China supplied, and the West happily bought. But in May, China sent shockwaves through America’s defense industry and the automotive business when it abruptly blocked magnet exports. Among their many uses, the auto industry needs rare earth magnets for alternators, sensors, motors, fuel pumps, transmission systems, entertainment systems, vehicle electronics, and exhaust systems. A typical EV uses between two and five kilograms of rare earth magnets. Ford was forced to shut down production for a week. German automakers warned of production lines coming to a standstill. German magnet maker Magnosphere CEO Frank Eckard: “The whole car industry is in full panic. They are willing to pay any price.” The message was abrupt and unmistakable: China holds the supply chain equivalent of nuclear weapons. Without magnets, American and European cars do not get built. America led the world In the 1980s, America utterly dominated the rare earth industry. Molycorp’s Mountain Pass mine in California supplied most of the world’s rare earths, while General Motors’ Magnequench subsidiary pioneered permanent magnet manufacturing. The United States controlled both the raw materials and the cutting-edge technology. China began flooding global markets with cheaper rare earths, subsidized by state investment and environmental externalization. American companies, focused on quarterly returns rather than strategic capabilities, found it easier to source from China than to compete. In 1985, the US controlled 60% of rare earth production and China just 30%. By 2024, China had achieved near-monopolistic control over the entire supply chain, from mining to processing to finished magnet manufacturing. China now controls 90% of global neodymium magnet production while the US produces a paltry 0.3%. https://newsletter.dunneinsights.com/p/america-leashed-up-by-chinese-magnets…