The Achilles heel of US manufacturing: McKinsey’s warning on rare earths grows louder

Thetis dipped her little son into the River Styx to make him immortal, holding him by the heel – the only place the water has never touched. Achilles grew to become the greatest warrior of his time, his armor impenetrable, his enemies routed. No one worried about the heel. Why would they? Everything else worked so well.

American industrial history follows the same arc. Decades of semiconductor leadership, unrivaled aerospace manufacturing, the most sophisticated defense supply chain in history – and, beneath it all, a single exposed tendon. Rare earths: the 17 chemically similar elements that efficiently spin electric motors, that keep missile guide fins steady at supersonic speeds, that are inside every F-35, every EV drivetrain, every wind turbine nacelle. For years, no one really cared about them. Everything else worked so well.

Analysts at McKinsey & Company have spent the last few years tracing the contours of the wound. The company projects a deficit of up to 30% of the world’s supply of magnetic rare earths by 2035 – unless China significantly increases its production or the rest of the world sharply accelerates its production. For dysprosium and terbium, the heavy rare earths that prevent magnets from demagnetizing inside electric motors and missile guide fins, the numbers are worse: producers outside China are expected to meet less than 20% of global demand for these two elements by 2035. Similar estimates come from CRU Group And Reference mineral intelligence.

The river used by Thetis was not magical. It was a strategy.

How China came to dominate

Rare earths are not particularly rare in the Earth’s crust – the name is a misnomer. What makes them irreplaceable is that it is almost impossible to cleanly separate them from each other and from the surrounding rock. The chemistry required is toxic, expensive and technically demanding. China did not win the race for rare earths by owning more land. She won by mastering refining – and by deciding, decades ago, that she wanted it.

This decision had a name. President Xi Jinping’s doctrine of “dual circulation” – making the world dependent on China while insulating China from dependence on anyone else – found proof of concept in rare earths and permanent magnets long before it became official policy. “They didn’t fall into that”, economist Soumaya Keynes said Fortune earlier this month. “They discovered these supply chains. They had a strategy to become the world leader.”

Keynes and his co-author Chad Bownsenior fellow at the Peterson Institute for International Economics, defends this view in How to win a trade wartheir new book published this spring. While America was fortifying everything else, China was studying the heel.

Achilles still went into battle. American industry too.

For a generation, Washington applied a version of Achilles’ logic: the armor was good enough. The United States invested billions in the CHIPS Act to boost domestic semiconductor production, but never required anyone to actually buy the chips. “They didn’t force anyone else to buy the chips that Intel was going to make,” Keynes said. “And that was a problem.” The history of rare earths is a repetition of this structural failure, with higher strategic stakes: the supply financed, the demand assumed, the complete chain never closed.

“Significant diversification will take longer than expected” Michel Van Hoeythe McKinsey senior partner who leads the firm’s metals and mining practice, told Bloomberg earlier this month.

Any nascent U.S. rare earth industry is small enough that Beijing can simply flood the market with cheap materials and wait for the small player to give up. This tactic ended Molycorp – once the great hope for American rare earth independence – whose Mountain Pass mine filed for bankruptcy in 2015 before the Pentagon fully realized what it had lost. Chinese rare earth producers, many of which are state-owned companies, are not maximizing their quarterly returns. They achieve national goals.

“These companies are not just maximizing profits,” Bown said. Fortune. “They are achieving other goals in the name of the Chinese government.” Achilles had enemies who studied him. America has a rival who has studied the supply chain.

Washington is finally moving

Then came the arrow.

China controls about 70% of global rare earth mining and nearly 90% of refining and processing capacities – the choke point that really matters. When Beijing imposed export controls on samarium, dysprosium and terbium in retaliation for tariffs imposed by President Trump last year, U.S. automakers warned they would be weeks away from shutting down their production lines. A November truce loosened the tap, but only partly. New restrictions targeting Japan in early 2026, after Japanese Prime Minister Sanae Takaichi’s remarks on Taiwan, have caused another jolt to the supply chains of the magnets that power everything from F-35s to the Ford F-150 Lightning. The arrow, when it finally arrived, went exactly where everyone had said not to worry.

Mining veteran Mick McMullen made it clear Fortune at a critical minerals forum in Singapore in March: “Obviously China is the leader, and the United States is way behind. It’s kind of amazing that it’s taken this long for everyone to realize that maybe we should have some of these things in-house.”

Achilles, in the end, tried to continue fighting.

Washington began to act – aggressively, by its own standards. The Ministry of Defense is now the first shareholder of MP Materialsoperator of the only active American rare earth mine at Mountain Pass – the same California site abandoned by Molycorp. The administration signed a $8.5 billion rare earths pact with Australia in October, concluded agreements with Malaysia And Thailandand is would have weighed redirecting $2 billion in CHIPS Act funds to minerals. Trump expanded CHIPS Act tax credits from 25% to 35% and took stakes in private companies, including Intel — a patchwork industrial strategy that Keynes and Bown describe as real, but overdue.

The problem is what it always has been: time. Mining the ore is the easy part. The supply chain extends from mine to crusher, leach tanks, solvent extraction columns, metal reduction furnaces and sinter presses – each a separate facility, a separate specialized workforce, a separate financial cycle. The United States is, at best, only two or three steps along. “We do not live in a perfect world,” Keynes said. Countries must use “imperfect tools” to protect their interests and manage the consequences as best they can. The question is whether Washington will deploy them quickly enough — or whether, as Keynes said, “we’re going to be in this for a long, long time.”

McMullen said Fortune he doubts the gap can be closed within a single administration.
Of course, the myth ends on the battlefield. Achilles does not die because the arrow is powerful. He dies because the Heel was still there, and finally, someone with enough patience took aim at him.

Beijing has been patient.

For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing it.