Highlights

• China dominates 98-99% of heavy rare earth processing, creating a strategic vulnerability for U.S. defense systems.
• The Pentagon aims to eliminate Chinese rare earth dependencies by 2027, but currently lacks independent supply chains for critical minerals.
• U.S. defense contractors will likely require numerous waivers to maintain production, as domestic rare earth capabilities remain insufficient.

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Workers in China transport soil rich in rare-earth elements for export – illustrating how Beijing dominates the upstream supply. Nearly 90–99% of heavy rare earth processing is done in China, a chokehold that U.S. defense supply chains are struggling to break.

An Ambitious Ban Faces a Hard Reality

In the U.S. 2023 defense authorization, lawmakers set a January 1, 2027 deadline after which no Chinese-origin rare earth metals or magnets may be used in American weapons systems. This sweeping rule (10 U.S.C. §4872, implemented via DFARS 252.225-7052) was forged in response to alarm over dependency on China. A big wakeup call came in 2022 when investigators discovered a Chinese-made samarium-cobalt magnet inside an F-35 fighter’s engine, prompting a temporary delivery halt.

Although the part posed no immediate security risk, its mere presence violated procurement laws and forced the Pentagon to issue a national security waiver so production could resume. (Notably, this wasn’t the first such exception – other Chinese magnets in the F-35 had been quietly waived by officials in the past.) The incident underscored the Pentagon’s uncomfortable reliance on adversary-controlled materials. As one congressional aide put it, it was a Sputnik moment – a stark realization that even America’s most advanced fighter was tethered to Chinese supply.

With the clock ticking toward 2027, defense contractors face intense pressure to purge Chinese rare earth content. Fighter jets, missiles, warships, and satellites all contain specialized rare-earth magnets and components that today are largely made in or sourced from China. The ban’s intent is to sever this dependency in the name of national security. In practice, however, it poses a monumental challenge.

The U.S. and allied nations currently lack an independent supply chain for the most critical heavy rare earth elements needed in defense applications. While light rare earths like neodymium and praseodymium (used in standard NdFeB magnets) are being mined and refined in larger volumes outside China, the heavy rare earth elements (HREEs) – notably dysprosium (Dy) and terbium (Tb) – remain almost entirely Chinese-controlled from mine to magnet. As of mid-2025, China (often using feedstock from Myanmar) provides nearly 100% of the world’s separated Dy and Tb supply that militaries rely on. The U.S. Department of Defense itself has warned that such foreign reliance “poses a risk to national security”.

Heavy Rare Earths: China’s Near-Monopoly

HREEs like Dy and Tb are critical because they enable magnets to retain strength at high temperatures – essential for jet engines, precision-guided munitions, and other defense systems. Yet these elements are geologically scarce and environmentally tricky to mine. For decades, China invested in the messy business of mining and refining heavy rare earths while other countries ceded the arena. The result is a near-monopoly: roughly 98–99% of global heavy rare earth processing happens in China today. Even “ally” sources depend on China – for example, Australia’s Lynas Corp produces a small amount of dysprosium and terbium, but until this year all of it had to be sent to China for final separation. (In 2025, Lynas’s Malaysia plant became the first outside-China facility to separate Dy/Tb oxide at commercial scale, albeit only up to ~1,500 tons/year – a drop in the bucket of global needs.)

Apart from this, no other Western supplier currently produces separated heavy rare earths; every other mine or pilot project either exports ore to China or remains years from operation. The Pentagon’s own flagship rare earth venture, MP Materials’ Mountain Pass mine in California, illustrates the gap: it produces plenty of light rare earth concentrate, but zero dysprosium or terbium oxide at present. Although a recent announcement and a DoD grant point to a future with that capacity. MP is building new refining capacity and a magnet factory with DoD support, but its heavy rare earth output will be “token” unless it secures new feedstock. Indeed, as MP’s CEO admitted, China still dominates heavy REE separation, and the company must work “expeditiously” to close that gap.

This deep reliance on China’s heavy REEs is a strategic vulnerability.

It means defense contractors often have no choice but to use Chinese-origin material today, despite the looming ban. Every American fighter jet, ship, and armored vehicle contains numerous rare-earth components. (For perspective, an F-35 jet contains around 920 pounds of rare earth elements, a single Arleigh Burke-class destroyer over 5,200 lb., and a Virginia-class submarine about 9,200 lb.) Many of those are heavy, rare-earth-dependent magnets or alloys.

If Beijing were to cut off the supply, the impact on U.S. defense production would be dramatic. This is not a hypothetical worry: Beijing has already tightened the noose. In April 2025, China’s government imposed new export licensing controls on heavy rare earth oxides (Dy, Tb, etc.) and high-performance magnets, explicitly targeting materials used in defense. Exports didn’t stop outright, but Chinese officials drastically slowed approvals. Western companies suddenly found themselves waiting on Chinese bureaucrats to ship crucial inputs.

According to one analysis, by mid-2025, only ~25% of license applications for rare earth exports had been approved, causing acute shortages in manufacturing. Global stockpiles of Dy/Tb began running down fast.

Defense Supply Chain Strains and Real-World Examples

Recent incidents lay bare how fragile the situation is. In the fall of 2022, the F-35 fighter program was jolted by the discovery of that Chinese-alloy magnet in its engine, as noted earlier. Deliveries of the $80 million jets were frozen until a workaround was found. Ultimately, the Pentagon granted a waiver deeming acceptance of the Chinese part “necessary for national security” – implicitly acknowledging no ready alternative existed. And the F-35 is just one platform.

A Govini analysis in 2024 found over 80,000 individual parts across U.S. defense systems depend on minerals now subject to Chinese export controls. These range from missile guidance systems to night-vision devices. When China tightened its rare earth export permits this year, the effects rippled through the defense industry: for example, American drone manufacturers experienced weeks-long delays due to suddenly inaccessible magnet materials. (As one U.S. Air Force veteran grimly quipped, “No minerals, no missiles”.)

Beyond single parts, entire programs could face disruption if the Chinese spigot turns off. During the summer of 2025, Chinese rare earth curbs became a major sticking point in U.S.-China trade talks. In May, emergency negotiations in Geneva produced a tentative truce where China agreed to ease restrictions and grant export licenses in exchange for tariff concessions. But almost immediately, U.S. officials accused Beijing of backtracking as Chinese authorities dragged their feet – U.S. manufacturers even shut down some production lines for lack of rare earth supplies.

Tensions escalated until a high-level meeting in London in June 2025 led to a new framework: China pledged to resume shipments of rare earth elements and magnets after two months of severe export clampdowns that had “disrupted key inputs for the automotive, robotics, and defense sectors,” underscoring the severity of Beijing’s chokehold. This crisis required direct intervention by top U.S. officials (including the Treasury and Commerce secretaries) to get Chinese rare earth exports flowing again. In short, the Pentagon has seen first-hand that its supply chain can be kneecapped by geopolitical decisions outside its control.

Rebuilding Supply Chains: Progress and Obstacles

Facing this reality, the U.S. government has launched a multi-front effort to rebuild a rare earth supply chain at home or with allies. Since 2020, the Department of Defense has pumped hundreds of millions of dollars into projects under the Defense Production Act to boost mining, refining, and magnet production domestically. In 2023–2025, this industrial policy accelerated: the Pentagon took a 15% equity stake in MP Materials and financed its Texas magnet factory and upcoming heavy-REE separation facility. It is funding Lynas Corp to build a heavy rare earth separation plant in Texas as well, and supporting emerging players like USA Rare Earth (Oklahoma) and Ucore (Louisiana) in establishing non-Chinese refining capacity. The U.S. and allied governments (Australia, EU, Japan, etc.) are also investing in “friendshoring” projects – from new mines in Vietnam and Africa to magnet recycling initiatives – to diversify supply. Officials insist that a secure mine-to-magnet supply chain can be in place by the 2026–2027 timeframe. For example, a Defense Department deputy assistant secretary stated in 2024 that “we are on track to meet our goal of a sustainable, mine-to-magnet supply chain … by 2027”.

On paper, these initiatives are significant. In practice, they may not scale fast enough, especially for heavy REEs. Building rare earth mines and processing plants is a capital-intensive, multi-year endeavor with many risks (permitting, technical hurdles, etc.). Even optimistic scenarios show a gap. MP Materials aims to produce 10,000 tonnes of magnets annually by 2028 – a huge increase, yet that would only satisfy roughly half of projected U.S. demand for NdFeB magnets, and most of MP’s feedstock is rich in light elements, not heavy Dy/Tb. Lynas’s new capacity will likewise add only a few hundred tons of Dy/Tb output in the near term.

Meanwhile, China’s dominance persists: as of 2025, Western defense suppliers remain “heavily dependent on Chinese HREE processing, particularly for defense-critical elements like dysprosium and terbium,” one review concluded. Industry experts warn that unless massive new sources come online, terbium and dysprosium will remain critical choke points well into the late 2020s. Even the Pentagon acknowledges a safety valve will be needed. The 2027 ban legislation allows waivers if no viable non-Chinese source exists, and officials concede some exemptions may be unavoidable in the short run. In truth, many analysts expect “nothing but exceptions” at first – otherwise, key defense programs could grind to a halt.

Conclusion: Brace for Lots of Exceptions in 2027

The Pentagon’s rare earth ultimatum draws a bold line: after 2026, Chinese materials are officially verboten in U.S. defense equipment. In reality, meeting that deadline will be extraordinarily difficult, especially for the heavy rare earths that China so thoroughly dominates. The years since 2023 have only reinforced how intractable this dependency is. Chinese export curbs and political brinksmanship have already caused factory shutdowns and schedule slips, revealing that Western militaries currently have no easy substitute for China’s rare earth supply. Yes, unprecedented investments are underway to stand up new mines, separation plants, and magnet factories in America and allied countries. In time, these will yield a more secure supply chain – but time is the operative challenge.

By the start of 2027, the non-Chinese capacity for heavy rare earths will likely still fall far short of demand. Unless something changes dramatically, the Pentagon and its contractors will face a stark choice: grant broad waivers to keep critical programs running, or risk delays and shortfalls in everything from fighter jets to missiles. Policymakers appear prepared to fudge the deadline if needed – better to grant case-by-case exceptions than to let assembly lines stop.

In sum, the U.S. defense sector is caught in a classic “last mile” quandary. The strategic imperative to eliminate Chinese rare earth dependence is clear and urgent. But the physical reality of supply chains makes a 2027 divorce all but impossible without interim reliance on the very source being phased out. Until new mines are producing and new separation facilities are fully online, Beijing’s grip on heavy rare earths remains the proverbial single point of failure for advanced Western weapons.

The Pentagon’s ban, while well-intentioned, is colliding with the fact that you cannot build a fighter jet or missile out of good intentions alone. As one defense insider wryly observed, “No minerals, no missiles” – and for now, a lot of those minerals still come from China. The next few years will determine whether American reindustrialization can catch up, or whether national security will continue to hinge on Chinese rare earths – with workarounds and waivers bridging the gap past 2027. The odds are high there will be a lot of proposed exceptions to the new rule.