Highlights
- The 2027 DFARS ban prohibits any Chinese-origin rare earth materials in U.S. defense platforms, enforcing atom-level supply chain traceability across mining, separation, metal-making, and magnet manufacturing—with no announced delays despite expert skepticism.
- The Office of Strategic Capital has deployed over $700 million in loans to Vulcan Elements and ReElement Technologies, marking the largest U.S. investment in non-Chinese rare earth refining and magnet capacity in modern history, alongside Defense Production Act (DPA) grants exceeding $439 million.
- Major defense contractors, including Lockheed Martin, RTX, and Northrop Grumman, are rapidly qualifying U.S., Japanese, and Australian suppliers to replace Chinese sources for critical magnets used in F-35s (417-920 pounds of rare earth elements), submarines (approximately 9,200 pounds), and missile systems.
A fast, powerful tour through one of the biggest strategic pivots in modern defense procurement. Rare earth elements (REEs) are the hidden scaffolding of modern military power. From thrust-vectoring fighter jets to submarine sonar arrays, these 17 elements—especially the heavy rare earths dysprosium (Dy) and terbium (Tb)—enable performance no other materials can match. NdFeB permanent magnets doped with Dy/Tb make actuators, sensors, radars, electric drives, and missile guidance systems both powerful and heat-resilient.
Table of Contents
The numbers are reminders: an F-35 contains 417 to 920 pounds of rare earths, an Arleigh Burke destroyer uses ~5,200 lbs, and a Virginia-class submarine as much as ~9,200 lbs. Dy prevents magnets from demagnetizing inside a missile’s heat plume; Tb powers Terfenol-D used in high-power naval sonar; yttrium enables microwave filters and military lasers. Rare earths are the silent metal infrastructure of deterrence.
The China Problem: A Strategic Achilles’ Heel
For decades, China cornered the rare earthworld—mining, separation, metal-making, and magnetmanufacturing. Roughly 70% of U.S. rare earth imports and ~90% of global separation capacity run through China. Even “allied” producers historically relied on Chinese refineries.
This dependency hid inside Western defense procurement until crises exposed it:
- 2022 F-35 Halt — Deliveries stopped after a Chinese-sourced samarium-cobalt alloy was found in a Honeywell turbomachine magnet.
- 2010 Raytheon Tomahawk Crisis — China’s export squeeze tripled REE prices overnight, threatening missile actuator supply.
- 2025 Export Controls — Beijing imposed license requirements on seven critical REEs (Dy, Tb, Sm, Gd, Y, Sc, Lu) and on NdFeB magnets themselves.
These weren’t outright bans—they were choke points. By constraining export licenses, Beijing forced U.S. and European firms to scramble for alternatives in Japan, Korea, Malaysia, and elsewhere. Reuters reported that some avionics components are still sole-sourced from China. Automakers were hit within days; defense primes were insulated only by long lead-time inventories—and everyone knows that cushion is finite.
2027: The Legal Guillotine
Updated DFARS rules impose a strict two-stage ban:
- Through 2026: No Chinese-manufactured NdFeB or SmCo magnets in delivered platforms—even if the raw oxides came from China.
- Jan 1, 2027: No Chinese-origin material at any stage: mining, separation, metal, alloy, or magnet manufacturing.
This is effectively an atom-level traceability regime. Executives say they now track REE supply chains “to the atom,” meaning unprecedented upstream scrutiny. Many experts consider the 2027 deadline “nearly impossible” for heavy rare earths—yet DoD insists there will be no delay.
As Dura Magnetics reported (opens in a new tab) today China’s heavy rare earth export regime remains highly restrictive and unpredictable entering 2026, despite political signals suggesting potential easing. Since MOFCOM’s April 2025 Announcement No. 18 placed samarium, gadolinium, terbium, dysprosium, lutetium, scandium, yttrium, and all SmCo and Dy/Tb-bearing NdFeB magnets under non-automatic export licensing, review times have routinely exceeded 60–120+ days—with no statutory deadlines and many applications stuck in administrative limbo.
October 2025 updates further broadened controls to additional rare earths, processing equipment, and even foreign-made products containing Chinese-origin materials, increasing compliance complexity.
Although the November U.S.–China leadership meeting announced intentions to introduce a General License framework, no operational rules, customs guidance, or provincial procedures have been issued. Although today Rare Earth Exchanges reports MOFCOM’s announcement of adhering to the Sino-American recent agreement.
As of December 2025, only a small number of large multinationals receive case-by-case licenses for low-risk commercial shipments, while aerospace, sensor, and military-adjacent applications face near-automatic delays or denials.
Documentation requirements continue to rise—often demanding full value-chain transparency and authenticated end-use declarations. With continued uncertainty and prolonged approvals expected well into 2026, Dura Magnetics advises (opens in a new tab) customers to prepare for persistent bottlenecks, evaluate design alternatives where feasible, and anticipate that heavy-REE materials such as SmCo magnets and Dy/Tb-rich NdFeB will remain the most supply-constrained products in the global market.
How the West Is Rebuilding the Mine-to-Magnet Chain
1. DoD, DPA, and the Office of Strategic Capital (OSC) as Market Makers
Since 2020, the U.S. has moved from mere grant-maker to industrial architect.
Defense Production Act Investments (> $439M)
To credit President Trump, his administration has significantly intensified the push to rebuild the rare earth and critical mineral supply chains.
DoD has directly funded miners, refiners, and magnet producers:
- MP Materials — DoD equity stake (15%), a strategic NdPr price floor ($110/kg), and a 10-year offtake agreement funneling magnet output into U.S. industrial and defense channels.
- Lynas USA — DoD-backed light and heavy rare earth separation plant in Texas, operational in 2026.
Office of Strategic Capital (OSC): The Quiet Heavy Hitter
In 2024–2025, OSC—now functionally integrated under the newly restructured Department of War’s industrial base mandate—emerged as the single most powerful financing instrument in the U.S. rare earth supply chain.
Major OSC moves:
- $700M+ Loan announcement to Vulcan Elements and total over $850 million to the space.
Supports a U.S.-based rare earth separation and metal-making facility, including heavy rare earth capabilities essential for Dy/Tb supply. - At least $80 million of the above Loan Package to ReElement Technologies
Fuels scaling of solvent-free, modular rare earth separation and the buildout of U.S.-based magnet production using recycled and primary feedstocks.
Together, these OSC commitments represent ~$700 million—the largest U.S. investment in non-Chinese rare earth refining and magnet capacity in modern history. They complement DPA grants by providing the long-term patient capital needed to scale magnet-making to military volumes.
Note MP Materials, the Pentagon and Saudi Arabian company Maaden have formed a joint venture to build a rare-earth refinery in Saudi Arabia. The Pentagon will fund a 49% stake in the venture, while Maaden will hold at least 51%. The goal is to diversify the global supply chain for rare-earth elements, which are critical for defense, semiconductors, and other modern manufacturing.
Bottom line
OSC has quietly become the keystone institution accelerating U.S. REE independence.
2. Allied “Friendshoring”
Australia
Browns Range accelerating Dy/Tb output; Lynas expanding heavy REE capability. Note the Trump administration has inked an Australian-U.S. rare earth pact valued at an $8.5 billion pipeline of potential projects, with the U.S. committing over $3 billion in joint projects over six months and the Export-Import Bank (EXIM) providing over $2.2 billion in financing. The deal is a framework agreement aimed at strengthening critical mineral and rare earth supply chains to reduce dependence on China
Japan
Deep investor in Lynas; maintains a large national REE stockpile; hosts magnet makers (Proterial/Hitachi Metals now “Proterial,” Daido, Shin-Etsu).
Europe
Estonia’s Silmet growing; Sweden’s Kiruna deposit; EU Critical Raw Materials Act aiming for domestic 2030 capacity.
India
A ₹7280 crore (~$880M) magnet initiative aiming at 6,000 tpa capacity by 2030, targeting its current 95% dependence on China.
3. Stockpiles
U.S. National Defense Stockpile and EU proposals provide a backstop for 2026–2028—the most precarious years before new supply comes online.
4. Recycling & Substitution
U.S. Army/Navy recover REEs from actuators, radars, and legacy equipment.
Startups like USA Rare Earth, ReElement, and Cyclic Materials scale magnet-to-metal recycling.
Long-term R&D explores:
- reduced-Dy magnets
- Fe-N magnets
- eventual REE-free technologies
How Defense Giants Are Reacting — High Level Summary
Lockheed Martin
F-35, HIMARS, Javelin, satellites.
- Deep DoD collaboration since 2022 magnet incident.
- Upstream partnerships: aluminum-scandium alloys with NioCorp.
- Early beneficiary of MP Materials and U.S. magnet startups.
RTX (Raytheon Technologies)
Patriot/THAAD radars, Tomahawk, AMRAAM, P&W engines.
- Qualifying Japanese & U.S. magnet suppliers.
- Advocating stockpiles for radar-grade YIG/yttrium components.
- Managing inventories through 2025–26 restrictions.
Northrop Grumman
B-21, GBSD, satellites, naval systems.
- Aggressive supply-chain mapping.
- Exploring next-gen sensors to reduce REE dependence.
- Preparing stealth/ICBM lines for full 2027 compliance.
General Dynamics
Virginia-class submarines, Abrams tanks.
- Submarines: ~9,200 lbs of REEs per hull.
- U.S. Navy investments in Terfenol-D and SmCo motors directly support supply security.
Honeywell
Avionics, actuators, navigation units.
- Tightened supplier vetting post-2022 incident.
- Expected major buyer of new U.S. magnet capacity (VAC, Noveon, MP).
L3Harris
EW pods, targeting systems, radios.
- Replacing Chinese-sourced YIG components.
- Preparing alternative antenna and gimbal motor designs.
BAE Systems (UK)
Eurofighter, submarines, radars.
- Leading UK/EU magnet recycling.
- Likely sourcing from Japan/SE Asia until EU plants scale.
Thales (France)
Rafale radar, European sonar.
- Exploring Canadian REE inputs; working in EU consortia.
Safran (France)
Aerospace propulsion and avionics.
- Substituting NdFeB with SmCo in high-temp systems.
- Supporting France–Australia critical minerals cooperation.
Leonardo (Italy)
Helicopters, Eurofighter electronics.
- Engaged in EU materials security planning.
- Testing superconducting motors to reduce REE need.
Saab (Sweden)
Gripen fighter, EW, radar.
- Positioning for supply from the Kiruna REE deposit.
- Coordinating with U.S./EU suppliers for 2027 compliance.
Rheinmetall (Germany)
Armor, air defense, EW.
- Leveraging German REE recycling pilots and Vietnam sourcing.
- Aligning with EU 2030 magnet supply targets.
HAL & BEL (India)
Tejas jets, radars, sonar.
- Beneficiaries of India’s $880M magnet program.
- Priority access to IREL domestic REEs.
- Partnering with Australia, Vietnam, Japan.
China’s CSSC & CNNC
Defense internal supply chain is self-sufficient.
- Expanding domestic Terfenol-D and heavy REE alloy production.
- Using export controls as strategic leverage.
A Rare Earth Arms Race — And the West Is Finally Running
The rare earth dependency behind modern weaponry took decades to build—and only a crisis to expose. But 2025–2027 marks the most aggressive supply-chain realignment since the Cold War, thanks to the Trump administration's intensification of the effort. Note Rare Earth Exchanges has advocated for far more comprehensive industrial policy in this sector.
By 2026, U.S., Australian, Japanese, and European facilities should begin producing meaningful non-Chinese REE oxides and magnets.
By 2027, the legal guillotine drops: no Chinese-origin rare earth material can enter a U.S. defense platform. Rare Earth Exchanges has picked up chatter that the Pentagon will extend this date as needed.
Will enough supply exist?
- NdPr: Likely yes.
- Dy/Tb: Tighter—waivers may still be needed.
But the strategic direction is unambiguous
The era of China-dependent REEs is ending, it just might take longer than Washington touts. From the Rare Earth Exchanges assessment, we are easily several years away from true resilience, where at least 50% of underlying products will be developed in ex-China supply chains.
But the good news is that the U.S. now wields a combined industrial arsenal:
DPA grants + DFARS bans + OSC loans + allied offtakes + national stockpiles and other agencies such as DOC.
For the first time in 30 years, the West is forcing a structural unwind of China’s REE monopoly. It won’t be easy and definitely not painless—but it’s happening with speed, money, allies, and necessity.
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