Highlights
- China imposed new export licensing requirements on seven key rare earth elements, targeting U.S. industries and defense sectors as part of an escalating trade dispute.
- The export controls expose U.S. vulnerability in critical mineral supply chains, with nearly 78% of defense platforms relying on Chinese-processed rare earth elements.
- Potential long-term consequences include increased production costs, supply disruptions, and urgent calls for domestic rare earth processing and international collaboration.
China’s recent export controls on rare earth elements (REEs) – critical minerals used in defense systems, electric vehicles (EVs), and electronics – have raised alarms across U.S. industry and government. Beginning in early April 2025, the Chinese Ministry of Commerce (MOFCOM) imposed new licensing requirements on key rare earth exports as part of a broader response to U.S. trade measures, as reported by Rare Earth Exchanges (REEx). As the world’s dominant rare earth producer and supply chain monopolist, China’s policy shift is forcing U.S. defense contractors, automakers, and tech firms to confront potential supply disruptions and rising costs. Here, REEx summarizes the developments from April through Sunday, June 1, 2025, outlining the scope of the controls, official statements, and anticipated economic consequences, with an emphasis on the affected U.S. sectors.
New Export Controls: Scope and Specific Elements
On April 4, 2025, MOFCOM and China’s General Administration of Customs issued Announcement No. 18, implementing export controls on seven categories of medium and heavy rare earth elements as reported by REEx and others like the law firm of Holland & Knight (opens in a new tab). Exporters of these materials must now obtain government licenses to ship them abroad, effective immediately. The controlled list covers the following REEs (including their alloys, oxides, compounds, and mixtures):
| REE | Example of Uses |
|---|---|
| Samarium (Sm) | Samarium-cobalt magnet alloyshklaw.com (opens in a new tab) |
| Gadolinium (Gd) | Gd-Mg alloys, used in nuclear and imaging |
| Terbium (tb) | Used as a magnet additive for high-temperature stability |
| Dysprosium (Dy) | Critical for NdFeB magnets in EV motors and defense |
| Lutetium (Lu) | Niche uses in petroleum refining and detectors |
| Scandium (Sc) | Used in high-strength aluminum alloys (aerospace) |
| Yttrium (Y) | Used in lasers, radar, and EV battery phosphors |
Notably, these are heavy or medium REEs, for which China controls virtually all processing capacity – around 99% of global heavy REE refining, as REEx has reported and validated by consultancies such as CSIS (opens in a new tab).
Lighter rare earths like neodymium (Nd) were not subjected to new curbs, as their supply chains are somewhat more diversified. Chinese authorities justified the controls on national security and non-proliferation grounds, framing them as an effort to safeguard strategic resources. Under the new rules, even semi-processed products, such as rare earth permanent magnets, now require export licenses.
While this is not an outright export ban, the licensing system allows Beijing to “throttle” shipments by simply limiting or delaying the issuance of licenses. Industry experts note this echoes China’s 2010 rare earth embargo (during a diplomatic dispute with Japan) and reflects an ongoing strategy to leverage its mineral dominance in geopolitical disputes.
Retaliation Amid Trade Disputes
China’s rare earth controls came amid an escalating trade war with the United States. Just days before, U.S. President Donald Trump had announced steep tariff hikes (up to 54% and beyond) on Chinese goods. In response, Beijing unveiled a “sweeping” countermeasure package on April 4 that went beyond tariffs. This package includes the rare earth export licensing and restrictions on U.S. companies. According to Chinese Commerce Ministry statements, 12 U.S. companies were added to an export control list (barring them from obtaining Chinese dual-use goods) and six more were placed on an “unreliable entities” blacklist as tracked in western media (Reuters, (opens in a new tab) REEx, etc.) and China’s state sponsored media.
Most of these firms are defense contractors or suppliers to the U.S. government. Notably, the additions of unreliable entities, which included companies such as California-based drone maker Shield AI and aerospace contractor Sierra Nevada Corporation, were justified by Beijing, citing the firms’ arms sales and military links to Taiwan.
Chinese officials emphasized that only a “very small number” of foreign firms engaging in activities deemed harmful to China’s core interests were targeted, in an effort to reassure other multinational companies. However, even if these U.S. defense firms have limited direct business in China, the restrictions threaten to disrupt their supply chains. A recent example was when Chinese sanctions on U.S. drone-maker Skydio (opens in a new tab) quickly cut off its battery supplier in China, demonstrating the ripple effects on parts and components sourcing.
By mid-May, there were signs of temporary de-escalation on the company-specific measures. China’s Commerce Ministry stated that export curbs on 28 American companies would be put “on hold for 90 days,” and non-tariff actions against 17 U.S. entities on the unreliable list were paused. As we reported at REEx, however, Beijing did not pointfully lift the requirement for rare earth export licenses.
Those mineral controls remained firmly in place for all destinations, including the United States. This partial pullback was interpreted as a gesture to keep negotiation channels open – China suspended some punitive steps to facilitate trade talks, but kept its rare earth leverage intact. Indeed, on May 30, a Chinese Foreign Ministry spokesperson said Beijing is _“_ready to strengthen dialogue and cooperation… and committed to maintaining stability of global production and supply chains” in the context of export controls—see the Reuters (opens in a new tab) piece.
State media even suggested the government might relax rare earth curbs for certain foreign companies (e.g., Chinese and European chipmakers) following industry appeals about acute shortages.
Meanwhile, the U.S. government has been responding on multiple fronts. Citing the threat of a Chinese “chokehold” on critical minerals, the U.S. Department of Commerce in late April launched a formal Section 232 investigation into imports of critical minerals (including REEs) and U.S. dependency on foreign processing.
According to an entry from the U.S. Bureau of Industry and Security (opens in a new tab), Jeffrey Kessler (opens in a new tab) stated:
“The United States should not allow foreign adversaries to have a chokehold on critical inputs for our economy and defense industrial base. Under President Trump’s leadership, the Commerce Department will carefully assess the risks posed by external threats and supply chain vulnerabilities.”
According to U.S. media reports, Washington retaliated in kind to China’s mineral curbs by halting certain high-tech exports to China – for example, suspending sales of aircraft parts to China’s state-owned aerospace firm, COMAC. The rare earth dispute has thus become one facet of a broader tit-for-tat exchange affecting trade and national security.
Risks to U.S. Defense Contractors and National Security
China’s April 2025 export controls on heavy rare earth elements have exposed a critical weakness in the U.S. defense industrial base, which remains dangerously dependent on Chinese supply for key inputs in advanced military systems. Nearly 78% of U.S. defense platforms—from F-35 jets (920+ lbs REEs per unit) to Navy destroyers and submarines—rely on rare earths like dysprosium, terbium, samarium, yttrium, and scandium for mission-critical components such as precision-guided munitions, radar systems, and electric actuators.
With China controlling ~99% of global heavy REE refining, U.S. firms like Lockheed Martin, Raytheon, and Honeywell face rising costs, supply delays, and potential production halts as Beijing’s licensing regime injects uncertainty into global shipments.
Stockpiles offer only a short-term buffer, and the risk of bottlenecks to Pentagon programs grows with each passing week. Following earlier Chinese bans on gallium and germanium, which spiked defense component prices by 5.2% on average, analysts now warn this escalation could erode military readiness and force hard choices on materials and technologies, highlighting what CSIS and Defense One, along with REEx and a few others, suggest represents an apparent and mounting vulnerability.
Impact on Automotive and Clean Energy Sectors
China’s heavy rare earth export restrictions are rippling beyond defense, threatening core industries like electric vehicles, consumer electronics, clean energy, and semiconductors. Automakers, including Tesla and GM, rely on neodymium magnets alloyed with dysprosium and terbium, now under Chinese export license, for EV motors, steering systems, and brake components.
Without these heat-resistant additives, performance drops or less efficient designs follow. By late May, Indian automakers reported zero license approvals, triggering some chatter of production halts; European firms like Volkswagen received selective relief, exposing China’s ability to pick global winners and losers, also, the effort to divide and conquer traditional geopolitical allies.
U.S. manufacturers are also concerned about scandium, vital for lightweight aluminum chassis. Meanwhile, Apple, wind turbine producers, and chipmakers in India and Europe face cascading risks as rare earth-driven parts become scarce, potentially leading to delays or cost hikes. Beijing has acknowledged the strain, convened emergency talks, and hinted at selective easing, but the message is clear: global supply chains remain deeply exposed to China’s grip on critical minerals.
Economic and Geopolitical Fallout
China’s rare earth export curbs have underscored the strategic interdependence – and tension – between the world’s two largest economies. Market reactions to the April announcements were swift in the mining sector: shares of U.S.-aligned rare earth companies spiked on hopes of domestic development, while some reliant firms’ stocks fellreuters.com (opens in a new tab). For instance, on April 4, USA Rare Earth (developing a magnet plant in Oklahoma) saw its stock jump ~20%. In contrast, MP Materials, which operates the only U.S. rare earth mine but sends its output to China for processing, dropped over 10%. MP Materials stated that China’s move “reinforces what has long been clear: America must secure an end-to-end rare earth supply chain to protect its industrial and national security”. U.S. startups focusing on rare earth recycling have also been galvanized. The CEO of Phoenix Tailings, a company extracting REEs from electronic waste, said China’s restrictions are spurring them to “double down” on expanding domestic output. Though their target to reach 4,000 metric tons of annual production by 2027 still pales in comparison to Chinese output.
Economists and policy analysts suggest that in the near term, U.S. industries will face higher input costs and scramble for alternative suppliers. Japan, Australia, and others with rare earth projects may see increased demand, but scaling up supply outside China will take time.
Some Western nations have already initiated strategic stockpiling and subsidies for the development of rare earth elements. The U.S. Department of Defense has invested over $400 million since 2020 in rebuilding domestic rare earth element (REE) processing, including funding new separation facilities in California and magnet production in Texas. However, these efforts are in their infancy – even by the end of 2025, U.S. capacity to produce finished rare earth magnets will likely be under 1% of China’s output. In the meantime, industries must either absorb higher prices or pass them on to consumers and governments (e.g., pricier defense contracts or electric vehicles).
Geopolitically, China’s actions signal that Beijing is willing to use its dominance in critical materials as leverage in disputes with the United States. This “weaponization” of trade has prompted urgent conversations among U.S. allies and partners about securing supply chains. The episode may ultimately accelerate diversification: the European Union, for example, has been working on a Critical Raw Materials Act to lessen dependence on Chinese minerals.
India, in pursuit of its own rare earth resilient supply chain aspirations, is exploring joint ventures for rare earth processing to prevent future shutdowns. In the long run, China also risks pushing customers to develop new mines or recycling technologies that could erode its market share. But in the short run of 2025, China retains a powerful bargaining chip.
REEx spoke with an expert in this field who suggests the Trump administration is starting to get it. However, there are many moving parts, and partly, they may not want to disclose their understanding for obvious reasons.
As of today, June 1, 2025, China’s rare earth export license regime remains in effect without exemptions for U.S. destinations.
Last Thoughts
American investors, policy professionals, industry stakeholders, and others interested in this topic should note the scope of these controls, covering seven strategic elements, and their significance as both a supply chain disruptor and a geopolitical tool. Companies in the defense and automotive sectors, for example, are assessing their inventories and procurement strategies. At the same time, U.S. policymakers weigh options from diplomatic engagement to emergency stockpile releases or trade actions. Obviously, as reported here at REEx, the President initiated a 232 action to assess the situation.
The unfolding situation continues to evolve: any official lists, license approvals or denials, and bilateral negotiations in the coming weeks will be critical indicators of whether this rare earth squeeze is a short-lived tremor or a longer-term realignment of global supply chains.
Stakeholders are advised to stay informed through government and industry updates as this story unfolds, given its far-reaching implications for national security and economic stability. But understand, the U.S, with its current stance and approach, is not prepared to mitigate severe risk if these export controls persist for months.
At REEx, we believe the “short run” could last years, potentially half a decade, unless President Trump fully grasps the severity of the rare earth crisis and responds with the scale and urgency of an Operation Warp Speed-type scenario. What is needed now is a smart, coordinated industrial policy built on global collaboration, not isolation, and broad, yet provocative, tariffs. It’s OK to adjust, pivot, and embrace change as part of unfolding leadership. That’s in fact what leadership is partially all about—taking accountability and adjusting to move in the right strategic direction.
As REEx has urged, the U.S. should consider leading a trusted alliance—starting with Canada, Australia, the UK, South Korea, Japan, and the EU—to co-invest, co-develop, and secure critical mineral resilience before supply chains fracture beyond repair.
For daily updates in the rare earth element and critical mineral space, visit Rare Earth Exchanges (REEx) and visit the Forum. (opens in a new tab)
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