Highlights
- China dominates 99% of heavy rare earth production, maintaining a strategic chokehold over global technology and defense supply chains.
- The U.S. defense sector faces a 2027 deadline to eliminate Chinese rare earth magnet dependencies, with limited domestic production capabilities.
- Current political ‘deals’ with China provide minimal relief, forcing industries to pursue technological redesign and alternative supply strategies.
Despite optimistic assurances that the United States has struck a “great deal” to secure rare earth supplies from China, the reality on the ground tells a different story. American industry and defense remain deeply dependent on Chinese heavy rare earth elements – a dependency not easily unwound by political proclamations. Top experts, speaking on condition of anonymity, caution that recent deal-making has done little to loosen China’s stranglehold. “We’re just as stuck on China as before,” one industry insider told Rare Earth Exchanges. This investigative look reveals why the U.S. finds itself at an inflection point: grappling with China’s near-monopoly on critical materials, a looming 2027 defense deadline, and a race to redesign technology or rebuild supply chains before time runs out.
China’s Near-Monopoly from Mine to Magnet
China dominates every stage of rare earth production – from mining the raw ore to refining it into oxides and manufacturing finished components, such as powerful permanent magnets. Beijing’s grip is especially tight on heavy rare earth elements (HREEs), such as dysprosium, terbium, and samarium, which are crucial for high-tech and military applications. Until as recently as 2023, China was producing 99% of the world’s heavy rare earths, along with about 90% of all rare earth magnets. This dominance has created a strategic chokehold: if Beijing cuts off exports, the impact on U.S. industries would be crippling. Currently, no commercial heavy rare earth separation capacity exists in the United States, forcing American firms to rely on Chinese or foreign processors for the HREEs needed in everything from missile guidance systems to the lasers and sensors in advanced aircraft.
It’s not just about magnets. Heavy rare earths have diverse specialized uses – yttrium in laser targeting and optics, gadolinium in radar and imaging systems, erbium in fiber-optic communications, to name a few. When the Trump administration launched new trade measures, China retaliated by restricting the exports of seven heavy rare earth elements, which are vital for manufacturing advanced semiconductors and other aerospace and defense technologies. This underscored how decoupling from China is exceedingly difficult: in the short term, the U.S. has no domestic substitute for China’s rare earth supply chain, especially for the heavier elements. Even countries with rich, rare earth deposits must send ore to China for refining, as Beijing controls most of the refining know-how and equipment needed to separate HREEs at scale.
A ‘Great Deal’ with China – Or a False Sense of Security?
Against this backdrop, former President Donald Trump has touted a new trade “framework” with China as a breakthrough on rare earth access. “Our deal with China is done, subject to final approval from President Xi and me,” Trump announced on social media, declaring that “FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA.”
In reality, however, the June 11 agreement that U.S. and Chinese negotiators reached in London appears far less sweeping than advertised. Reports indicate the deal’s provisions expire after just six months, and crucially, Chinese officials did not agree to lift all export curbs on the most sensitive materials.
According to Reuters, Beijing left key national-security restrictions untouched – declining to guarantee export licenses for certain specialized rare earth magnets needed in U.S. fighter jets and missile systems. While China did promise to fast-track some export license approvals, these apply only to civilian manufacturers and come with six-month term limits. In other words, the U.S. still isn’t getting any Chinese rare earths for defense purposes, and even civilian-use licenses are temporary measures.
Critical military-grade elements, such as samarium (used in radar-resistant SmCo magnets for F-35 fighters), remain outside the fast-track deal. “China has given up so little,” one observer noted dryly, describing the pact as a far cry from Trump’s triumphal rhetoric as cited in Mining.com piece (opens in a new tab).
Indeed, the agreement failed to unlock Chinese exports of specialized magnets needed for Lockheed Martin’s production, raising concern that F-35 jet inventories could soon face shortages reported (opens in a new tab) Rick Mills at Mining.com.
The net effect is that U.S. defense and high-tech industries are nearly as vulnerable as before – only now with a brief reprieve that could lull some into complacency.
Industry experts privately tell Rare Earth Exchanges (REEx) that such political proclamations may actually be counterproductive. By suggesting a “great deal” is in place, leaders risk diffusing the sense of urgency needed to tackle the underlying supply chain weaknesses. “We do not [have a secure supply]; we are just as stuck on China as before,” warns one veteran consultant. The hard truth, they say, is that China still controls the upstream, midstream, and downstream of the heavy rare earth market – from the raw oxides to the alloys, magnets, and even many of the components and assemblies that rely on them.
Heavy Elements, Heavy Dependence
The heavy rare earth elements, also known as “heavies,” are especially pivotal because they enable performance that lighter elements cannot. For example, the neodymium-iron-boron (NdFeB) magnets widely used in electric vehicles and precision munitions need dysprosium or terbium additives to withstand high temperatures. Yet those two additives are essentially a Chinese monopoly: China controls nearly 100% of the global dysprosium and terbium supply. In a telling move this year, Beijing added dysprosium and terbium to its export control list while deliberately leaving neodymium unrestricted, knowing that neodymium from other countries is of limited use without the heat-resistant heavy elements that only China can readily provide. This strategy underscores how Beijing can weaponize its dominance. During a 2010 diplomatic spat, China’s rare earth embargo sent prices skyrocketing tenfold, bringing Japan’s auto industry to the brink of collapse. The lesson was clear, but only partly heeded in the West: China holds the cards and can play them at will.
Even beyond magnets, China maintains tight control over heavy rare earths used in other high-tech applications. Erbium, ytterbium, and holmium – heavy elements used in lasers, fiber-optic amplifiers, and stealth technologies – are predominantly refined in China. Yttrium, essential for certain jet engine alloys and night-vision devices, comes largely from Chinese mines. Western dependence on these niche materials often flies under the radar, but it’s just as real. As one recent analysis noted, rare earths make up a tiny fraction of China’s export revenue, yet can inflict outsized pain on importers when curtailed, cites CEPA (opens in a new tab). Beijing thus suffers little economic damage from pulling this supply lever, while countries like the U.S. scramble to keep factories open.
Redesigning and Rethinking the Supply Chain
With China’s dominance facing growing scrutiny, Western companies have started pursuing two broad strategies: redesigning products to need fewer rare earths and investing in non-Chinese supply chains. On the demand side, some manufacturers are attempting to circumvent the problem. The last time China choked off rare earth exports in 2010, a few automakers responded by reducing or eliminating the use of rare earth magnets in their electric motors. For instance, per Reuters entry (opens in a new tab), Nissan’s 2012 LEAF EV motor used 40% less dysprosium than its predecessor, and Renault developed a motor with no rare earth magnets at all for its ZOE model that year.
These rare-earth-free designs briefly gained traction – by 2017, about 12% of EVs sold featured motors that avoided rare earth magnets. However, when rare earth prices stabilized in the late 2010s, cost considerations drove most manufacturers back to the high-performance magnets containing neodymium and dysprosium. Today, roughly 97% of new EVs rely on rare-earth permanent magnet motors once again.
Now history may be repeating. China’s latest export curbs have thrown automakers and electronics firms into “full panic mode,” as several were forced to halt production lines this year due to material shortages. This is prompting a renewed push to “demand destruction” – i.e., reducing the need for Chinese materials. Companies like BMW have been developing alternative magnet-free electric drivetrains, and many others are now accelerating R&D in rare-earth-free technologies.
In some cases, substitute materials (such as ferrite magnets or newer alloys) can partially replace rare earth magnets, albeit at the cost of size or efficiency. In other cases, whole systems are being reimagined – for example, using electromagnetic actuators or different motor designs that don’t require neodymium magnets. Redesigning components and assemblies is not a quick or easy fix, but it offers one path to reduce vulnerability. As a Reuters analyst observed, engineered demand reduction may occur more quickly than attempting to build a completely new supply chain overnight. China’s willingness to “weaponize” its mineral dominance is serving as a powerful incentive for Western firms to innovate their way out of dependence.
A Looming 2027 Deadline for Defense
While industry scrambles to adapt, the clock is ticking for the U.S. defense sector. Under a new federal mandate, by January 1, 2027, U.S. defense contractors will no longer be allowed to source rare earth magnets from China (nor from other adversaries like Russia, Iran, or North Korea) as cited by Rare Earth Exchanges. This Defense Federal Acquisition Regulation Supplement (opens in a new tab) (DFARS) rule was adopted to combat China’s near-monopoly and bolster supply chain security, as we reported here at Rare Earth Exchanges.
It specifically covers samarium-cobalt and neodymium-iron-boron magnets, which are ubiquitous in military systems – from fighter jet engines to missile fins – as well as certain restricted metals, such as tungsten and tantalum. See Rare Earth Exchanges. The Pentagon has accordingly set an ambitious goal: by 2027, establish a fully integrated “mine-to-magnet” rare earth supply chain capable of meeting all U.S. defense needs. Over the past five years, the Department of Defense (DoD) has invested approximately $440 million in rare earth projects utilizing Defense Production Act authorities and other funding sources.
This includes grants to MP Materials (owner of America’s only active rare earth mine, Mountain Pass in California) to build new separation and magnet facilities, and support for Australia’s Lynas Corp. to erect a heavy rare earth refinery in Texas. Progress is being made – for example, MP Materials has begun producing small quantities of NdPr (neodymium-praseodymium) metal and magnets at a new facility in Fort Worth, TX. And in May, Lynas’s Malaysian plant produced its first batch of dysprosium and was expecting to refine terbium imminently. But these efforts start from a very low base. MP’s planned output of 1,000 tonnes of magnets per year pales in comparison to China’s estimated 300,000 tonnes of annual NdFeB magnet production. In fact, Mountain Pass mine yields primarily light rare earths like neodymium and has “virtually no rare earths needed for defense” in significant quantity. However, the company did recently announce a breakthrough.
The heavy rare earth feedstock still has to be imported or sourced from allies.
As Rare Earth Exchanges reported at the end of 2024, the defense industry is not yet fully prepared for the 2027 sourcing ban rareearthexchanges.com. Many contractors may not be ready in time despite some leading firms making progress.
Significant hurdles remain, including scaling up domestic production, qualifying new suppliers, and overcoming technical challenges in refining. Multiple experts in the field (who requested anonymity) suggested that defense is lagging behind even the auto industry in developing alternative sources and substitutes. The bottom line: achieving complete independence from China’s rare earths by 2027 is a monumental challenge, suggests this media.
It will likely require both faster development of homegrown supply chains and aggressive adoption of material substitutes or recycling to reduce fresh demand.
Why Building Resilient Supply Chains Is So Hard
If the need for non-Chinese rare earths is so dire, why hasn’t more money flowed into new mines, separation plants, and magnet factories outside China? The answer comes down to economics and strategy. China’s long-running dominance means it can undercut any potential competitor on price, discouraging private investment. As Lynas CEO Amanda Lacaze observed in a recent Time piece (opens in a new tab), global buyers benchmark prices to China – and most customers won’t pay a premium for non-Chinese rare earth products.
This makes it extremely hard for new entrants to turn a profit. Moreover, Beijing has shown a willingness to flood the market and depress prices whenever a rival supplier emerges, effectively pricing them out and absorbing short-term losses to maintain long-term control. “China just opens the spigot” on its vast processing capacity to squash competition, a dynamic seen in other critical minerals markets as well reported (opens in a new tab) Charlie Campbell at Time.
This price suppression strategy has been honed over decades. In the 1990s and 2000s, Chinese rare earth producers – buoyed by state subsidies and lax environmental regulations – drove prices so low that mines elsewhere, such as Mountain Pass, could not compete and shut down. Even today, neodymium oxide prices have fallen to about $60 per kilogram – roughly half of what they cost in 2023 – undercutting the business case for new suppliers. Investors fear that any rare earth project outside China could be rendered unviable if China decides to oversupply the market. This market volatility, combined with the long lead times for new projects (often 5-10 years from discovery to production), has led to chronic underinvestment in non-Chinese supply.
Government support can help, but so far it has been piecemeal. The U.S. has funded a handful of projects (as noted, ~$440M in recent years) and introduced tax credits for critical minerals. Allies like the EU, Japan, and Australia are collaborating on supply chain initiatives.
Yet experts say the scale of investment needed is far greater – on the order of tens of billions globally – and the efforts lack coordination. One analysis by the International Energy Agency estimates that the world may need between $600 billion and $2 trillion in mineral investment by 2040 to meet demand for clean energy and technology, a figure that dwarfs current commitments. “The government market alone is insufficient to support a financially healthy rare earth industry,” a Defense Department resilience official warned, calling for more coordinated policies and incentives, reports Moshe Schwartz at National Defense (opens in a new tab).
So far, a “Big Beautiful Bill” – a massive federal program to underwrite rare earth supply for national security – has not materialized. Yes, some components are helping mostly upstream in the imminent Big Beautiful Bill, which is close to Senate approval (see Rare Earth Exchanges), but without loan guarantees, purchase agreements, or insurance against Chinese price retaliation, private financiers remain skittish.
Supply Chain Risks and the National Security Implications
The Pentagon and defense contractors find themselves in a precarious position: responsible for delivering cutting-edge weaponry, yet lacking control over the supply chains for many critical inputs. Major defense primes like Raytheon, Northrop Grumman, and Lockheed Martin typically do not purchase rare earth magnets directly; instead, they buy sub-components (motors, sensors, guidance systems) from lower-tier suppliers, as insiders on condition of anonymity have informed Rare Earth Exchanges.
Those sub-suppliers, in turn, source magnets and materials on the open market, which, inevitably, leads back to China in most cases. This multi-tiered supply chain means prime contractors often lack visibility into the origin of the rare earths in their systems—a reality verified by trade press such as National Defense Magazine (opens in a new tab).
It wasn’t until a magnet made in China was discovered in the F-35’s engine in 2022 that many realized the extent to which Chinese materials had infiltrated defense platforms. New regulations will require full provenance tracking, down to the mine level, for all defense-related rare earth magnets by 2027, as cited above; however, meeting that standard is uncharted territory. Each tier of suppliers will need to certify compliance, and qualifying new non-Chinese suppliers for military-grade materials is a lengthy process.
Workshop discussions within the defense industry have highlighted serious concerns. One challenge is that heavy rare earth oxide production (for dysprosium, etc.) is still not complete outside China, and economically viable metal-making capacity for alloys is lacking (opens in a new tab).
Another issue is that current regulations are complex and sometimes inconsistent, creating confusion about what is permissible. Defense firms worry that if they unknowingly ship a system containing a single non-compliant magnet, the Pentagon could refuse delivery, causing costly delays. This risk of business disruption is itself a disincentive for smaller contractors to experiment with new suppliers. Many stakeholders are calling for more precise guidance – perhaps a government-approved whitelist of magnet vendors – and for the DoD to take a more direct role in qualifying and funding new entrants in the rare earth supply chain. Without such measures, industry insiders caution, the 2027 ban could arrive before a robust alternative supply network is in place.
Final Thoughts: An Inflection Point
The rare earths saga has brought the U.S. to a pivotal crossroads. On one side lies continued dependence on an authoritarian and increasingly competitive rival that has shown its willingness to weaponize supply chains for political gain. On the other side lies a hard-fought path to diversification – whether by redesigning technologies to need fewer rare earths or by rebuilding the entire supply chain through domestic production and allied partnerships. Rare Earth Exchanges has emphasized the latter: the need for tight allied partnerships with support in the form of industrial policy.
Currently, America is straddling the divide: making some progress, but not enough; setting bold goals, but not yet achieving them. The gap between rhetoric and reality remains wide, and POTUS’ repeated declarations that “we have a deal with China” do not help the deeper, more endemic concerns.
The coming few years will test whether the U.S. can muster the political will, investment, and innovation required to escape the rare earth paradox.
If Washington takes more decisive action – coordinating large-scale funding, instituting offtake guarantees for new producers, and expediting permits in a coordinated manner— with a Critical Minerals Czar at the helm, the needle could move toward supply chain resilience within a decade.
Likewise, if industry doubles down on engineering ingenuity to eliminate single points of failure (for example, magnets that work without Chinese materials), that too could reduce the leverage of any one supplier. Albeit it will take serious investment, time, and persistence. Thus far, however, the U.S. response has been cautious and fragmented. At the same time, China continues to press forward aggressively, advancing its “Two Rare Earth Bases” strategy as part of a larger national agenda for ascendancy.
As Rare Earth Exchanges has previously reported, Beijing’s rare earth dominance at the midstream and downstream levels is not an end in itself, but a pillar of a broader, multi-phase ascent. This includes long-term ambitions to control not only global technology supply chains but also the infrastructure for cross-border digital trade, potentially culminating in central oversight of international digital currency flows by the early 2030s.
Time is short. The January 2027 deadline looms like a challenge to America’s industrial base: to become self-reliant in rare earths, or risk finding out the hard way that today’s “great deal” was only an illusion. A convenient one to position one’s party for the mid-terms, and then kick the rare earth can down the road again.
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