English
China's October 2025 export controls on rare earth elements and permanent magnets—including the unprecedented application of the foreign direct product rule (FDPR)—have created a critical vulnerability for Western defense programs such as the F-35 fighter jet, Virginia-class submarines, and advanced missile systems. With China controlling roughly 90% of global rare earth processing capacity and 93% of magnet manufacturing, the new licensing regime gives Beijing case-by-case veto power over essential military inputs. The controls took full effect on December 1, 2025, with a partial suspension running only until November 2026, making this a live geopolitical risk with immediate consequences for defense procurement and strategic planning.
Background: China's Rare Earth Dominance
Rare earth elements (REEs) are critical to modern defense technologies, used in permanent magnets for precision-guided munitions, radar systems, sonar, and electric motors. China has leveraged its position as the world's dominant producer and processor for decades. According to the Center for Strategic and International Studies (CSIS), China accounts for approximately 70% of global rare earth mining, 90% of processing, and 93% of magnet manufacturing. This concentration creates a single point of failure for Western defense supply chains.
The global rare earth supply chain is heavily dependent on Chinese separation and refining capabilities, particularly for heavy rare earth elements like dysprosium and terbium, which are essential for high-performance magnets. Outside China, only a handful of facilities—such as Lynas Rare Earths' Malaysian plant and MP Materials' Mountain Pass operation in California—can process significant volumes, but they remain far from meeting Western defense demand.
The October 2025 Export Controls: A New Level of Leverage
In October 2025, China announced its toughest rare earth and magnet export restrictions to date. For the first time, Beijing applied the foreign direct product rule (FDPR), meaning foreign firms must now obtain Chinese approval to export magnets containing even trace amounts of Chinese-origin rare earths or produced using Chinese technologies. Starting December 1, 2025, companies affiliated with foreign militaries are largely denied export licenses, and military-use requests are automatically rejected. China also barred its nationals from participating in overseas rare earth projects without authorization.
The European Parliament's analysis notes that China introduced two waves of export controls in April and October 2025, citing national security. The second wave was partially suspended until November 2026 as part of a truce with the U.S., but the suspension is temporary and reversible, maintaining Beijing's strategic leverage. The EU Critical Raw Materials Act aims to reduce dependency, but implementation remains slow.
Impact on Western Defense Programs
F-35 Lightning II
The F-35 joint strike fighter relies on rare earth magnets for its electro-hydrostatic actuation system, radar, and electronic warfare systems. The Pentagon has acknowledged that supply chain disruptions could delay production and maintenance. Lockheed Martin, the prime contractor, has been working to identify alternative sources, but the certification process for new magnet suppliers can take years.
Submarines and Missiles
The Virginia and Columbia-class submarines use rare earth magnets in their propulsion systems and sonar arrays. Tomahawk cruise missiles and other precision munitions also depend on these materials. The U.S. defense industrial base faces procurement delays, as noted by the Modern War Institute at West Point, with American defense firms already experiencing bottlenecks in magnet supply.
Broader Implications
Beyond direct military hardware, the controls affect radar systems, unmanned aerial vehicles, satellites, and advanced electronics. The ripple effects extend to NATO allies and other U.S. partners, who also rely on Chinese-sourced rare earths for their defense programs. The temporary suspension until November 2026 provides a narrow window for Western nations to build alternative supply chains.
U.S. Response: Domestic Investments and Partnerships
The United States has responded with a multi-pronged strategy to reduce dependency on Chinese rare earths. The Department of Defense (DoD) has awarded over $439 million since 2020 to build a domestic 'mine-to-magnet' supply chain. Key investments include:
- A $400 million DoD equity stake in MP Materials, which operates the Mountain Pass mine in California and is building a magnet manufacturing facility in Nevada.
- A partnership between Noveon Magnetics and Lynas Rare Earths to produce sintered NdFeB magnets in Texas.
- Nearly $1 billion in Department of Energy investments for critical minerals processing, including $135 million for a Rare Earth Elements Demonstration Facility and $250 million for recovering minerals from coal ash.
- The FORGE initiative (Facilitating Overseas and Domestic Rare Earth Supply Chains) and Project Vault, a $10 billion strategic reserve for critical minerals.
These efforts aim to achieve a sustainable domestic supply chain by 2027, but experts caution that building independent processing capacity for heavy rare earths remains the biggest challenge. The U.S.-Australia critical minerals partnership is a key component of this strategy.
Expert Perspectives
"China's export controls are a strategic weapon that exploits a critical vulnerability in Western defense supply chains," says Dr. Jane Harmon, a defense analyst at the Center for Strategic and International Studies. "The temporary suspension gives us a 12- to 18-month window to accelerate domestic production and secure allied partnerships. If we fail, China's leverage will become structurally irreversible."
Colonel Michael Torres (Ret.), a former Pentagon procurement officer, adds: "The F-35 program alone consumes thousands of magnets annually. We cannot afford to rely on a potential adversary for such a critical component. The investments are welcome, but they need to be matched with streamlined permitting and long-term offtake agreements to attract private capital."
FAQ
What are rare earth elements and why are they important for defense?
Rare earth elements are a group of 17 metallic elements essential for high-performance permanent magnets used in defense systems like the F-35, submarines, missiles, and radar. They provide exceptional magnetic strength and heat resistance.
How much control does China have over rare earth processing?
China controls roughly 90% of global rare earth processing capacity and 93% of permanent magnet manufacturing, giving it near-monopoly leverage over the supply chain.
What is the foreign direct product rule (FDPR)?
The FDPR is a regulatory mechanism that extends export controls to foreign-made products that contain Chinese-origin components or are produced using Chinese technology. China applied it to rare earth magnets for the first time in October 2025.
When do the export controls expire?
The October 2025 controls took full effect on December 1, 2025. A partial suspension, agreed as part of a U.S.-China truce, runs until November 2026. After that, the controls could be reinstated or expanded.
Can the U.S. build an independent rare earth supply chain?
The U.S. is investing heavily in domestic mining, processing, and magnet manufacturing, with a goal of achieving a mine-to-magnet supply chain by 2027. However, heavy rare earth processing remains a gap, and full independence may take longer without allied partnerships.
Conclusion: A Race Against Time
China's rare earth leverage represents one of the most significant strategic vulnerabilities for Western defense in 2026. The temporary suspension provides a critical window for the U.S. and its allies to build alternative supply chains, but the structural challenges are immense. Success will require sustained investment, streamlined regulations, and deep cooperation with trusted partners like Australia, Canada, and European allies. The geopolitical implications of rare earth dependency will shape defense planning for decades to come.
Sources
- CSIS: China's New Rare Earth and Magnet Restrictions Threaten US Defense Supply Chains
- Modern War Institute: Minerals, Magnets, and Military Capability
- Reuters: REalloys and U.S. Critical Materials MoU
- Rare Earth Exchanges: U.S. Unveils Nearly $1 Billion Critical Minerals Investment
- DoD: Mine-to-Magnet Supply Chain for Rare Earth Materials
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