China's rare earths restrictions affect Western defense firms: WSJ
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Beijing's restrictions on rare earth exports threaten US military production, causing supply delays and soaring costs across the defense sector.
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US Army personnel perform maintenance on long-range drones at Fort Huachuca in Sierra Vista, Ariz., Tuesday, July 22, 2025. (AP)
China is restricting the supply of critical minerals to Western defense manufacturers, causing delays in production and compelling these companies to search globally for stockpiles of the essential materials required to produce a wide range of military equipment, from bullets to jet fighters, The Wall Street Journal reported.
Since US President Donald Trump ignited trade tensions between the US and China, the latter tightened its control over rare earths, and while it loosened these controls after Washington offered concessions, Beijing maintained a lock on critical minerals for defense purposes, knowing that China provides around 90% of the globe's rare earth minerals.
One drone parts manufacturer that supplies the US military had to postpone orders for as long as two months due to the need to find an alternative source of magnets outside of China, since these components are made from rare earth minerals.
Industry traders report that some materials critical to the defense sector now cost five times or more than before China's recent mineral restrictions, with one company stating it was recently quoted samarium, an element essential for high-temperature-resistant magnets in jet-fighter engines, at 60 times the usual price. These circumstances are increasing defense system costs, as suppliers and defense executives told WSJ.
US realizes its dependence on China
The tightening supply of critical minerals underscores the US military's heavy reliance on China for key supply chain components, granting Beijing strategic leverage amid escalating tensions and contentious trade negotiations between the two nations.
Defense manufacturers that provide equipment to the US military depend heavily on minerals predominantly sourced from China, which are essential for producing critical components, such as microelectronics, drone motors, night-vision goggles, missile-targeting systems, and defense satellites.
Although companies have attempted to secure alternative supplies of these minerals in recent years, industry executives explain that some elements are so specialized that Western production would be economically unviable.
China has expanded its export restrictions beyond rare earths, implementing a ban since December on sales of germanium, gallium, and antimony to the US, metals that are critical for applications ranging from hardening lead bullets and projectiles to enabling night vision capabilities for military personnel. Several firms are now cautioning that manufacturing slowdowns could occur without additional mineral supplies becoming available.
Down to safety stocks
The CEO of Leonardo DRS revealed on Wednesday that the US defense contractor has depleted its regular germanium supplies and is now relying solely on its emergency reserves.
During a conference call, CEO Bill Lynn stated, "In order to sustain timely product deliveries, material flow must improve in the second half" of 2025, with the company, which operates as the US subsidiary of Italian defense conglomerate Leonardo, emphasizing the urgency of resolving supply chain constraints.
The company relies on germanium for its infrared sensors, which are critical components in missiles and various defense systems, prompting Lynn to explain that they are actively pursuing strategies to diversify their supply chain while simultaneously exploring alternative materials to reduce dependence on germanium in their product designs.
Pentagon limitations
The Pentagon has mandated that defense contractors phase out purchases of rare-earth magnets containing Chinese-sourced minerals by 2027, leading some companies to accumulate large magnet stockpiles. Although suppliers and defense firms often maintain less than a year's worth of reserves, in some cases only a few months, for other critical minerals.
According to defense industry experts, drone manufacturers face particularly high risks due to their typical status as small startups with constrained financial resources and limited supply-chain expertise, which has prevented many from building substantial reserves of rare-earth magnets and metals.
Over 80,000 components utilized in US Defense Department weapons systems incorporate critical minerals that currently fall under China's export restrictions, according to data from defense analytics firm Govini.
Govini's analysis reveals that almost every supply chain for the Pentagon's essential critical minerals depends on at least one Chinese supplier, indicating that Beijing's export restrictions have the potential to create extensive disruptions across defense production.
Between a rock and a hard place
Since tightening export controls this year, China now requires companies to submit detailed documentation on their intended use of imported rare earths and magnets, including sensitive information like product images and production line photos, to verify the materials won't be used for military purposes.
A Western supplier providing Chinese-made rare-earth magnets to both commercial and military clients reports that while recent applications for magnet imports have been approved for numerous civilian uses, approvals for defense and aerospace applications have faced either rejections or significant delays.
Alternative sources falter
In May, ePropelled, a New Hampshire-based manufacturer of drone propulsion motors, faced concerning inquiries from its Chinese magnet supplier, which forwarded Chinese government forms requiring detailed technical drawings, product images, and a complete list of the company's customers. The supplier also asked for assurances that its magnets will not be used for military or defense purposes.
“Of course we are not going to provide the Chinese government with that information,” vice president of ePropelled Chris Thompson told WSJ.
As a result, its Chinese suppliers halted shipments, forcing ePropelled to postpone some customer orders by one or two months, twice the standard delivery time for its motors. The firm attempted to obtain the magnets from alternative suppliers from Taiwan and Japan, alternatives that also rely on China to obtain their rare earth minerals.
The company also partnered with US startups Vulcan Elements and USA Rare Earth, but the two startups won't supply materials until late this year and must still develop non-Chinese mineral sources as they scale up. According to metal traders, China's requirement to disclose end-user information for rare-earth magnets and metals has effectively blocked approval of stockpiling licenses for trading companies.
Pentagon steps in, Defense firms become more involved
The Department of Defense has provided funding to boost production of specialized materials, including a $14 million grant last year to a Canadian firm for developing germanium substrates used in defense satellite solar cells.
In a significant move last July, the Pentagon committed $400 million to acquire a 15% stake in MP Materials, the company operating the Western Hemisphere's largest rare-earth mine, which is currently accelerating the expansion of its magnet production capabilities.
During last month's earnings call, Lockheed Martin CEO James Taiclet described the MP Materials deal as transformative, emphasizing its role in securing the magnet supply chain for critical systems like F-35 fighters and cruise missiles. Building back a strong supply requires time, however.
Defense contractors are increasingly taking direct control of critical mineral sourcing rather than relying on suppliers, as shortages intensify. "Companies are growing alarmed because they realize securing magnets requires their direct involvement," said Nicholas Myers, CEO of rare-earth producer Phoenix Tailings, noting traditional outsourcing approaches are failing.
Beijing is strictly enforcing its mineral export restrictions. Earlier this year, Chinese customs unexpectedly detained a 55-metric-ton shipment of Australian-mined antimony belonging to US defense supplier United States Antimony Corporation at Ningbo port, where such transshipments were previously routine. Beijing customs held the cargo for three months and forced the company to seek intervention from the State Department and the White House.
China released the shipment in July only after demanding its return to Australia instead of the US, and upon arrival, United States Antimony found broken seals, prompting an ongoing assessment of potential tampering or contamination.
