China restricts rare earth exports disrupting U.S. defense supply chains

Western defense technology manufacturers are grappling with growing supply chain disruptions as China imposes tighter controls on the export of rare earth minerals essential for U.S. military equipment. These restrictions, which began earlier this year amid escalating tensions between Washington and Beijing, are affecting the production of critical components used in advanced defense systems such as fighter jets, missiles, and drones. Companies including Lockheed Martin, RTX, Boeing, and Leonardo DRS are now racing to secure alternative sources of these materials, but options remain limited and time is running out [1].

Under the new Chinese regulations, foreign buyers must now provide detailed information about product designs, production lines, and client lists before they can obtain shipments of rare earth elements. Civilian orders continue to be processed, but defense-related purchases face significant delays or outright rejections [1]. The impact is already visible: one major supplier of drone components has delayed military orders by up to two months [1].

China already accounts for around 90% of the global supply of rare earth materials, and the new restrictions specifically target minerals used in defense applications. Some firms are paying up to 60 times the usual price for these materials. For instance, samarium—used in high-temperature magnets for jet engines—has recently reached record high price offers [1]. Bill Lynn, CEO of Leonardo DRS, disclosed that the company is now down to its “safety stock” of germanium, a key material for infrared sensors. He warned that unless material flow improves by the second half of 2025, product deliveries will be affected [1].

In response to the crisis, the U.S. Department of Defense has announced a number of measures. It allocated $14 million to a Canadian firm in 2023 to boost germanium production and, in July 2024, invested $400 million in MP Materials, the owner of the largest rare earth mine in the Americas [1]. These investments are intended to help secure supply for critical defense systems such as the F-35 jet and cruise missiles. However, industry leaders acknowledge that these efforts will not provide immediate relief [1].

Further complicating the situation, Chinese customs authorities have begun interfering with the movement of non-military shipments. A recent case involved United States Antimony Corporation, which had 55 metric tons of antimony from Australia detained in China for three months. When the shipment was eventually released, it was forced to return to Australia, with broken seals raising concerns about possible tampering [1]. Such incidents highlight the lengths to which China may go to control the flow of strategic materials.

Meanwhile, the situation is exacerbated by internal challenges within the defense industry. Boeing, for example, is currently facing a labor strike involving over 3,200 workers in St. Louis and Illinois. The rejected contract offer included a $5,000 ratification bonus, a 20% raise, and improved leave policies. Company officials have called the offer fair and expressed disappointment at the rejection [1].

The Pentagon has also established the Critical Minerals Forum to assist U.S. and allied mining projects in securing funding, but the urgency of the situation remains high. Many companies are operating with less than a year’s supply of critical minerals, and some hold only weeks’ worth of inventory [1]. Startups in the drone sector, often underfunded and lacking global supply chain expertise, are particularly at risk [1].

As the U.S. defense industry scrambles to adapt, the broader implications of China’s control over rare earth materials are becoming increasingly evident. The situation underscores the strategic importance of these minerals and the vulnerability of global supply chains to geopolitical shifts.

[1] Source: [1] Defense tech manufacturers face key mineral shortages as China throttles supply (https://coinmarketcap.com/community/articles/6890aa140fd8ee5bbb70c74c/)