China’s rare earth controls push allies into a mine‑to‑magnet arms race

China’s rare earth export controls are quietly reshaping the future of allied defense supply chains

Summary: China’s evolving export control regime on rare earths and magnet materials has turned mine‑to‑magnet security into a front‑line defence issue, forcing the US and its allies into accelerated industrial policy, stockpiling, and new geopolitical alignments across the rare earth value chain.

China’s export controls have moved from a trade irritant to a structural risk in allied defence planning.
Since 2025 Beijing has layered licensing, technology bans, and extraterritorial rules on rare earths and magnet materials that are central to high‑end military systems, from precision guidance to radar and electronic warfare.248
These controls now sit alongside broader dual‑use restrictions on gallium, germanium, antimony, graphite, and other inputs vital for semiconductors and sensors.710
Although China temporarily paused implementation of its most aggressive October 2025 magnet‑related rules and tightened dual‑use licensing for US‑linked trade in late 2025, this pause runs only to late 2026 and does not remove earlier, still‑binding rare earth constraints.2810

For defence planners, the rare earth angle is simple: modern deterrence runs on permanent magnets and high‑performance materials.
NdFeB and SmCo magnets sit inside almost every advanced platform.
An F‑35 contains roughly 400 kilograms of rare earth content and about 50 pounds of samarium‑cobalt magnets in its engine and power systems, while Virginia‑class submarines and AEGIS ships carry hundreds of kilograms in propulsion, sonar, and combat systems.1311
The US military consumes roughly 3,000 to 4,000 tons of rare earth magnets annually across aircraft, missiles, ships, vehicles, and satellites.13
Between 2020 and 2023, about 70 percent of US rare earth imports came from China, a dependence now colliding with Beijing’s decision to weaponise export controls.36

How China’s export controls target defence‑relevant rare earths

Since 2020, China has rebuilt its export control architecture into a coherent national security tool.
The Export Control Law centralised authority under MOFCOM, added explicit extraterritorial reach, and allowed Beijing to condition foreign access to any product containing Chinese rare earth inputs.8[14]
Draft rare earth management rules from MIIT extended state control across exploration, mining, processing, and trading, including proposed strategic reserves and prohibitions on new foreign investment in refining.8

Three policy moves since late 2023 are particularly consequential for defence supply chains:

1. Technology export bans for processing know‑how
In December 2023, China banned the export of core technologies for rare earth extraction, separation, and smelting.8
This makes it much harder for new ex‑China refineries to license proven process flows for key elements such as dysprosium, terbium, and heavy rare earths used in high‑temperature magnets.
For defence OEMs that rely on SmCo for missiles, avionics, and jet engines, as well as Dy/Tb‑doped NdFeB in high‑performance motors, this increases the execution risk of new non‑Chinese projects.

2. April 2025 controls on heavy rare earths and magnets
China’s April 2025 export restrictions targeted heavy rare earth elements and permanent magnets, triggering rapid disruption across allied defence, semiconductor, and automotive supply chains.24
These measures tightened export licensing for magnet materials suited to defence uses and forced buyers to prove non‑military end‑use.
S&P Global and CSIS both highlight that these controls remain in place into 2026, continuing to constrain export volumes and push up ex‑China premiums.24

3. October 2025 “FDPR‑style” extraterritorial rules
On 9 October 2025, Beijing rolled out its most expansive controls yet, requiring licenses for foreign‑made products containing 0.1 percent or more Chinese‑origin rare earths or produced using Chinese processing technologies.8
This mimics US foreign direct product rules for semiconductors and signals that China is willing to regulate downstream defence‑grade products assembled in allied countries if Chinese magnet inputs are involved.
Although MOFCOM subsequently suspended implementation of the specific October rare‑earth and dual‑use directives, that suspension runs only to November 27, 2026.10
CSIS and legal analyses stress that the underlying legal architecture remains intact and could be reactivated whenever Beijing sees leverage.4810

The 2026 landscape: a paused squeeze, not a reversal

Early 2026 looks deceptively calm.
MOFCOM’s late‑2025 announcements temporarily suspended the worst of the October rare earth and dual‑use licensing rules, restoring affected exports to the ordinary licensing framework.10
At the same time, China tightened new controls specifically targeting dual‑use exports to Japan, signalling a more selective geographic application of pressure.2

For defence‑linked buyers in the US and its allies, this pause has three practical consequences:

- Short‑term relief, ongoing fragility
Companies in magnets, EVs, aerospace, semiconductors, and defence electronics have experienced modest easing of licensing frictions and lead times into early 2026.210
But April 2025 restrictions on heavy rare earths and magnets remain fully in force, and the core technology export bans from December 2023 continue to limit capacity building outside China.248

- Price volatility and premiums outside China
Rare earth prices for dysprosium, terbium, and samarium spiked when the 2025 controls first hit and remain elevated, with S&P Global expecting “global premiums outside China to flourish in 2026.”2
Defence‑relevant grades of NdFeB and SmCo magnets have seen the steepest increases, particularly for high‑coercivity, high‑temperature products.

- Regulatory overhang into late 2026
The legal commentary around MOFCOM’s pause stresses it is temporary and easily reversible.810
Exporters are advised to continue mapping Chinese inputs, stockpiling, and preparing licensing strategies on the assumption that stricter rules could return if geopolitical tensions rise again in late 2026.10

Why NdFeB, SmCo, Dy, and Tb sit at the centre of defence risk

Rare earth demand in defence does not move on all elements equally.
The supply‑chain risk is concentrated in four functions:

- High‑torque motors and generators
NdFeB magnets are the workhorse of electric propulsion, flight controls, and generator systems.135
They deliver very high magnetic strength per kilogram, enabling compact motors in drones, missile fins, and shipboard systems.

- High‑temperature performance in engines and missile bodies
SmCo magnets are weaker in sheer strength but far more stable at extreme temperatures and in corrosive environments.1
They are the go‑to material for jet engines, missile actuators, and certain radar platforms where NdFeB would demagnetise.
CSIS points out that lock‑in to Chinese processing of samarium and cobalt compounds amplifies this risk.48

- Heavy rare earth additives for coercivity
Dysprosium and terbium are used as dopants in NdFeB magnets to raise coercivity, allowing operation at higher temperatures without loss of performance.5
This is critical in high‑speed aircraft motors, compact ship propulsion, and advanced radar drives.
These heavy rare earths are geologically scarcer and more concentrated in Chinese‑linked supply chains, which is precisely why April 2025 controls focused on them.24

The net result is that a disruption in high‑temperature magnet supply rapidly spills into availability of F‑35 engines, AEGIS radar modules, submarine propulsion, and missile guidance systems.
US defence officials now describe rare earth security as a “national security imperative” and explicitly link it to the resilience of inventories during conflict scenarios.79[13]

US and allied response: mine‑to‑magnet industrial policy

The US has pivoted from rhetorical concern to explicit industrial policy.
CSIS estimates that the Trump administration has committed more than $7.3 billion in capital across five agencies to accelerate domestic mining, processing, and magnet manufacturing.4
Key elements of this response include:

- Domestic mine‑to‑magnet chains by 2027
The Pentagon has set a goal to establish a fully domestic mine‑to‑magnet supply chain able to meet all US defence needs by 2027.14
From 2027 onwards, US defence contractors will be banned from sourcing NdFeB or SmCo magnets from “adversary” countries including China, Russia, Iran, and North Korea.1
This procurement rule transforms magnet supply into a compliance obligation and pushes OEMs toward qualifying ex‑China suppliers.

- Industrial finance, price floors, and offtake guarantees
The administration has introduced price floors at around $110 per kilogram, guaranteed government offtake, and blended finance instruments via DOD, DOE, EXIM, and other agencies to de‑risk new projects.4
These tools are designed to make capital‑intensive separation plants and magnet factories bankable even if commercial prices soften.

- Strategic stockpiling and recycling
DOD officials highlight efforts to modernise the National Defense Stockpile, including expanding holdings of rare earths and related critical minerals as a buffer against near‑term shocks.7
There is funding for advanced recycling to recover rare earths from retired platforms, which can provide secondary supply of NdFeB and SmCo magnets as legacy systems are scrapped.7

Allied response is similarly focused on ex‑China processing hubs and shared stockpiles.
Key developments include:

- Lynas and Malaysia’s ascent in heavy rare earths
In May 2025, Lynas produced the first commercial quantities of dysprosium oxide outside China at its Malaysia facility, using feedstock from Mount Weld in Australia.4
This marks the first real alternative supply of defence‑critical heavy rare earths at meaningful scale.

- Saudi Arabia as a regional processing hub
The DOD announced plans to finance a 49 percent equity stake in a new rare earth refinery in Saudi Arabia.4
The kingdom is positioned to become a central processing hub serving African resource holders such as Malawi, Namibia, South Africa, and Uganda.4
For defence supply chains, this diversifies refined output away from China while maintaining shipping access to Europe and the US.

- Bilateral frameworks with Australia, Japan, Malaysia, and Saudi Arabia
CSIS notes new agreements that link exploration, processing, and magnet manufacturing across these partners, explicitly framed as ex‑China mine‑to‑magnet chains.4

Strategic implications for defence OEMs and rare earth investors

For defence primes, the policy direction is clear even if the execution is challenging.
By 2027, magnets embedded in platforms like the F‑35, Virginia‑class submarines, Patriot and AEGIS systems, and advanced drones will need to come from non‑Chinese sources to remain eligible for US contracts.14
Given the scale of magnet demand and the long qualification cycles for flight‑critical components, OEMs are already redesigning sourcing strategies.

This has several market implications:

- Persistent premium for defence‑grade magnets
NdFeB and SmCo magnets that meet defence specifications and can be traced to ex‑China supply are likely to command structural premiums over generic industrial grades.
Heavy rare earth doped materials from Lynas and emerging refineries may see multi‑year offtake commitments at prices supported by government floors.24

- Capital rotation from mining to midstream processing
With processing technologies restricted by China and supported by US finance, investment is shifting into separation plants, metalmaking, and magnet fabrication in North America, Australia, Southeast Asia, and the Gulf.48
Control of these midstream nodes has more leverage over defence supply chains than control of raw ore.

- Greater role for industrial policy in price formation
Government price floors, strategic stockpile purchases, and long‑term offtake contracts are partially decoupling defence‑critical rare earths from short‑term spot markets.47
For investors, traditional commodity price cycles are now overlaid with policy‑driven demand, particularly for Dy/Tb and high‑spec magnets.

Risk outlook through 2026 and beyond

Looking ahead, three risk vectors matter most to defence and aerospace stakeholders:

- Regulatory snapback risk in late 2026
If US‑China or Japan‑China tensions worsen, Beijing could let the current pauses expire and fully enforce the October 2025 extraterritorial rare earth controls.2810
That would instantly complicate export licensing for any foreign defence product that incorporates Chinese magnets, even if final assembly occurs outside China.

- Technological bifurcation in magnet manufacturing
China’s ban on technology transfer for extraction and separation is encouraging parallel development of non‑Chinese process IP.8
Over time, this could split the global magnet industry into two ecosystems with limited cross‑licensing, raising costs but improving strategic autonomy for allied defence chains.

- Demand mitigation through materials innovation
DOD and DARPA are funding research to reduce reliance on the most contested rare earths, exploring alternative alloys, ferrite‑based designs, and new motor architectures.7
If successful, this could shift demand away from Dy/Tb and SmCo, altering long‑term price expectations.

For rare earth industry participants, the message from defence policy is unambiguous.
Rare earths are no longer simply critical minerals; they are treated as enablers of deterrence.
The combination of Chinese export controls, US mine‑to‑magnet industrial policy, and emerging ex‑China refineries is transforming the sector into a strategic infrastructure class, with defence requirements driving both capital flows and geopolitical alignment.246[13]