Analysis: China’s Latest Rare Earth Clampdown Will Hit Foreign Defense, Chip Firms Hard

China has recently intensified its export controls on rare earth elements, a group of 17 minerals essential for high-tech and defense industries worldwide. The Chinese Ministry of Commerce announced restrictions on five additional rare earths, including holmium, erbium, and thulium. This action follows earlier curbs in April on seven mid-to-heavy rare earths, such as samarium and gadolinium, critical for defense, aerospace, and technology sectors. Altogether, China now restricts exports of 12 rare earth elements, especially the heavier, more valuable metals that are harder to procure and greatly sought after in advanced technologies [para. 1][para. 2][para. 3].

In addition to raw minerals, China has imposed export restrictions on technologies for extraction, separation, refining, magnet manufacturing, and recycling. This means that foreign companies now require special approval from Chinese authorities to access either the raw materials or the related high-tech processes [para. 4]. Applications for military use of Chinese rare earths are automatically rejected for national security, international stability, and nonproliferation reasons. These rules are some of the strictest Chinese measures yet against the global defense sector. According to the Center for Strategic and International Studies (CSIS), the move is designed to prevent Chinese rare earths from being used in foreign military supply chains [para. 5][para. 6].

Rare earths are vital for the U.S. defense sector, featuring prominently in manufacturing F-35 jets, nuclear submarines, radar, Tomahawk missiles, and drones. China supplies roughly 80% of the world’s mid-to-heavy rare earth reserves, making Western nations heavily dependent on these Chinese materials. Disruptions could thus threaten Western military procurement and strategy. Since April, major defense contractors like Lockheed Martin have reassessed their supply chains to mitigate these risks [para. 7][para. 8][para. 9].

The semiconductor industry is likewise exposed. Rare earths play roles throughout the semiconductor supply chain, from raw inputs to production equipment. For instance, advanced extreme ultraviolet lithography (EUV) machines made by ASML require multiple rare earth compounds. A new rule from China stipulates strict case-by-case reviews for rare earths used in next-generation chips (sub-14 nanometer), advanced memory, chipmaking equipment, and AI technologies with military potential, likely impacting firms like ASML, Applied Materials, SK Hynix, and Micron Technology over the medium to long term. However, future China-U.S. trade negotiations may provide relief or adjustment to these restrictions, set to take effect December 1 [para. 10][para. 11][para. 12][para. 13].

In response, the U.S. has prioritized domestic rare earth production to reduce reliance on Chinese sources. The Pentagon recently acquired a 15% stake in MP Materials, America’s only active rare earth miner, supporting the construction of a new magnet facility set to be operational in 2028 with a planned capacity of 10,000 metric tons annually. The U.S. also committed to a strategic price guarantee for key rare earth products, such as neodymium-praseodymium oxide, ensuring stable supply and prices [para. 15][para. 16][para. 17].

Nevertheless, experts note significant U.S. supply chain gaps persist, particularly in the separation of heavy rare earths—a crucial step for converting mined ore into usable materials. To address this, the U.S. is pursuing international collaborations, including agreements with Ukraine and Saudi Arabia to diversify sources and build robust rare earth supply chains. Notably, a $600 billion Saudi investment in the U.S. energy, defense, and mining sectors was secured at the U.S.-Saudi Investment Forum [para. 18][para. 19][para. 20][para. 21].