China has started restricting exports of certain rare earth metals and is tightening control over other critical minerals. This move has far-reaching implications for U.S. companies, industries, and sectors, creating significant vulnerabilities for those that depend on rare earths.
Two areas expected to feel the impact most are aerospace & defense and electric vehicles, because of their heavy usage of rare earths. Below, we leverage expert insights, company documents, and broker research from the AlphaSense platform to gain clarity on China’s move and the potential consequences for these pockets of the market.
Rare Earth Metal Supply: A Trade War Casualty
In response to President Donald Trump’s tariffs, China announced it would implement export controls on seven categories of rare earths. While not a complete ban, this move is expected to significantly increase the difficulty of exporting these materials. China’s move was not entirely unexpected, as some experts highlighted the possibility of retaliatory export controls as a significant risk even before President Trump’s election.
China is aiming to further boost its standing as the world’s most dominant player in rare earth metals. By contrast, the United States currently has only a single operating rare earth mine. The United States depends on China for a whopping 70% of its rare earth needs.
What Comes Next?
The immediate impact of China’s move could be muted, as the United States has some rare earth inventory built up. Yet after that supply runs dry, what happens next is unclear. The 2024 National Defense Authorization Act, set to take effect on Jan. 1, 2027, further complicates matters. Under the NDAA, the United States will no longer be able to import magnets mined from China, North Korea, Iran, or Russia.
There are a number of different strategies that could potentially mitigate the impact of China’s export controls. A broad-scale shift toward non-Chinese sources of rare earths is one potential strategy. The Trump administration itself appears to be considering this strategy. Control over rare earth stores is at the heart of Trump’s negotiations with Ukraine and his overtures toward annexing Greenland. Mineral exploration companies like Harena Resources are advancing projects in geopolitically neutral locations, such as Madagascar, to develop rare earth resources.
Experts highlight Canada and Australia as two rare earth strongholds that could potentially bridge the gap left by China’s withdrawal. Canada holds an estimated 15.1 million tons of rare earth oxide, among the largest reserves in the world. Australia is making strides to position itself as a rare earth supplier as well. Iluka Resources is building Australia’s first rare earth refinery, scheduled for commission in 2027. Linas Rare Earths, which operates a rare earth mine in Australia, is building a plant in Texas.
Developing U.S. domestic capabilities in rare earth production is considered by experts to be the most plausible path forward. NioCorp Developments is developing the Elk Creek Critical Minerals Project in Nebraska, which is expected to produce niobium, scandium, titanium, and rare earths. Others such as Ucore Rare Metals and Defense Metals are advancing projects to establish production of rare earths in North America. Analysts believe the increased focus on U.S. domestic rare earth supply should be a boon for MP Materials, which owns the only rare earth mining and processing site of scale in North America.
Defense primes consider the Trump administration’s response as the main wild card in this situation.
Industry Impact: Aerospace and Defense
Aerospace and defense is considered to be among the most affected industries by China’s move, as rare earths are a vital component of advanced defense systems. They are used heavily in the manufacturing of defense drones, one of the fastest growing segments in defense — raising questions around the segment’s growth outlook. Aside from being integral to drones, rare earths are needed to manufacture fighter jets, helicopters, submarines, precision munitions, and GPS equipment.
Because modern defense systems rely heavily on complex international supply chains, experts point out that any disruption could have severe consequences. China’s export controls could lead to higher material costs and manufacturing delays, lengthening production timelines.
Companies fear China’s move could take a toll on U.S. soft power, challenging the primacy of the U.S. defense industry.
Industry Impact: Electric Vehicles
China's rare earth export controls also have significant implications for the U.S. electric vehicle (EV) industry, primarily due to the critical role these elements play in EV production. The strong magnetic properties of many rare earths make them essential for manufacturing high-performance magnets used in EV motors. Rare earths are also integral in the infrastructure supporting the EV industry, as they are used in wind turbines.
Restrictions on access to rare earths could lead to supply chain disruptions, delaying the production of EVs and renewable energy technologies. The restrictions may lead to price increases for rare earth materials, affecting the overall cost of EV production. Experts consider this a particular pain point for EV makers that are already facing challenging competitive dynamics as they compete on cost with both traditional domestic automakers and non-U.S. EV names.
Companies fear that China’s export controls reinforce its competitive advantage in the global EV market. On top of spelling trouble for EV makers, this could further challenge traditional Western automakers like General Motors and Volkswagen that are investing heavily in the transition toward EVs. A move toward solid-state batteries that do not rely on rare earths could help. Yet experts point out solid-state batteries are some time away from being commercially viable at scale.
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