From Monopoly to Leverage: China’s Rare Earth Grip and America’s Strategic Weakness

Background:

China has held a virtual monopoly over rare earth materials, controlling over 90% of globalsupply and 30% of global reserves. In April 2025, China implemented new export licence regulations for seven rare earth minerals, notably samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, which are predominantly used in sophisticated technology and defence. As a result of this export licensing, companies seeking to export these materials must now obtain direct approval from the Chinese Ministry of Commerce before being granted a licence to ship abroad, giving the Chinese government complete control over where and when these materials are shipped, as well as the price. This is not the first time China has taken such a step; for example, in 2010, Beijing significantly limited rare earth exports to Japan during a territorial dispute over the Senkaku/Diaoyu Islands, a decrease of 49.5% from the previous year, raising concerns about their dominance in rare earth minerals. This event caused widespread industrial disruption and supply chain instability in Japan, demonstrating how China has utilised its control over crucial raw materials as a strategic weapon. Now, history looks to be repeating itself, with China once again using its rare earth monopoly for geopolitical advantage, raising serious concerns about the larger economic and security ramifications.

• The US Defence Sector’s Reliance on Rare Earth Materials:

  In 2024 China accounted for 77% of the US’s rare earth materials, with a distant second

  being Malaysia, making up 9% of imports. This is an increase from 74% in 2023 and 72% in

  2022, showing an ever-growing reliance, with the US only producing 5% of the minerals they

  use. A large amount of this is spent on the US’s defence sector, which is highly reliant on

  Chinese minerals for vehicles such as submarines needing almost 4,500 kg of rare earth

  minerals and missile systems relying on samarium-cobalt magnets. This deep integration of

  Chinese materials into critical weapons platforms highlights the US's strategic vulnerability:

  demonstrating China's control over the US defence economy (which accounts for 3.5% of the

  US economy), with supply shock and geopolitical rupture caused by China withdrawing

  supplies could halt production and have a significant impact on the US economy as a whole.

  Immediate Economic and Strategic Impacts:

  In 2025, the US imposed growing tariffs on Chinese products, culminating at 34%, but

  paused for a 90-day review in August, causing trade uncertainty that impacted supply chains

  and bilateral ties. Following the implementation of these tariffs and China's new export

  licensing, the US experienced a significant decrease of over 90% in rare earth magnets in

  April. In June the exports of rare earth magnets increased by almost 660% compared to May,

  attributed to a trade agreement between the US and China and the pause on Chinese tariffs for

  90 days. This then stabilised in July with another large fluctuation, with rare earth minerals

  down by 23% from June. With the expiry of the 90-day truce in August, US imports of these

  products could see another dramatic decrease.

• The export fluctuations aren’t the only ones, with China’s new control over exports allowing

  them to leverage the price as well. This can be seen by dysprosium reportedly tripling from

  $283.3 per kilogram at the beginning of April to $850 per kilogram as of May.

  How has this impacted the US defence sector and broader economy?

  This has first hit the US defence sector, as price volatility and availability changes have

  reduced many US defence businesses to "safety stock". Companies such as Leonardo DRS

  are working on a "safety stock" of germanium as a result of supply fluctuations. Furthermore,

  as previously said, the F-35 Fighter Jets, a crucial component of the US military, are heavily

  reliant on minerals, and in 2022, a shortage of a magnet manufactured in China caused a

  temporary halt in F-35 deliveries. With output changing at similar levels, further halts like

  this could be on the way, with safety stocks being tested.

  This has had a further influence on other companies in the US economy, such as Ford

  shutting down production of its Explorer SUV in Chicago for a week in May 2025 due to a

  rare earth scarcity, and Suzuki Motor suspending production of its Swift subcompact due to

  component shortages. This highlights the dependency on Chinese earth minerals and the

  significant impact on the US supply chain if production is interrupted.

  US Response:

  The US’s White House trade advisor has expressed the goal of building supply chains from

  mines to end products across the critical mineral spectrum, not wanting to be over-reliant on

  countries such as China who do not share similar values with the US. This is illustrated by

  MP Materials' involvement with the US Department of Defence, which became a major

  shareholder in MP Materials, transforming it into a vertically integrated manufacturer of

  magnetic materials, producing permanent magnet alloys and completed magnets. This reflects

  the US's desire to distance itself from Chinese-owned rare minerals in order to reduce the

  likelihood of supply chain disruption and give the US more leverage in current trade disputes.

  Conclusion:

  China's rare earth export restrictions emphasise the United States' reliance on essential

  commodities, jeopardising supply chains, economic stability, and defence capabilities. The

  price increases and shortages of Chinese minerals highlight the vulnerability of the US

  defence and crucial industries. While diversification has begun and intensified, the country is

  still vulnerable to geopolitical leverage and strategic supply chain vulnerabilities