In 2023, Raytheon CEO Greg Hayes warned that Beijing effectively has the US military’s supply chain by the balls, thanks to America’s reliance on rare earths and other materials which either come from, or are processed in, China.
According to Hayes, Raytheon has “several thousand suppliers in China,” because of which “decoupling … is impossible.“
“We can de-risk but not decouple,” he told the Financial Times, adding that he thinks this is the case “for everybody.”
“Think about the $500bn of trade that goes from China to the US every year. More than 95 per cent of rare earth materials or metals come from, or are processed in, China. There is no alternative,” he said.
Fast forward two years later – and China’s recent curbs on the export of critical minerals are rippling through the U.S. defense supply chain, slowing production schedules and sending manufacturers on a global search for scarce materials needed in everything from munitions to fighter jets.
(And of course, last month ZeroHedge premium subs were treated to “The Coming Rare Earth Revolution And How To Profit” – full of names that have exploded higher since publication…)
In short, amid a surge in U.S.-China trade tensions earlier this year, Beijing tightened its control over rare earth exports. Those shipments resumed after the Trump administration reached a set of trade concessions in June, however China has kept a firm hold on materials destined for defense use. Accounting for roughly 90 percent of the world’s rare earth output – and dominating the supply of other strategic minerals – China has also barred the sale of germanium, gallium and antimony to the United States since December. The three metals are essential for bullet hardening, night-vision optics and other military applications, the WSJ reports.
Some contractors warn that their reserves are running dangerously low. Bill Lynn, chief executive of Leonardo DRS, said Wednesday that his company’s supply of germanium has fallen to “safety stock” levels. The metal is used in infrared sensors for missiles and other systems. “In order to sustain timely product deliveries, material flow must improve in the second half” of 2025, he told investors. Leonardo DRS, a U.S. subsidiary of Italy’s Leonardo, is exploring alternative suppliers and possible substitutes.
For others, the bottleneck has already meant missed deadlines. One drone-parts maker supplying the U.S. military delayed orders by as much as two months while hunting for non-Chinese sources of magnets, which are produced from rare earth elements. Traders say prices for some materials have multiplied several times over; samarium, used in high-temperature magnets for jet engines, has been offered at 60 times its typical price.
The Pentagon has instructed defense contractors to phase out magnets containing Chinese minerals by 2027. While some firms have stockpiled magnets, most carry only months of supply for other critical materials. Smaller drone manufacturers — often startups with limited resources — are considered especially exposed.
Dak Hardwick, vice president of international affairs at the Aerospace Industries Association, said the problem is discussed constantly within the industry. “I can tell you…we talk about this daily and our companies talk about it daily,” he said.
A recent analysis by defense software firm Govini found that more than 80,000 components used in U.S. weapons systems contain minerals now under Chinese export controls. Nearly all such supply chains depend on at least one Chinese source.
Western buyers say Chinese authorities have begun demanding detailed disclosures – including images of products and production lines – before approving shipments. In May, New Hampshire-based ePropelled received such requests from a Chinese magnet supplier, along with a list of questions about its customers and assurances the magnets would not be used for military purposes. “Of course we are not going to provide the Chinese government with that information,” said Chris Thompson, the firm’s vice president of global sales. When the company refused, shipments stopped, extending delivery times to twice their usual length.
The firm turned to suppliers in the United States, Europe, Japan and Taiwan, as well as to emerging producers Vulcan Elements in North Carolina and USA Rare Earth in Oklahoma. Those new sources are not expected to deliver until later this year and will need to develop non-Chinese supply chains of their own.
Washington has begun to respond. The Pentagon has invested in expanding domestic output, including a $14 million grant last year to a Canadian firm producing germanium substrates for defense satellites and a $400 million stake in MP Materials, which operates the largest rare-earth mine in the Americas. On an earnings call, Lockheed Martin CEO James Taiclet described the MP Materials deal as “groundbreaking” for securing magnets needed in F-35 fighters and cruise missiles.
Nicholas Myers, CEO of Massachusetts-based Phoenix Tailings, said large defense companies are now moving aggressively to secure their own mineral supplies. “They recognize that they’re just not going to get the magnets… unless they get involved,” he said.
Beijing’s hard line is also affecting shipments in transit. Earlier this year, United States Antimony Corporation attempted to route 55 metric tons of Australian-mined antimony to its Mexican smelter via the Chinese port of Ningbo, a process it had used before without incident. In April, Chinese customs officials held the cargo for three months, eventually releasing it only on the condition it be returned to Australia. When it arrived, company CEO Gary Evans said the seals had been broken. “The shipping company, everyone who was involved, they’d never seen this happen before,” he said.
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