China's rare earth curbs hit US defence supply chains, raise costs

Business Standard

8 hours ago

China's restrictions on the export of critical minerals are disrupting defence manufacturing in the West, forcing military suppliers to scramble for alternative sources and driving up costs across the industry. The situation has also brought to light the world's heavy reliance on China for rare earth elements (REEs).
According to a report by The Wall Street Journal, a US drone-parts manufacturer supplying the UA army reported delays of up to two months due to a shortage of rare earth magnets.
These magnets, used in components like drone motors, missile guidance systems, jet engines, and satellite equipment, have become exponentially more expensive.
Some materials used by defence firms are now selling for five times their typical price. In one case, samarium—a key element used in high-temperature jet fighter engines—was offered at 60 times the standard rate, the report said.
China's rare earth mineral dominance
China currently supplies approximately 90 per cent of the world's rare earths and dominates global production of rare earth magnets and other critical materials such as samarium, neodymium, and dysprosium. It also controls over 70 per cent of rare earth element mining. However, Beijing tightened export controls earlier this year amid escalating trade tensions with the United States.
Although limited flows resumed after the Trump administration made certain trade concessions in June, China has continued to restrict exports of rare earths and related minerals deemed crucial for defence purposes.
The shortage has exposed strategic vulnerabilities in the defence supply chains of major economies. Rare earths are indispensable for manufacturing microelectronics, drone motors, night-vision equipment, missile-guidance systems, and satellite components.
China halts rare earth magnet exports to Indian EV makers
India, too, is facing the brunt of the curbs. In what officials term a 'complete stop', China halted rare earth magnet exports to Indian electric vehicle (EV) manufacturers in April. The move comes amid growing global scrutiny of dual-use technology—civilian-use products that can be repurposed for military applications. Chinese authorities are reportedly taking steps to ensure no rare earth magnets are diverted to defence-related industries outside their control.
Despite comprising just 1-3 per cent of the bill of materials for EVs, rare earth magnets are irreplaceable. Without them, the assembly of even basic EV models, two-wheelers, or hearables like Apple's AirPods comes to a halt.
India's auto industry imported rare earth magnets worth ₹306 crore last year.
Global demand for rare earth magnets is expected to double to 600,000–650,000 tonnes by 2035. In India, demand is projected to increase four- to six-fold, reaching 2,000–3,000 tonnes over the same period.
US adopts 'pandemic playbook' for REEs
The US is addressing rare earth supply issues by using a pandemic-style strategy to reduce reliance on China, including federally backed price guarantees to encourage domestic production. At a July 24 meeting, officials told rare earth firms and tech giants like Apple and Microsoft that support similar to a recent MP Materials deal is part of a broader effort to boost US mining and processing, according to a report by Reuters.
Launch of Critical Mineral Mission
While India has the world's fifth-largest rare earth reserves, the cost of extraction, especially for the heavy rare earths used in EVs, is high. Moreover, such elements are not found in commercially viable concentrations.
To address the shortfall, the Indian government has launched the Critical Mineral Mission, earmarking ₹18,000 crore over seven years to develop domestic capabilities. Yet most of these initiatives are mid- to long-term, and cannot provide immediate relief to manufacturers reeling under current shortages.
As earlier reported by Business Standard, industry experts suggest that while diversification efforts—such as sourcing from Australia, the US, or African nations—are underway, none of these regions can yet match China's scale, efficiency, or pricing.