China’s New Rare Earth and Magnet Restrictions Threaten U.S. Defense Supply Chains

Critical Questions by Gracelin Baskaran

Published October 9, 2025

In advance of President Donald Trump's upcoming visit to South Korea later this month-where he is expected to meet Chinese President Xi Jinping for the first time since 2019-China announced that it has expanded its restrictions on rare earth and permanent magnet exports. The Chinese Ministry of Commerce's Announcement No. 61 of 2025 implements the strictest rare earth and permanent magnet export controls to date. The move both strengthens Beijing's leverage in upcoming talks while also undercutting U.S. efforts to bolster its industrial base.

Q1: What is new about today's rare earth and permanent magnet export restrictions?

A1: The new export controls mark the first time China has applied the foreign direct product rule (FDPR)-a mechanism introduced in 1959 and long used by Washington to restrict semiconductor exports to China. The FDPR enables the United States to regulate the sale of foreign-made products if they incorporate U.S. technology, software, or equipment, even when produced by non-U.S. companies abroad. In effect, if U.S. technology appears anywhere in the supply chain, Washington can assert jurisdiction.

Under the measures announced today, foreign firms will now be required to obtain Chinese government approval to export magnets that contain even trace amounts of Chinese-origin rare earth materials-or that were produced using Chinese mining, processing, or magnet-making technologies. The new licensing framework will apply to foreign-produced rare earth magnets and select semiconductor materials that contain at least 0.1 percent heavy rare earth elements sourced from China.

Given China's dominance in the sector-accounting for roughly 70 percent of rare earth mining, 90 percent of separation and processing, and 93 percent of magnet manufacturing-these developments will have major national security implications.

Q2: What do the new restrictions mean for the defense and semiconductor industries?

A2: Rare earths are crucial for various defense technologies, including F-35 fighter jets, Virginia- and Columbia-class submarines, Tomahawk missiles, radar systems, Predator unmanned aerial vehicles, and the Joint Direct Attack Munition series of smart bombs. The United States is already struggling to keep pace in the production of these systems. Meanwhile, China is rapidly scaling up its munitions manufacturing capacity and acquiring advanced weapons platforms and equipment at a rate estimated to be five to six times faster than that of the United States.

The newly announced restrictions represent China's most consequential measures to date targeting the defense sector. Under the new rules, starting December 1, 2025, companies with any affiliation to foreign militaries-including those of the United States-will be largely denied export licenses. The Ministry of Commerce also made clear that any requests to use rare earths for military purposes will be automatically rejected. In effect, the policy seeks to prevent direct or indirect contributions of Chinese-origin rare earths or related technologies to foreign defense supply chains.

Even before these latest measures, the U.S. defense industrial base faced significant challenges and had limited production capacity and limited ability to rapidly scale to meet rising defense technology needs. The new restrictions will only deepen these vulnerabilities, further widening the capability gap and allowing China to accelerate the expansion of its military strength at a faster pace than the United States at a time when tension is rising in the Indo-Pacific region.

Additionally, export license applications for rare earth materials used in highly advanced technologies, including sub-14-nanometer semiconductors, next-generation memory chips, semiconductor manufacturing or testing equipment, will now be subject to case-by-case review by Chinese authorities. Companies will likely need to provide detailed documentation on end users, technical specifications, and intended applications before any export is authorized. The individualized review process gives Chinese authorities significant discretion to delay, deny, or condition exports, effectively introducing a new layer of strategic control over the global supply of rare earth inputs critical to advanced computing and defense technologies.

Q3: How is China tightening control over the outflow of its skills and technologies?

A3: Under the new measures, Chinese nationals are barred from engaging in or providing support for overseas projects involving rare earth exploration, extraction, processing, or magnet manufacturing unless they first obtain explicit authorization from Chinese authorities. By tightening control over the movement of expertise, China aims to prevent the outflow of proprietary technologies and know-how that have made it the global leader in rare earth mining and magnet production. These restrictions build on the rare earth processing technology export ban in December 2023.

Q4: Why are the new export restrictions likely a negotiation tactic?

A4: In its announcement, the Ministry of Commerce stated that China remains open to enhancing communication and cooperation with other countries through both multilateral and bilateral export control dialogues. The ministry emphasized that such dialogue seeks to promote compliant trade while protecting the security and stability of global industrial and supply chains.

Q5: How do these restrictions build on China's earlier rare earth export controls?

A5: The new measures mark a sharp escalation in Beijing's long-running strategy to weaponize its dominance in rare earths. China announced a ban on rare earth extraction and separation technologies on December 21, 2023. On April 4, 2025, the Ministry of Commerce introduced export restrictions on seven rare earth elements in retaliation for President Trump's new tariffs on Chinese goods.

Subsequent diplomacy offered only a temporary reprieve. During the May 11 talks in Switzerland, U.S. and Chinese officials agreed to a 90-day tariff truce, which included removing U.S. companies from China's trade blacklist and restoring their access to rare earth supplies. Yet stability proved short-lived: U.S. manufacturers soon began shutting down production amid ongoing shortages, as China delayed the issuance of export licenses despite not formally abandoning the deal. Tensions flared again when President Trump accused Beijing of backtracking on its commitments. Ultimately, on June 11, 2025, following two days of negotiations in London attended by U.S. Treasury Secretary Scott Bessent, both sides reached a new trade framework-but the episode underscored how Beijing's rare earth policy has evolved into a potent instrument of economic and geopolitical leverage.

Q6: What is the United States doing to build its rare earth and permanent magnet capabilities to reduce China's leverage?

A6: Under the Biden administration, the U.S. government provided funding to help expand Noveon Magnetics' capabilities. Today, it is the only manufacturer of rare earth magnets in the United States. This week, Noveon Magnetics and Lynas Rare Earths announced a memorandum of understanding to establish a strategic partnership focused on building a scalable, domestic supply chain for rare earth permanent magnets in the United States.

In July 2025, as part of a landmark agreement, the Department of Defense (recently renamed the Department of War) invested $400 million in equity into MP Materials, making the U.S. government the company's largest shareholder. The deal also includes a 10-year price floor commitment of $110 per kilogram for MP Materials' NdPr (neodymium-praseodymium) products, designed to protect the commercial viability of the company amidst low prices stemming from Chinese overproduction. Additionally, the Department of War's Office of Strategic Capital (OSC) has extended a $150 million loan to expand MP Materials' Mountain Pass, California, facility, adding heavy rare earth separation capabilities to strengthen domestic processing capacity. MP Materials has also announced plans to build its second U.S. magnet manufacturing facility, known as the "10X Facility." The Department of War has entered into a 10-year offtake agreement for 100 percent of the facility's magnet output. It will take time to ramp up these capabilities. Until then, China retains a significant amount of leverage over supply chains crucial for national and economic security.

Gracelin Baskaran is director of the Critical Minerals Security Program at the Center for Strategic and International Studies in Washington, D.C.

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