U.S.–China Trade Standoff Edges Toward a Rare Earths Crisis — But Defense Giants Stay Unshaken

A new chapter in the U.S.–China rivalry is unfolding, not in tariffs or tech bans, but in the invisible materials that power the machinery of modern defense. Earlier this month, China announced sweeping export restrictions on rare earth elements, halting shipments for military or “strategic” applications. For a nation that depends on these materials to build F-35s, Tomahawks, and missile guidance systems, the move could prove existential.

Yet in Washington and on Wall Street, the alarm bells are ringing softer than expected.

During their most recent quarterly earnings calls, America’s defense primes — Lockheed Martin, RTX Corporation, and Northrop Grumman — all downplayed the threat of supply disruption. Their confidence, though, belies an uncomfortable reality: China controls over 70 % of global rare-earth mining, 90 % of refining, and 93 % of magnet manufacturing.

As Neha Mukherjee of Benchmark Mineral Intelligence warned, “We are days, if not weeks, away from a crisis when it comes to national security.”

The Strategic Weak Point

Rare earth elements — a cluster of 17 critical minerals — are embedded in nearly every modern defense system. They are indispensable for precision-guided munitions, radar arrays, electric drives, jet engines, and communications systems. Without them, U.S. military production could seize up within months.

Unlike oil or steel, there are few substitutes, and their supply chain is heavily geographic. Over decades, Beijing built dominance through industrial policy, subsidies, and aggressive environmental externalization, while the West outsourced both mining and processing.

Now, as trade friction deepens, that dependency is surfacing as a strategic fault line. The U.S. has taken steps — including investment in domestic refining, new mines in California and Texas, and partnerships with Australia and Canada — but the replacement network is still embryonic.

Contractors Keep Their Nerve

Despite the tightening vise, defense executives are projecting calm.

Northrop Grumman’s CEO, Kathy Warden, told analysts that her company has been “well ahead” of potential shortages, having mapped and diversified its rare-earth supply chain long before Beijing’s latest decree. “Our dependency has been mitigated,” she said, emphasizing proactive sourcing and long-term contracts.

At Lockheed Martin, CEO Jim Taiclet echoed that sentiment: “We’ve worked closely with our U.S. government partners and key suppliers… I’m much more confident today than a year ago about the ability of those industry partners to step up.”

Analyst Nicolas Owens of Morningstar agrees. “Defense primes have unusually high standards and sensitivity to where they get their materials,” he notes. “They know very well what qualifies as a strategic resource — and their entire procurement strategy is designed to pre-empt Chinese leverage.”

That discipline, Owens argues, means these firms have likely stockpiled months — if not years — of supply, a quiet but critical form of risk management.

The Broader Economic Undercurrent

Still, resilience at the top doesn’t eliminate systemic vulnerability.
Smaller subcontractors — the companies machining magnets, sensors, and micro-motors — are less equipped to weather prolonged disruptions. For every Northrop or Lockheed, there are hundreds of Tier 2 suppliers with single-source dependencies.

Moreover, stockpiles run out. If China extends its ban or widens it to processing technology, even the primes’ mitigation strategies could face limits by early 2026.

Economically, the implications stretch beyond defense. Rare earths also underpin renewable energy systems, EVs, and high-performance semiconductors. A sustained disruption would reverberate through the green-tech transition, magnifying inflationary and supply-chain shocks across sectors.

Washington’s Countermeasures

The Pentagon has already designated rare earths as critical under the Defense Production Act. Funding has been directed to MP Materials in California and to pilot refining operations in Texas and Australia. Yet the timeline for these projects — often measured in years — collides uncomfortably with the immediacy of Beijing’s leverage.

At the policy level, the U.S. is accelerating strategic stockpile programs, incentivizing recycling of magnet waste, and exploring co-investment frameworks with allied producers. Still, the gap remains vast: American refining capacity covers less than 15 % of domestic demand.

The Strategic Reality

For now, the Pentagon’s largest contractors exude composure. They are diversified, well-funded, and politically indispensable. But the broader message is more nuanced: the defense industrial base remains tethered to a global supply chain whose keystone lies in China’s hands.

If rare earths are the new oil, then the geopolitical geography of power is being redrawn.
The U.S. can stockpile, subsidize, and innovate — but until processing sovereignty is secured, supply will remain the quiet weapon in Beijing’s arsenal.

What we are witnessing is not yet a crisis — but perhaps the countdown to one.

Source: Yahoo Finance — “US–China Trade Spat Could Leave US ‘Weeks Away’ from Rare Earths Crisis, But Top Defense Contractors Downplay Risk” (October 23, 2025)
Written by Brian Leclere