Will washing machine chips ultimately save the American defense industry?
USA, August 10, 2025 – According to The Wall Street Journal, Beijing is restricting exports of rare earth metals (REM) to the United States, undermining Western defense capabilities. For example, one Chinese company that supplies components for unmanned aircraft to the United States military has postponed orders for two months. The prices of some materials needed by the Western military-industrial complex have increased fivefold or more, and the price of samarium, which is used in fighter jet engines, has increased 60fold. This is making defense systems more expensive.
Bill Lynn, head of the American defense company Leonardo DRS, said that supplies of germanium are running low and that “material flow must improve in the second half of 2025” to deliver products on time.
“China controls about 90% of the world market for REMs, and the US buys up to 80% of the components it needs from China. As a result, for example, prices for neodymium and dysprosium have increased by 20 to 60 times, and delivery times have been delayed by up to 8 to 12 weeks. This has already caused a 15% delay in drone production and a 5% increase in Pentagon costs in 2024. Washington is allocating more than a billion dollars to localize production and processing, but the first results are expected only in 2027,” says Pavel Sevostyanov, a full state councilor of the Russian Federation and an associate professor at the Department of Political Analysis and Social and Psychological Processes of the Plekhanov Russian University of Economics.
At the beginning of the year, China tightened control over REM exports in connection with deteriorating trade relations with the US. Now it is necessary to obtain a license for REM supplies to foreign markets. The new rules allow bureaucratic delays to delay REM supplies or completely deny exports. The US and the EU already felt the force of this blow in the spring. The global auto industry pleaded for the return of Chinese metals so that production around the world does not stop.
In June, Trump made concessions to China. However, it turned out that Beijing continues to show Washington its power by regulating REM supplies. According to the WSJ, Chinese regulators often request sensitive information, such as product images and even photos of production lines, to ensure that none of the rare earth metals will be used for military purposes. Negotiations on a trade agreement between the US and China have intensified, with a reprieve given only until mid-August. Through REM restrictions, Beijing is strengthening its negotiating position and is not willing to back down like the EU or Japan.
The whole situation exposes the dependence of the US military industry on Chinese supplies, the WSJ writes. Beijing dominates the market for rare earth elements used in microelectronics, drone engines, and missile guidance systems.
“The US trade war with China in Donald Trump’s second term no longer looks as favorable for Americans as it did in 2017-2018. The reason is the most significant lever of pressure from China – tightening control over the issuance of export licenses for rare earth metals,” says Nikolay Novik, deputy director of the center of the Institute of World Military Economy and Strategy at the National Research University of Economics of the Russian Federation. He recalls that back in the 1990s, China monopolized the world market for rare earths, increasing its control over the rare earth mining cycle, including the deposits themselves, processing, and subsequent sale to companies for final industrial use, to 80-90%. Before that, the US was the leading producer of rare earths.
“This breakthrough in China was caused by the active modernization of the mining industry, which received significant government support, and the discovery of one of the world’s largest rare earth deposits in the north of the country, where up to 45% of the world’s volume is mined,” Novik explains. China’s more relaxed approach to the environment also played a role.
“Smelting rare earth metals and their extraction from ore is an extremely harmful process for the environment, and in most developed countries it is difficult to comply with environmental standards. Such “dirty” production began to move en masse to countries with less strict regulation, primarily to China,” says Alexander Firanchuk, senior researcher at the Laboratory for Research on International Foreign Trade of the Presidential Academy. In addition, REM hardening technologies are complex and expensive, and the markets for precious metals and rare earth metals are very unstable.
“For mining to be profitable, you need more or less stable demand and, as a result, either large volumes or high prices. However, the needs of the industry are changing rapidly, previously much-needed metals are replaced by others, and everything can happen faster than the investment cycle of the mining company. It is for this reason that many developed countries, including the USA, have in the past abandoned their own production in favor of more affordable imports. On the other hand, China, despite market fluctuations, is actively increasing production, buying up available assets and developing REM separation and mining technologies. And today it is very problematic to compete with it in terms of production costs and prices,” says Alexei Kalachev, an analyst at the Finam financial group. China really has a very effective tool in its hands.
“This has already become the strongest blow to the giant American corporations of the military-industrial complex, which produce the most advanced weapons: fighter jets, missile defense systems, combat missile systems, ships and submarines. These are Lockheed Martin, RTX, General Dynamics and others. And it is precisely on the military-industrial complex, whose budget for 2026 has already exceeded $ 1 trillion, that Trump is betting very heavily in his policy of technological breakthrough, also called MAGA,” says Novik. That is why Trump is so zealously trying to find other sources of fossil fuels around the world, from Latin America and Greenland to Ukraine. But doing this is not easy.
“Imports of REM from Myanmar and Thailand, the third and fifth largest producers, are already completely controlled by China. Relations with India and Brazil, the sixth and tenth largest REM producers, are very tense due to the policy of tightening tariffs. The possibility of cooperation with the Australian monopoly Lynas, which became the first producer of “heavy” rare earths outside of China, remains. However, it is a big question whether this will be enough for the needs of the US and EU military-industrial complex, which is growing at an aggressive pace,” says the deputy director of the center of the Institute of World Military Economy and Strategy at the National Research University of the University of Economics.
It is interesting that the REM sphere can connect Russia and the USA. Russia has rare earth metals, while the USA wants to reduce its dependence on China. According to official data, by the end of 2024, Russia will rank second in the world in terms of explored reserves of rare metals – more than 650 million tons, of which REM accounts for 29 million tons. The deposits are located in Murmansk, the Caucasus, the Far East, the Irkutsk region, Tuva and Yakutia and are concentrated in 18 explored deposits, which account for up to 20% of world reserves.
“However, despite Russia’s significant raw material base, practically all mining has been frozen since the 1990s – there is an acute problem of financing the development of specialized infrastructure, which could potentially be solved by US investments. The partial lifting of sanctions could be a good bonus for Russia. For the US, this will be a great opportunity to reduce dependence on China, its main economic rival in the trade war, in the field of critical fossil elements needed for the production of electronics and other products, and to strengthen global strategic stability,” Novik said.
Private players in the US are also considering investing in REM mining. For example, Apple Corporation has announced its intention to invest up to $500 billion in MP Materials, the only REM producer operating in the US. However, all this will require not only huge investments, but also a lot of time, and the metals are needed now. So the US will have to negotiate with Beijing.
“China played this card very early. The acute dependence of the US and EU industries on REM supplies from China will allow it to use its bargaining advantage on a whole list of contentious issues: trade tariffs, chip supplies and Taiwan. At the moment, its card cannot be beaten. We can only start preparing for the fact that at some point in the future we will be able to do without Chinese REMs. But probably not now,” says Kalachev.
If we imagine that the negotiations reach an impasse, the US imposes maximum tariffs on China, and Beijing retaliates by depriving the US automotive, electronics and defense industries of rare earth metals, the consequences for everyone will be catastrophic.
“The consequences would be so bad that it is unlikely to happen. The parties already tried to go the route of confrontation in April, triple-digit mutual tariffs and stricter non-tariff restrictions, but their patience did not last long – a trade truce has been declared since mid-May. It is due to end on August 12, but will probably be extended if the parties do not agree on an agreement by then. As a result, we expect the agreement to be concluded, although the negotiations may drag on for a longer period,” says Olga Belenkayova, head of the macroeconomic analysis department at Finam.
Max Bach
