America is burning its bridges with China—but the lifeboat is already waiting

The withdrawal will not happen all at once. Through three consecutive phases, the U.S. is gradually shifting its military supply chains out of China.

As of this effective date, the U.S. Department of Defense is prohibited from entering into new contracts with companies on its so-called 1260H list—a blacklist of Chinese companies that the Pentagon alleges have ties to the Chinese military.

From this point forward, the entire supply chain for neodymium-iron-boron and samarium-cobalt magnets, as well as certain tantalum and tungsten products, will be considered—from mining through separation and refining to the finished product.
The new executive order primarily tightens the exceptions: They will now only be granted if it can be demonstrated that compliant material is unavailable and a binding phase-out plan is in place.

In that case, the Pentagon is generally prohibited from purchasing any finished products or services from a company on the 1260H list—even if they are offered through intermediaries. However, there are exceptions for certain components in finished products from companies not on the list.

The regulations do not apply only to American defense contractors. If a European company supplies magnets, materials, or components for a relevant Pentagon contract, that supply must also comply with the rules of origin.
A magnet manufactured in Europe is therefore not automatically “China-free” if its raw materials were mined, separated, or processed in China.
The quantities involved are substantial: According to estimates, an F-35 fighter jet contains around 418 kilograms of rare earth elements. An Arleigh Burke-class destroyer requires about 2.6 metric tons, while a Virginia-class submarine requires as much as 4.6 metric tons. Anyone who wants to build, maintain, and replace such systems needs not just individual shipments, but a resilient, long-term supply chain for raw materials.

The $25 million investment in ReElement is not an isolated investment. The Pentagon had previously invested $400 million in MP Materials and guaranteed the company a minimum price for neodymium and praseodymium for ten years.
Together with Apple, MP Materials is also establishing a closed-loop supply chain in the U.S., from recycled materials to finished magnets. We have already reported on this in detail.
Washington is thus not only pushing China out of its military supply chains through regulatory measures. At the same time, the U.S. is providing capital and price guarantees to enable the development of reliable alternatives outside of China.

Outside of China, a separate supply chain for rare earths is currently emerging—and with it, a new pricing structure. This market is still young and, as a result, volatile. No one can make a reliable prediction about where prices will settle in the long term. However, a supply chain that is consistently free of Chinese components is unlikely to become any cheaper.
Even Chinese price dumping would do little to change this. Anyone wishing to supply the Pentagon’s affected supply chains cannot simply opt for the cheapest Chinese material. Origin and traceability are thus just as important as price.
For industry and policymakers, this leads to an uncomfortable realization: raw material security begins before the bottleneck. Alternative sources of supply, processing capacities, recycling, and strategic reserves must be established while commodities are still available.
Or to put it more simply: When it comes to critical commodities, it’s currently better to have them and not need them than to need them and not have them.