The global supply chain for high-performance permanent magnets, particularly Neodymium Iron Boron (NdFeB) types, represents one of the most significant single points of failure in contemporary economic and national security architectures. These magnets are indispensable components for both the rapidly expanding Green Energy Transition (GX), utilized in electric vehicle (EV) motors and wind turbines, and for mission-critical defense systems.1 The central risk factor is the unprecedented and deliberate concentration of industrial capacity within the People's Republic of China.
The analysis confirms that China's control is comprehensive across the entire value chain. China accounts for approximately 60% of global rare earth element (REE) mining output, but its market share escalates dramatically further downstream.3 Beijing controls between 90% and 91% of the complex separation and refining capacity globally, and maintains an estimated 87% to 93% of the world's NdFeB magnet manufacturing capacity.3 This level of market saturation grants Beijing effective control over global supply and pricing mechanisms.
This concentration poses a dual vulnerability for global consumers. First, it threatens the economic viability of sectors reliant on these materials, evidenced by recent disruptions to European and Japanese automotive production following export controls.6 Second, the dependency creates an acute national security risk, particularly for the United States, which relies on these magnets for core defense technologies, including F-35 fighter jets, advanced radar systems, and precision-guided munitions.2
A closer examination of the supply architecture reveals that the vulnerability is predominantly industrial rather than geological. While China holds 37% of known global REE reserves, other nations, including Vietnam, Brazil, and Russia, collectively possess a larger share (54%).4 The critical strategic advantage is therefore not the possession of raw materials, but the successful centralization of the complex, midstream industrial processing expertise and infrastructure—a bottleneck that is costly and time-consuming for rivals to replicate. This realization necessitates a shift in focus from merely securing mining operations to reconstructing the entire midstream and downstream industrial base.
Furthermore, the geopolitical threshold for supply chain weaponization has been demonstrably crossed. China's most recent policy, starting December 1, 2025, explicitly targets the defense sector by rejecting export licenses for rare earths intended for military use or for companies affiliated with foreign defense establishments.5 This strategic move signals that the magnet supply chain is no longer solely a tool of economic leverage but an active instrument of military and geopolitical pressure, compelling immediate and substantial countermeasures by the U.S. and its allies.
China's current market preeminence is the result of a multi-decade, state-supported industrial strategy initiated over forty years ago, transitioning from recognizing resource potential to executing a focused manufacturing strategy.
The genesis of Chinese rare earth mastery can be traced back to the early days of scientific research and political recognition. Small-scale production of rare earth concentrates began as early as 1958, yet the government's interest in the large-scale potential of these elements did not crystallize until the 1980s and 1990s.1 Key foundational work was established by pioneers such as Xu Guangxian, who returned from Columbia University to establish the State Key Laboratory of Rare Earth Materials Chemistry and Applications. This scientific framework provided the necessary knowledge base for industrial expansion.1
The official strategic mandate came into sharp focus in 1992 when paramount leader Deng Xiaoping proclaimed, "the Middle East has oil; China has rare earths".7 This statement enshrined rare earths as a strategic national asset, paving the way for heavy investments in the 1980s and 1990s as China's economy began its market opening.7 This period saw the aggressive deployment of industrial tactics designed to systematically undercut and drive out foreign competitors. These methods, which included price suppression and subsidized production, led to China securing a dominant position in the global supply chain by the early 2000s.8 Later, figures like Xu Guangxian would prove influential in advising the government to adopt export quotas in the 2000s, recognizing the elements' potential in the technology sector and seeking to conserve precious resources within China.1
China's market leadership has been robust for approximately 20 to 25 years, with dominance in the highly specialized processing and manufacturing stages becoming nearly absolute after the turn of the millennium. By 2011, China accounted for approximately 97% of global rare earth production.7 As of 2019, this concentration allowed China to supply between 85% and 95% of the global demand for the 17 rare earth elements.1
The current scale of Chinese operations creates formidable entry barriers for competitors. China's annual rare earth magnet production capacity currently exceeds 240,000 tons.9 This overwhelming volume supports dedicated logistics networks, specialized equipment suppliers, and workforce training programs, generating significant per-unit cost advantages through economies of scope.9 To illustrate this disparity, Japan's entire annual production capacity reaches only approximately 12,000 to 15,000 tons.9 By 2024, China maintained 87% of global rare earth magnet production capacity.4 In terms of revenue, China accounted for 62.0% of the global permanent magnets market in 2022 11, and the broader Asia Pacific region, heavily driven by China, dominated the market with a 74.32% share in 2024.12
The primary product focus is Neodymium Iron Boron (NdFeB) magnets, which are critical for electric motors, green technologies, and power tools, and are projected to retain the largest and fastest-growing market share.12 China is the largest producer of key feedstocks for these magnets, including Neodymium Praseodymium (NdPr) Oxide (95,046.5 metric tons in 2024) and NdPr metal (83,697 metric tons in 2024).13
The strategic value of controlling the manufacturing stage over the mining stage cannot be overstated. China's 37% share of global reserves and 60% share of mining output 3 are substantial, but the ultimate economic and geopolitical power resides in the 90%+ control over processing and manufacturing. Magnet manufacturing is the most strategically critical supply chain node because it offers the opportunity to eliminate dependency on foreign sources for the high-value finished product. Moreover, a robust manufacturing capability can utilize diversified feedstock, including recycled materials, reducing reliance on relationships with specific mining operations.9 China successfully prioritized the capture of this high-value, high-barrier downstream segment, ensuring that non-Chinese miners still rely on Chinese processing technology or capacity to turn their ore into useful metals.
This supply chain concentration has resulted in deep reliance among industrialized nations. Cumulative data from January to July 2025 indicates that China exported 41% of its global rare earth permanent magnets to Europe.14 Germany, a major industrial power and the largest demand country in Europe, imported 5,534 metric tons during that period, accounting for 48% of Europe's total imports.14 This reliance means that any Chinese export restriction immediately disrupts the competitive advantage of European industries, making them strategically vulnerable, particularly in core components necessary for their "Green Transformation" (GX).
Table 1: China's Market Share Across the Rare Earth Magnet Value Chain
| Value Chain Stage | China's Estimated Global Share (2024/2025) | Key Function |
| Mining (REE Ore) | ~60% | Raw Material Extraction 3 |
| Separation & Refining | 90% to 91% | Conversion of Ore to Metal/Oxide 3 |
| Permanent Magnet Manufacturing (NdFeB) | 87% to 93% | Production of Sintered/Bonded Magnets 4 |
| Global Reserves | 37% | Resource Endowment 4 |
The persistence of Chinese dominance is not accidental; it is founded upon several formidable, interconnected pillars that establish structural cost advantages and create near-insurmountable barriers to entry for potential competitors.9
The sheer manufacturing scale provides the first pillar of advantage. China's capacity is so vast—exceeding 240,000 tons annually—that it generates significant per-unit cost reductions that small, nascent foreign operations cannot match.9 This scale has fostered dedicated logistics networks and highly specialized equipment utilization, reinforcing the cost differential.
Beyond scale, direct labor costs contribute substantially to the competitive gap. Rare earth extraction and processing are inherently difficult and costly operations.7 However, Chinese rare earth processing workers typically earn approximately $15,000 to $25,000 annually. This contrasts sharply with the labor costs in developed economies, where comparable workers earn $60,000 to $80,000 annually, resulting in a crucial operational cost differential.4
Historically, an additional significant factor was the externalization of environmental costs. The extraction and refining processes for rare earths produce highly toxic by-products.7 Less stringent waste disposal and environmental regulatory requirements in China compared to Western nations have historically decreased operational costs by an estimated 30–40%.4 This cost savings reveals that China's historic competitive edge was partly achieved by avoiding the full cost of environmental cleanup and regulation. Any nation now attempting to rebuild a domestic supply chain, such as the U.S., must fully internalize these high environmental remediation costs, permanently raising the necessary production price floor compared to China's past advantage.
Perhaps the most potent and calculated advantage is China's sophisticated fiscal policy designed to promote downstream manufacturing over raw material export. This strategy leverages the national tax system to grant Chinese NdFeB producers a systemic competitive edge.
The mechanism revolves around the Value-Added Tax (VAT). Rare earth oxides and metals are subject to a 13% VAT, which is not refunded if the raw material is exported from China. Crucially, however, there is a full refund of the VAT upon the export of finished rare earth magnets.15 This policy effectively creates a financial penalty for foreign manufacturers who rely on importing Chinese raw materials to produce magnets elsewhere.
This structural policy grants domestic Chinese NdFeB producers a 13% raw material cost advantage over foreign NdFeB makers.15 This combination of massive manufacturing scale, low operational labor/environmental costs, and a significant policy-driven fiscal subsidy created a market environment where it was not merely difficult for foreign companies to compete, but fiscally irrational to invest in new separation or magnet production capacity outside of China, systematically forcing industrial decline in the West during the 1990s and 2000s. The policy acted as a successful mechanism for the de-industrialization of foreign rivals, securing China's bottleneck control.
Table 2: Comparative Advantages in Rare Earth Magnet Production
| Competitive Factor | China | Developed Economies (e.g., US/Japan) | Cost/Operational Impact |
| Manufacturing Scale (Annual Tons) | >240,000 tons | ~12,000 - 15,000 tons (Japan) | Significant Economies of Scope 9 |
| Labor Costs (Average Annual) | $15,000 - $25,000 | $60,000 - $80,000 | Lower operational expenses 4 |
| Environmental Compliance | Less stringent historically | High compliance burden | 30-40% cost reduction potential 4 |
| Export Tax Policy (VAT Refund) | Full 13% VAT refund on exported magnets | No refund; Higher material costs | ~13% raw material cost advantage 15 |
China's overwhelming control over the magnet supply chain has transitioned from a purely commercial concern to a central issue of global economic security and military vulnerability.
Rare earth magnets are vital to two primary global strategic objectives: the Digital Transformation (DX), which includes advanced computing and communications, and the Green Transformation (GX), which relies on motors and turbines for electric power generation and storage.6 The high-tech, compact nature of NdFeB magnets makes them essential for electric vehicle batteries, wind turbine generators, and sophisticated electronic devices.7
For the defense sector, the reliance is systemic and deep. The Department of Defense (DoD) has documented that approximately 78% of U.S. weapons programs contain components dependent on rare earth magnets.2 Continued U.S. reliance on foreign sources for these products is officially recognized as a risk to national security.16
Specific high-end military platforms critically rely on these materials:
Aviation and Radar: NdFeB magnets provide the torque in electric actuators that have replaced hydraulics in modern jets, and samarium-cobalt (SmCo) magnets are found in components of the F-35 fighter jet, including its turbomachine and pumps.2 Naval sonar and radar systems, such as the SPY-1/SPY-6 Aegis radars, critically depend on rare earth magnets in microwave tubes for focusing energy.2
Naval Systems: Naval vessels and submarines, including the Virginia- and upcoming Columbia-class submarines, are among the largest consumers by sheer weight, incorporating large permanent-magnet motors for quieter electric propulsion.2
Munitions: Precision-guided munitions, including Tomahawk missiles, Joint Direct Attack Munitions (JDAMs), and guided artillery shells, use miniature permanent magnets in their guidance fins for steering and targeting.2
A key technical vulnerability stems from the materials science itself. In high-heat, high-performance applications, such as the engines of the F-35 or radar microwave tubes, the specific properties of NdFeB and SmCo magnets—particularly their high Curie temperature and magnetic energy density—render them "irreplaceable" by current commercial alternatives.2 This means the U.S. cannot simply revert to older, inferior magnets or rapidly adopt emerging non-REE alternatives for its existing defense architecture.
The danger presented by China's control is not merely the potential for price manipulation but the confirmed strategic use of supply as an instrument of geopolitical force. This threat has two dimensions: offense and defense, aimed at expanding China's own interests while protecting its sovereignty from external disruption.6
China has a history of using export restrictions to exert pressure. For instance, in April 2025, restrictions on seven rare earths were implemented in response to U.S. tariffs, causing stagnation in parts supply that forced automakers in the U.S., Europe, and Japan to suspend production.6 During this period, the rise in rare earth prices, driven by inelastic demand, contributed to an increase in China's sales revenue while damaging foreign industries reliant on the supply.18
However, the nature of the controls escalated dramatically in late 2025. New regulations announced by China's Ministry of Commerce, set to commence on December 1, 2025, represent the most consequential measure yet targeting the defense sector. Under these rules, companies with any affiliation to foreign militaries, including those of the United States, will be largely denied export licenses, and requests to use rare earths for military purposes will be automatically rejected.5
The clear strategic goal of this policy is to prevent any direct or indirect contribution of Chinese-origin rare earths or related technologies to foreign defense supply chains. Given that the U.S. defense industrial base already struggles with limited production capacity and scalability, the new restrictions are expected to deepen these vulnerabilities. This strategy is interpreted as a deliberate effort to widen the capability gap, enabling China to accelerate the expansion of its military strength relative to the United States.5
The immediate global response to China's dominance has been twofold: strategic investment in domestic supply chains, particularly in the U.S., and acceleration of non-Chinese mining and processing capacity globally.
While China dominates the market, pockets of specialized production exist outside its control, primarily centered in Japan. Japanese companies such as Hitachi Metals, Shin-Etsu Chemical Co., and Toshiba Materials Co., Ltd. maintain advanced production techniques for NdFeB magnets used in high-tech industries, electric vehicles, and consumer electronics.19 Japan's market is substantial, generating $1,317.4 million in revenue in 2022 and projected to reach $2,391.8 million by 2030.20 However, its annual volume remains small compared to China, as noted earlier.9
In the upstream segment, diversification efforts rely heavily on Australia and North America. Australia's Lynas Rare Earths is the largest producer of rare earth elements outside of China and is actively increasing production of critical heavy rare earths like dysprosium and terbium to meet strong global demand.21 Concurrently, Malaysia is leveraging Lynas's operations and banning raw material exports in an effort to compel the development of its own midstream and downstream rare earth industries by 2030.22 North American firms like Neo Performance Materials and the U.S.-based MP Materials are also central to the allied strategy.19
The United States has prioritized establishing an independent "mine-to-magnet" supply chain, viewing it as critical to national security.16 This strategic pivot involves unprecedented government-private sector partnerships and massive financial commitments. The Trump administration has focused on deploying federal funding tools and accelerating bilateral partnerships to reduce exposure to China's dominant position.23 Congressional acts in 2025 appropriated substantial resources, including $2 billion to expand the National Defense Stockpile and $5 billion to the Industrial Base Fund to support critical minerals supply chains, alongside significant loan authority for the Department of Defense's Office of Strategic Capital (OSC).23
Two primary, overlapping initiatives are driving the manufacturing rebuild:
MP Materials and the 10X Facility: MP Materials, which operates the Mountain Pass mine in California, is partnered with the DoD to advance the domestic supply chain.24 The company is building its second domestic magnet manufacturing facility, known as the 10X Facility. This facility is expected to begin commissioning in 2028, and its estimated manufacturing capacity is set at 10,000 metric tons annually.24 To de-risk this monumental private capital investment, the DoD agreed to a crucial 10-year price floor of $110 per kilogram for the magnet material neodymium-praseodymium (NdPr). This policy is essential for guaranteeing the long-term viability of the domestic producer, insulating the investment against any temporary Chinese strategy of flooding the market with cheap magnets to eliminate competition.27
Vulcan Elements and ReElement Technologies Partnership: A complementary $1.4 billion federal-private collaboration, backed by the DoD and the Department of Commerce, aims to create another fully integrated, vertically aligned supply chain.28 Vulcan Elements is tasked with building and operating a 10,000-metric-ton magnet production facility in the U.S..29 ReElement Technologies complements this effort by scaling its recycling and refining operations, extracting rare earth oxides from end-of-life magnets and electronic waste.29
The combined targeted capacity for these two major U.S. domestic initiatives is approximately 20,000 metric tons per year by the late 2020s. This capacity represents a critical success in securing a foundational supply for military independence; however, it only accounts for less than 10% of China's current operational capacity, which exceeds 240,000 tons annually.9 This disparity indicates that while the U.S. is on track to secure its national defense needs, allied and global commercial sectors (like the EV market) will continue to face strategic dependence on China for high-volume, cost-competitive magnets for the foreseeable future.
Strategic independence from China requires not only replicating the existing supply chain but also developing technologies that decouple high-performance magnets from reliance on geopolitically sensitive rare earth elements.
The imperative to build a sustainable, zero-carbon economy necessitates a secure supply of high-performance magnets, spurring aggressive research into non-REE alternatives.30
Hard Ferrites: These materials, alloys of iron oxide compounds, offer an immediate, commercially available, and environmentally friendly alternative.31 Hard ferrites boast extremely high Curie temperatures (up to $1000 \, ^{\circ}\text{C}$), which is critical for high-heat environments, and they are inexpensive.31 However, their primary limitation is significantly lower performance (measured by BHmax) compared to NdFeB. Nevertheless, they are viable for many mainstream commercial applications, including electric vehicle motors, with manufacturers already developing 100kW prototype ferrite magnet motors.31
Iron Nitride (Fe-N) Magnets: This technology represents a high-potential breakthrough, championed by startups like Niron Magnetics.32 Iron nitride magnets utilize only iron and nitrogen, both of which are abundant and inexpensive materials, leading to far more affordable production and lower environmental impact compared to rare earth mining.34 Iron nitride magnets offer high magnetic strength, with potentially greater saturation magnetization than neodymium magnets.35 The critical technological barrier, however, lies in coercivity—the material's resistance to demagnetization. Current iron nitride technology exhibits lower coercivity than NdFeB magnets, limiting its suitability for the highest-stress, compact, and temperature-sensitive applications where demagnetization resistance is paramount.34 Overcoming this coercivity gap is the primary challenge for achieving full technological decoupling from rare earths in the highest-performance sectors.
Other Emerging Materials: Researchers are also investigating novel materials, such as tetrataenite, a 'cosmic magnet' naturally formed over millions of years in meteorites. Researchers have developed a method using the common element phosphorus to synthesize tetrataenite in seconds, demonstrating long-term potential for a high-performance, non-REE solution, though this remains in the early laboratory research and development stage.30 Furthermore, advancements in the design of induction motors, which utilize electrical principles rather than permanent magnets, offer a parallel pathway to eliminate the need for rare earths entirely in some applications.31
Current rare earth recycling rates are exceptionally low—less than 1% of REEs are recovered from end-of-life products.36 This represents an enormous lost opportunity, particularly given the environmental and strategic benefits of recycling. Recycling rare earths requires up to 61.2% less $\text{CO}_2$ emissions compared to traditional mining and processing.36
Strategically, the development of a robust rare earth recycling industry offers the quickest path to scaling domestic feedstock and bypassing the core complexity of the Chinese supply chain: the midstream separation and refining stage for virgin materials. Since recycling recovers high-purity REEs from finished products and manufacturing waste (swarf) 36, it avoids the capital-intensive, environmentally burdensome, and time-consuming processes of raw ore extraction and complex chemical separation.7
This process is being commercialized rapidly. ReElement Technologies is focused on refining oxides from electronic waste 29, while Cyclic Materials has partnered with VACUUMSCHMELZE to recycle 100% of the manufacturing waste from a new U.S. facility.36 High-volume production trials for magnet recovery from consumer products, such as air conditioner compressors, have also been successfully developed.37 Recycling is therefore a crucial short- to mid-term supply source necessary to fuel the new domestic U.S. magnet manufacturing plants (MP Materials, Vulcan Elements) until massive, allied-based virgin REE processing capacity matures in the late 2020s and beyond.
China's decades-long dominance of the permanent magnet market is a deliberate, state-backed industrial strategy reinforced by structural competitive advantages, including massive economies of scale, low labor costs, environmental externalization, and strategic fiscal policy such as the 13% VAT refund advantage.4 This control has become a central pillar of geopolitical power, confirmed by the imposition of export restrictions explicitly targeting foreign military supply chains starting December 2025.5 Global dependency on NdFeB magnets, which are critical to advanced defense systems and the green transition, remains profound. While current U.S. and allied efforts are projected to secure a dedicated defense supply chain by 2028-2030, they are not currently scaled to break China's overall commercial control of the global magnet market.
Based on this analysis, the following policy recommendations are critical for achieving supply chain resilience and strategic independence:
Recommendation 1: Accelerate Midstream Buildout and De-risk Investment.
The most critical bottleneck is the separation and refining of rare earth elements, where China holds over 90% control.3 Continued aggressive federal investment, specifically utilizing the Department of Defense's Office of Strategic Capital (OSC) loan authority and the Industrial Base Fund (IBF) 23, must be channeled toward expanding non-Chinese processing capacity (e.g., heavy REE separation at Mountain Pass). Furthermore, the use of long-term purchase agreements and price floors, similar to the one granted to MP Materials 27, must be replicated to de-risk private capital investment in facilities that face the high upfront costs and the threat of Chinese economic warfare.
Recommendation 2: Mandate Defense Supply Chain Sovereignty.
Given the explicit threat formalized by the December 2025 Chinese export restrictions 5, the Department of Defense must leverage the $2 billion allocated to the National Defense Stockpile and other Defense Production Act (DPA) financing tools 23 to mandate the rapid transition to domestically or allied-sourced permanent magnets for all new major weapons platforms. A hard deadline should be set to ensure critical systems, such as the Columbia-class submarine program and advanced radar components, are fully insulated from Chinese supply by 2030.
Recommendation 3: Strategically Scale Rare Earth Recycling.
The U.S. must prioritize the development and commercial scaling of rare earth recycling technologies (e.g., urban mining and magnet swarf recovery).36 Substantial tax incentives and regulatory streamlining should be implemented to encourage rapid deployment of recycling facilities. This approach offers the most immediate path to generating diversified, high-purity feedstock necessary for domestic magnet manufacturing, circumventing the decades-long process and environmental complexities associated with building new virgin separation facilities.
Recommendation 4: Dedicate Funding to Non-REE Magnet Research.
Long-term strategic independence hinges on technological decoupling. Sustained public-private funding is necessary to overcome the primary technological barrier in non-REE magnets—the coercivity gap—specifically focusing on materials like Iron Nitride.35 Parallel efforts must also promote the immediate adoption of mature alternatives, such as Hard Ferrites, in high-volume, cost-sensitive commercial sectors like electric vehicles to reduce overall global demand for NdFeB magnets.
