China’s rare‑earth grip forces Western defense to rebuild

After Beijing imposed export controls on some rare earths in 2025–26, Western militaries and investors began efforts to rebuild supply chains outside China. China currently accounts for about 69% of global rare‑earth mine production, 91% of refining capacity and 94% of magnet manufacturing.

Rare earth elements are used in consumer electronics and in military systems, including guided missiles, stealth aircraft and smart grids. Export limits on raw materials or processed components can affect access to parts and materials needed for weapons and critical infrastructure.

Jacob White, director of ETF product management at Sprott, described China’s market share as dominant and cited the 69%, 91% and 94% figures. He pointed to export restrictions Beijing placed on rare earths to Japan in early 2026, and to U.S. defense and aerospace firms being added to Chinese export control lists in 2025. He also noted China currently restricts exports of seven of the 17 rare earth elements.

Since the restrictions, capital has flowed into mining projects, downstream separation and refining facilities, and local magnet manufacturers outside China. Several Western governments have opened subsidy programs and direct funding to accelerate re‑shoring and diversify suppliers.

Exchange‑traded funds focused on non‑Chinese rare‑earth companies have appeared to give investors exposure to the trend. One fund, the Sprott Rare Earths ex‑China ETF, targets companies across exploration, mining and downstream processing while excluding Chinese firms. Fund managers advise prospective investors to review prospectuses and consider risks, costs and tax implications before investing.

Analysts and industry officials say building an alternative supply chain will take years and face technical and environmental hurdles. Refining and magnet production involve complex chemical processes, licensed facilities and trained workers. Establishing large‑scale separation and refining capacity outside China requires sustained capital, regulatory approvals and workforce development.

Regulators and defense officials in Western countries have identified reducing dependence on Chinese rare earths as a policy priority. Governments have combined subsidies, strategic procurement and measures to attract private investment to create additional supply routes. Officials and industry observers say the next phase will assess whether new operations can reach the scale and cost levels needed to supply advanced military programs and civilian industries.