America’s War Machine Runs on Rare-Earth Magnets. China Owns That Market.

The American war machine depends on tiny bits of metal, some as small as dimes. Rare-earth magnets are needed for F-35 jet fighters, missile-guidance systems, Predator drones and nuclear submarines.

The problem: China makes most of the world’s rare-earth magnets, with 92% of the global market share.

Now, Washington is doling out hundreds of millions of dollars in grants and tax credits to revive magnet-making in America. Defense manufacturers are on a clock.

A U.S. law in 2018 restricted the use of made-in-China magnets in American military equipment, shriveling the list of potential suppliers to a small number in Japan and the West. By 2027, the curbs will extend to magnets made anywhere that contain materials mined or processed in China, covering nearly all of the current global supply.

After three decades of post-Cold War deindustrialization, rebuilding the industry—against China’s market heft—is an uphill battle, even with government help. Only one company in the U.S. is in production of the dominant type of rare-earth magnet.

“We’re not going to be able to simply flip a switch and get to where we want to be,” said Anthony Di Stasio, a senior U.S. defense official. “The only thing that you can really judge success on right now is how many positive ripples have you made from throwing the rock into the lake.”

The office Di Stasio runs in the Defense Department is diving into supply chains to invest in the pieces and parts that make the military work. Much of what they invest in is processing minerals and making metals, betting that regardless of how, for example, submarine technology evolves, the same building blocks will be needed.

“Let’s go as close to the dirt as we can so we know we’re still going to need it in 15 years,” said Di Stasio.

The Defense Department in the past few years has committed more than $450 million toward rare earths and the magnets they power. The Energy Department is offering its own incentives because the magnets are also critical for electric vehicles.

The funding is helping a German magnet-maker set up its first North American factory, which broke ground in March, two decades after its last U.S. factory shut down. The facility, in Sumter, S.C., will buy rare earths locally. Those supplies could come from other projects that are receiving government funding—such as processing plants coming up in California and Texas, owned by American and Australian miners, respectively.

Their highest hurdle is low Chinese prices. A U.S. Commerce Department probe in 2022 found that China’s dominant position enabled it to set prices low enough to make production unsustainable for competitors.

In the West, mines and processing facilities face more regulations. There are only a small number of experts left in the field, requiring pricey workarounds such as importing foreign talent, sending Americans abroad for training and automating.

“If you want it to be commercially viable, how are you going to accomplish it, because there’s a reason we don’t do it domestically anymore,” said Moshe Schwartz, a senior fellow for acquisition policy at the National Defense Industrial Association, a trade group representing the defense industry.

Pushing defense suppliers to buy more-expensive magnets that are made in the U.S. would raise costs and have a knock-on effect, potentially affecting how many defense systems such as submarines and jet fighters the Defense Department is able to buy, Schwartz said.

The other question is who else will buy the magnets. Defense demand, while considerable, isn’t enough. Other industries that use magnets, such as makers of EVs, wind turbines and MRI machines, would need to be willing to pay more today in exchange for a reliable supply chain.

At least one major player, General Motors, has agreed to buy American-made magnets when production starts. Some others say they are interested.

“If you think about how many bloody noses and black eyes and coronaries people had over the past two years over supply-chain disruptions, and how many millions were lost, having a regionally or near-shored product…is very valuable,” said Kirk Anderson, director of government affairs for Nidec Motor, a Japanese company that manufactures motors in the U.S.

Nidec is in talks to buy magnets from a U.S. company that has received government funding.

‘Scattered to the four winds’

The first rare-earth magnets were discovered in the 1960s by scientists at a U.S. Air Force laboratory. In the following two decades, military investments led to more-powerful versions capable of maintaining their pull in extremely high and extremely low temperatures. That allowed for new engineering feats, such as the advanced electronic-warfare systems of F-15 jet fighters that can work up to 70,000 feet in the sky.

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