Trump Signs Executive Order to Strengthen Defense Supply Chain and Reduce Reliance on Chinese Rare Earths

U.S. President Trump signed an executive order on Monday (20th), directing the Department of Defense to comprehensively strengthen defense supply chain management and tighten exemption rules for contractors sourcing critical minerals and components from 'unreliable foreign suppliers' such as China, in an effort to reduce U.S. reliance on foreign sources for weapons production.

The new regulations cover defense-related materials including minerals, magnets, chemicals, forgings, and software. The Department of Defense will conduct in-depth assessments of suppliers at all levels to determine whether critical materials and components originate from countries such as China, North Korea, Russia, and Iran, and will evaluate foreign ownership, financial health, and manufacturing risks of these suppliers.

MP Materials (MP-US) is currently funded by the U.S. Department of Defense, which holds approximately 15% of its shares. Following the announcement of the executive order, MP Materials' stock reversed losses on Monday, closing up 1.01% at $45.70 per share.

The threshold for applying for exemptions has been raised. Under the new order, defense contractors can no longer apply for exemptions to purchase critical materials from restricted suppliers solely on the grounds of lower price or procurement convenience.

Companies must now demonstrate they have sought alternative sources, disclose the origin of materials, and submit concrete plans to reduce dependency. Contractors are also required to prioritize suppliers from the U.S. or allied nations and replace partners deemed unreliable.

Non-compliant firms may face government procurement penalties, including disqualification from bidding on or receiving defense contracts.

White House officials stated that without full visibility into the origins of critical materials, components, and software, the U.S. cannot maintain its advantage on the modern battlefield.

Peter Navarro, White House Senior Advisor for Trade and Manufacturing, described the supply chain review as 'battlefield preparation,' emphasizing that the U.S. must identify potential risks before any conflict arises.

China currently dominates the rare earth supply chain. Many critical minerals and processed materials required for missiles, military aircraft, semiconductors, automobiles, and artificial intelligence (AI) infrastructure remain heavily dependent on Chinese supply chains.

Beijing has recently restricted exports of certain critical minerals and has used rare earth supplies as leverage in U.S.-China trade negotiations and disputes with Japan.

Navarro stated that China employs a strategy of 'gradual starvation, not sudden strangulation,' applying pressure by slowing down export processes.

He emphasized that the U.S. is accelerating efforts to onshore critical mineral supply chains. For instance, Vulcan Elements, a U.S. rare earth magnet manufacturer, has partnered with ReElement Technologies to establish a domestic rare earth magnet supply chain for defense, aerospace, and AI infrastructure.

White House officials said the government has already facilitated nearly 150 related transactions, invested billions of dollars, and recruited approximately 400 transaction and investment professionals from the private sector to accelerate the development of critical supply chains.

Despite increased U.S. investment, analysts believe it may still take years for the U.S. to meaningfully reduce its reliance on certain Chinese rare earth materials. Rare earth supply is expected to remain a focal point in U.S.-China strategic competition.

Earlier this month, China added 10 U.S. companies, including MP Materials (MP-US) and USA Rare Earth (USAR-US), to its export restriction list. China stated this move was in response to the U.S. Department of Defense listing Chinese firms such as Alibaba (BABA-US) as Chinese military companies operating in the U.S.

Alibaba has filed a lawsuit demanding removal from the list, asserting that the company has no ties to the Chinese military.