Magnet supply chain: why western manufacturing is a strategic imperative

Western manufacturing has become a strategic imperative as global rare earth magnet supply chains shift following China’s export restrictions. Aaron Williams examines the growing need for diversified sourcing, the expansion of non-Chinese manufacturing capacity, and practical strategies manufacturers can use to build more resilient supply chains while supporting long-term demand across defense, aerospace, electric vehicles, and other high-performance applications

In April 2025, the rare earth magnet industry changed in a single afternoon. China introduced new export license requirements for rare earth materials, and companies across aerospace, defense, and electric vehicles discovered how exposed their supply chains had become.

More than a year later, the industry is still adjusting to what that means. This is not a crisis. It is a transition, one that is reshaping how serious buyers think about sourcing.

What changed and why it mattered

China’s new export rules did more than add paperwork. To obtain a license, exporters must disclose what is being purchased, its intended use, the end customer, and how the material will ultimately be applied. For commercial products, that disclosure slowed shipments considerably. For defense programs and other IP-sensitive applications, it stopped them outright, since the level of end-use detail required is often exactly what those programs cannot share.

The scale of the exposure explains why this mattered so much. The global rare earth permanent magnet industry is roughly a $30 to $31 billion market, and China controls somewhere between $26 and $28 billion of it. Every other producing nation combined, from Japan to Germany to the United States, remains small by comparison, and a single policy change was enough to expose how concentrated the industry had become.

A risk years in the making

April 2025 made the risk impossible to ignore, but it was not the first warning. The regulatory groundwork had been building for more than a decade, even if most buyers only registered the shift once it began affecting them directly.

Back in 2010 and 2011, China briefly restricted rare earth production output. Prices spiked, then the market settled within six months, and at the time it looked like an isolated event. In hindsight, it was an early test of how dependent the world had become on Chinese refining, and the results were telling.

U.S. policy began responding well before the current squeeze. The 2019 NDAA barred magnets melted or produced in restricted nations, namely China, Russia, North Korea, and Iran, from defense supply chains. The 2024 NDAA went further, prohibiting even the sourcing of raw ore from those countries starting January 1, 2026, a deadline later pushed to January 1, 2027 once it became clear that opening a new mine is not a two-year undertaking. The regulatory direction, in other words, has been consistent for years; April 2025 simply raised the urgency behind it.

Why substitution is not the answer

Some buyers have quietly hoped this problem will solve itself through substitution. It will not, and the reasons are largely a matter of physics rather than policy.

Traditional induction motors use no permanent magnets and run at roughly 85% efficiency converting energy to mechanical output, while rare earth permanent magnet motors reach closer to 95%. As the world electrifies further, that efficiency gap alone guarantees rising demand for these magnets, not falling demand.

Drones, aircraft systems, and electric vehicles all need motors that are compact and powerful at once, and permanent magnets remain the only technology that delivers both. Ceramic magnets are sometimes marketed as a rare-earth-free alternative, but the strength gap is considerable: roughly 5 to 10 on the standard scale, compared with 30 to 60 for neodymium iron boron. Nothing on the market matches samarium cobalt or NdFeB for strength and efficiency together.

What resilience looks like right now

If demand is not going anywhere, the only lever left is supply. That buildout outside China is real, and it is already underway.

The distributor blind spot

April 2025 also exposed a problem that had nothing to do with China’s policy and everything to do with the supply chain itself. A number of magnet distributors had been buying Chinese-made magnets and reselling them as part of what looked like an ordinary domestic supply relationship.

Many customers only learned this when the export restrictions cut off material they had assumed was already secured. Knowing a supplier’s name, it turned out, was not the same as knowing where the material actually originated.

The non-Chinese buildout

MP Materials is mining at Mountain Pass, California, with processing capacity in Texas. USA Rare Earth is manufacturing magnets in Oklahoma and has acquired a mine in Brazil.

Lynas mines in Australia and refines in Malaysia, supplying non-Chinese customers directly. None of this replaces China’s scale yet, but it is an alternative supply chain that barely existed five years ago.

Arnold’s joint-venture model manufactures magnet alloys in the West while maintaining reliable access to materials in the East, rather than depending entirely on one region.

On the samarium cobalt side, Arnold acquired a substantial stock through a deal with Solvay in France, material that was already sitting outside China. That reserve supports mission-critical defense applications like fighter jets, missiles, and rockets.

Alongside it, the company maintains its own strategic reserves and buys materials well ahead of need. None of this is unique to Arnold; serious magnet producers across the industry are making similar moves.

That approach rests on a footprint built over time rather than assembled in response to the current squeeze: facilities in China and Thailand, eight sites across the United States, and two in Europe, supported by an engineering bench that includes physicists, motor designers, and materials engineers.

The regional spread matters as much as the headcount. It allows sourcing and manufacturing decisions to be made close to where the material and the customer both are, rather than routed through a single location.

The timeline ahead

The near-term picture is still tight. Non-Chinese producers have operated hand-to-mouth since April 2025, and that scramble is not fully over.

But governments on both sides of the Atlantic are investing directly in mining and processing capacity, and the industry expects meaningfully better footing by 2027 and a genuinely secure position by 2028.

A framework for buyers and engineers

The clearest lesson from the past year has less to do with geopolitics and more to do with inventory discipline.

Companies running lean, just-in-time magnet supply were hurt badly, some left with as little as a single month of pipeline when the export restrictions hit. Companies carrying six months of stock came through largely unscathed, a gap that reflected planning rather than luck.

The practical takeaway is to treat supply chain resilience as a formal specification, evaluated alongside performance, temperature range, and form factor, rather than a question that only gets asked after a disruption. That means extending demand forecasts further out, planning further out with suppliers, and understanding where a magnet’s material actually originates before it becomes a program risk.

Engaging a supplier early, during the design phase itself, is part of the same discipline, and it can pay off well beyond resilience alone.

Making scarce material go further Sourcing is only half the resilience equation. With rare earth material tight and more expensive, how efficiently a design uses it matters just as much as where it comes from. Working with a supplier like Arnold early in the design phase can reduce how much material a program needs in the first place, without giving up performance: Stator slot fill. Over-specifying copper fill often forces late changes to magnet sizing, which can mean redesigning around more material than the application actually needs. Press-to-shape vs. machining. Machining magnets from blanks wastes material in the cutting, much like cutting a small part from an oversized bar. Press-to-shape manufacturing is closer to what the part actually requires. Grade and thickness trade-offs. A thinner, higher-grade magnet can sometimes match the performance of a thicker, lower-grade one, stretching limited supply across more units. These are the kinds of material-efficiency gains that come from early collaboration between design and manufacturing teams.

A transition, not a crisis

It is worth restating the core fact underneath all of this: rare earth magnets are not going away, and there is no substitute waiting in the wings. Demand will keep climbing as electrification spreads, regardless of which policies speed it up or slow it down in any given year.

What is changing is where that supply comes from and how much buyers pay to secure it. Costs are likely to run higher for a while as the non-Chinese industrial base scales up, and that is the price of durability, not a sign that the system is broken.

Companies with decades of experience supplying defense-grade materials, Arnold among them, have navigated constrained supply chains before. The scale of this one is new. The discipline required to manage it is not.

Producers and policymakers are now moving in the same direction. Together, they have opened a window of opportunity for buyers, but that window will not stay open forever. Buyers who secure supply and build real resilience now will be well positioned as the market gradually improves.

Aaron Williams is Chief Commercial Officer, Arnold Magnetic Technologies.