China Bars U.S. Military From Access To Rare Earths, Increasing Risk Of "Derailing" Trade Truce
China plans to ease exports of rare earths and other restricted materials to the U.S. through a “validated end-user” (VEU) system that would bar firms linked to the U.S. military while fast-tracking approvals for others, according to a new report from the Wall Street Journal.
The VEU would let Xi Jinping honor his pledge to President Trump to facilitate exports while ensuring materials don’t reach military suppliers. If enforced strictly, the system could complicate imports for U.S. automotive and aerospace companies with both civilian and defense contracts. The plan remains subject to change, sources said.
WSJ writes that rare-earth magnets and similar materials are used in both civilian products—like electric vehicles and jets—and military hardware such as fighters and drones. The proposed VEU mirrors the U.S. version, active since 2007, which allows pre-approved firms to import sensitive goods without individual licenses but requires compliance inspections.
Since April, China has limited rare-earth exports to gain leverage in the trade war. After the Oct. 30 Trump–Xi truce, Beijing pledged to issue general licenses to “ease the flow of controlled materials,” though it appears to be maintaining some restrictions.
Beijing has not specified which companies will qualify or how long VEU approvals will last. Under the U.S. model, similar clearances have been revoked—an issue that has unsettled Beijing. As uncertainty persists, many firms continue to seek non-Chinese sources.
U.S. and European companies have reported reduced access to rare-earth magnets; Chinese exports to the U.S. fell 29% in September despite Beijing’s promises to relax curbs.
Elsewhere, Bloomberg noted that while the U.S. may resume receiving rare earths, added limits on military access “may increase the risk of derailing the current ‘trade truce,’” said Vey-Sern Ling, senior equity adviser at Union Bancaire Privée.
Recall just days ago we noted that China's deal with the U.S. on rare earths may have "hit a snag", writing that China was developing a new rare earth licensing system that could speed up exports, though it’s unlikely to fully reverse restrictions as hoped by Washington, according to industry sources cited by Reuters.
Reuters wrote last week that the new regime would simplify approvals compared to the rules introduced in April and expanded in October, which require a license for each shipment and have caused significant delays and shortages. Beijing’s curbs—covering over 90% of the world’s processed rare earths and magnets—have become a key point of leverage in its trade dispute with Washington.
Despite a recent U.S.-China agreement pausing some restrictions for a year, insiders say broader export controls remain in place. General licenses are expected to be harder to obtain for buyers linked to defense or sensitive sectors. Since April, EU firms have filed roughly 2,000 applications, with just over half approved.
We had speculated about how close the deal could be to collapse as recently as last week, and we said that it felt like "'the cracks in this latest trade deal are already starting to show…"
We concluded that "the game of export whack-a-mole in the second World Trade War continues: today the US is getting rare earths (at least until Trump has another Truth Social meltdown), but just got stopped out on other, just as important materials. This export control rotation will continue until the day the US is self-sufficient, which however due to the abovementioned environmental limitations, will take a very long time…"
Tyler Durden
Tue, 11/11/2025 – 18:00