Pentagon blocks White House rare earths deal, exposing China dependency dilemma

The Pentagon’s Office of Strategic Capital is reconsidering an $80 million loan to ReElement Technologies, a White House-backed rare earth recycling firm, over doubts about the company’s ability to scale its technology and deliver projected revenues.

The block, Bloomberg reported today, exposes a fundamental tension within the Trump administration: the speed required to break China’s near-total control of rare earth refining—roughly 90% of global capacity—forces policymakers to back unproven companies with uncertain economics, pitting strategic necessity against financial discipline.

Pentagon officials vetting ReElement have raised concerns about long-term revenue forecasts and whether the firm’s recycling process can reach commercial scale before a January 2027 deadline, when US Defense procurement rules will ban Chinese-origin rare earth materials from weapons systems. The loan was conditionally approved in November 2025 as part of a broader $200 billion financing push by the Pentagon’s Economic Defense Unit, known internally as Deal Team Six, which has taken equity stakes and extended purchase guarantees to domestic rare earth processors in an effort to end reliance on Beijing for materials critical to F-35 fighters, missile guidance systems, and electric vehicle motors.

The weaponization calculus

China’s grip on rare earth processing—Defense One reported the country controls 70% of mining and 90% of refining—creates a chokepoint that touches $1.2 trillion in global value-added production, from semiconductor fabrication to renewable energy infrastructure. Beijing demonstrated its willingness to weaponize this leverage in October 2025 with export control announcements targeting rare earth shipments to the US, though those measures remain paused.

The Pentagon’s rush to diversify has produced a portfolio of bets across the risk spectrum. In July 2025, the Defense Department took a $400 million equity stake in MP Materials, becoming the company’s largest shareholder. In January 2026, the Commerce Department’s CHIPS Program signed a letter of intent to provide USA Rare Earth up to $277 million in direct funding and a $1.3 billion senior secured loan to build a mine-to-magnet supply chain at its Round Top facility in Texas. In March, the Pentagon allocated $96 million to Lynas Rare Earths with a price floor of $110 per kilogram for neodymium-praseodymium oxide, guaranteeing revenue regardless of spot market prices.

ReElement sits at the speculative end of that spectrum. The company’s CEO, Mark Jensen, told NPR in November 2025 that the firm would become “the largest producer of rare earth oxides in the United States by the end of 2026,” relying on a recycling process that extracts materials from industrial waste rather than mining ore. Pentagon officials now question whether that timeline and throughput are achievable.

Legal authority and oversight gaps

The Pentagon’s dealmaking authority rests on a contested interpretation of the CHIPS Act’s “other transaction” clause, which allows the Defense Department to structure unconventional financing arrangements without traditional contracting processes. Senator Roger Wicker, chair of the Senate Armed Services Committee, warned in recent testimony that “little law currently exists to govern the spurt of equity deals in particular,” signaling congressional unease with the agency’s expanding role as investor and market-maker.

Industry officials have echoed concerns about conflicts of interest and insufficient due diligence. Bloomberg reported that some observers within the sector believe the Pentagon’s urgency has led it to back companies with unproven business models, prioritizing speed over technical validation.

The 2027 deadline

The January 2027 procurement ban creates a hard cutoff for the Pentagon’s China dependency. Defense systems that currently rely on Chinese-refined rare earths—including permanent magnets in F-35 actuators, precision-guided munitions, and radar arrays—will require qualified domestic or allied sources within eight months. Mike Crabtree, CEO of Saskatchewan Research Council, framed the stakes bluntly to OilPrice.com: “If China said we’re not going to give you rare earths, that means no F-35s, no missiles.”

That timeline pressure explains the Pentagon’s willingness to take equity risk and guarantee pricing above spot markets. Rush Doshi, former China director at the National Security Council during the Biden administration, described the situation to Bloomberg as a “five-alarm fire stage,” reflecting the pace at which China has consolidated control over rare earth separation and magnet production—from 70% in the early 2010s to 94% of global magnet output in 2024.

What to watch

The ReElement decision will signal whether the Pentagon is recalibrating its risk tolerance or simply tightening due diligence on the margins. If the loan is scrapped entirely, expect the White House to push for alternative recycling pathways or accelerated timelines at USA Rare Earth’s Round Top facility, where commercial magnet production is slated for 2028. Congressional oversight hearings on the Pentagon’s equity dealmaking authority are likely before the August recess, potentially restricting future transactions or imposing formal review processes.

China’s export control framework remains legally intact despite current suspension. Any escalation in US-China tech competition—particularly around semiconductor restrictions or Taiwan-related tensions—could trigger immediate rare earth supply disruptions, testing whether the Pentagon’s $200 billion bet has produced operational capacity or simply funded a portfolio of promising PowerPoints. The next 18 months will determine whether US industrial policy can move faster than China’s 40-year head start in rare earth processing infrastructure.