Trade War Shockwaves: Tariffs and Tech Bans Strain China’s Military and U.S. Defense Firms
Economic Conflict Hits the Arsenal
The escalating U.S.–China trade war has spilled over into the defense sector. By mid-2025, tit-for-tat tariff hikes and export controls have effectively decoupled critical supply chains, with punitive tariffs soaring above 50% and even into triple digits on each side. Beijing and Washington are targeting each other’s technological underpinnings: the U.S. aims to choke off China’s access to advanced semiconductors and aerospace inputs, while China is leveraging its dominance in rare earths and other materials to squeeze U.S. industry. This report examines how the tariff escalation and associated tech sanctions are undermining China’s defense industrial base – especially dual-use firms supporting the People’s Liberation Army (PLA) – and how China’s countermeasures are straining U.S. defense contractors. We analyze impacts across the PLA’s branches (from Ground Forces to Rocket Force, Navy, Air Force, and C4ISR logistics) and assess implications for military modernization and potential conflict scenarios like a Taiwan invasion. We also identify major U.S. defense companies (with ticker symbols) exposed to Chinese supply disruptions in rare earth elements, electronics, and other dual-use components, and consider how supply chain fragility could hinder production of aircraft, missiles, ships, and more. Finally, we discuss the broader policy ramifications of this “economic war” on defense postures, technology decoupling, and strategic planning in both countries.
China’s Defense Industrial Base Under Tariff and Tech Pressure
The PLA has long pursued Military-Civil Fusion (MCF) – harnessing civilian industries and advanced technology for military purposes – making many Chinese tech firms de facto dual-use suppliers for defense. U.S. trade measures now directly threaten this model. Over the past few years, Washington has increasingly restricted Chinese access to cutting-edge tech: for example, sweeping export controls in October 2022 banned China from acquiring advanced semiconductor chips, chip-making equipment, and expertise. These controls are explicitly aimed at degrading the PLA’s modernization, freezing China’s chip capabilities at 2022 levels and impeding military development in areas like artificial intelligence, hypersonic weapons, and secure communications. As a result, Chinese semiconductor firms and dual-use tech companies have been hard-hit. SMIC (Semiconductor Manufacturing International Corp.), China’s largest logic chipmaker, lost access to critical U.S. equipment and even routine machine maintenance under the new rules. U.S. toolmakers (Applied Materials, Lam Research, KLA) halted support to Chinese fabs, and even third-country suppliers like Netherlands-based ASML pulled U.S. staff from servicing China’s facilities.
In effect, Washington has cut off the “silicon oxygen” for China’s high-end tech industry, hampering the PLA’s ability to procure advanced processors and components for its weapons.
China has weaponized its dominance in rare earth elements, as seen with workers preparing rare earth ore for export. In April 2025, Beijing imposed new export controls on rare earth magnets to retaliate against U.S. tariffs, squeezing the West’s supply of minerals crucial for weapons, electronics, and other high-tech goods. This move highlighted China’s leverage over critical mineral supply chains.
Beijing has retaliated in kind. In early 2025, China unveiled comprehensive countermeasures against U.S. tariffs: beyond mirror-tariffs on American goods, it introduced export restrictions on strategic materials and sanctioned U.S. companies. In April 2025, after the U.S. hiked tariffs on Chinese products to 54%, China announced new controls on seven categories of rare earth elements and magnets – including heavy rare earths like dysprosium, terbium, and yttrium – effectively throttling exports of these inputs worldwide. China dominates rare earths, producing around 90% of the world’s supply and controlling 85% of global processing capacity. By requiring export licenses and quotas for these minerals, Beijing can “turn off the tap,” disrupting foreign defense contractors that rely on them. The Chinese government also imposed export license requirements on other critical materials where it holds a monopoly – notably gallium, germanium, and graphite, for which China accounts for 98%, 68%, and 65% of global output respectively. Between 2023 and 2025, Beijing added antimony and tungsten (key for metal alloys and munitions) to its restriction list as well. And in Dec 2023, China outright banned the export of rare earth extraction and processing technology, trying to stall other countries’ efforts to build independent supply chains. All these moves are a form of strategic economic warfare: they exploit Chinese dominance in materials to retaliate against U.S. measures and to raise the cost for Washington’s defense industry.
Crucially, China has targeted not only materials but also companies. It established its own “Unreliable Entity List” and Export Control List to blacklist firms seen as threatening its interests. In January 2025, Beijing banned exports of dual-use products to 28 U.S. defense contractors – including major players like Lockheed Martin, Raytheon, Boeing Defense, and General Dynamics – and added 10 of them to the Unreliable Entities List (largely over U.S. arms sales to Taiwan). In practical terms, this forbids Chinese firms from selling any dual-use goods or technology (from electronic components to specialty materials) to those U.S. companies. It’s a direct shot at the supply lines of American military programs, mirroring U.S. blacklists that cut off Chinese firms. Earlier rounds saw Chinese authorities designate American tech firms and defense companies on an export control list, prohibiting them from receiving certain Chinese-origin goods. Beijing’s message is clear: if the U.S. tries to strangle the PLA’s access to technology, China will in turn choke the supply of critical inputs to U.S. industry. The result is a forced unwinding of decades of globalization in the defense sector – a rapid technological decoupling with both sides rushing to secure self-sufficiency or alternative suppliers.
From China’s perspective, these pressures create turbulence for its defense-industrial plans. The PLA relies on a network of state-owned giants and private tech firms to equip and upgrade its forces. Large defense conglomerates like AVIC (aviation), NORINCO (land systems), CASC/CASIC (missiles and space), CETC (electronics), and CSSC (shipbuilding) form the backbone of military procurement. Many of their subsidiaries produce civilian goods or partner with foreign firms, making them vulnerable to trade curbs. For example, AVIC subsidiaries supply components to Boeing’s commercial airliners – a business now jeopardized by high tariffs and Chinese export bans. NORINCO and CASC have civilian arms (energy equipment, industrial machinery) that were targeted by U.S. tariffs on industrial goods. More critically, scores of smaller dual-use enterprises – often at the cutting edge of high tech – have been directly hit by U.S. export controls. Companies in semiconductors, telecom, AI, and aerospace tech have landed on U.S. blacklists due to ties with the PLA. These include telecom giant Huawei, drone maker DJI, AI firms like SenseTime, and chip designers like Phytium and Hygon – all accused of aiding China’s military or security apparatus. Being on the Entity List means they cannot buy many U.S.-origin components or software, strangling their product development. For instance, Huawei’s inability to source advanced 5G chips crippled its smartphone and networking businesses, limiting its capacity to provide cutting-edge 5G infrastructure that the PLA could also utilize. Similarly, China’s leading advanced drone makers have struggled to get high-end sensors and microprocessors, which affects the capabilities of UAVs available for military use.
In response, China has doubled down on indigenous innovation and stockpiling. President Xi Jinping’s call for self-reliance in critical tech has sparked huge state investment in semiconductor fabrication, domestic jet engine programs, AI and quantum computing research, and strategic material production. Though progress is uneven, there are concerted efforts to replace foreign suppliers. China is also likely hoarding reserves of vital components and minerals to buffer the PLA against future supply shocks. Still, in the near term, the sudden loss of access to Western technology is creating bottlenecks and delays in some Chinese defense programs. Below, we detail how these disruptions are affecting each branch of the PLA.
Impacts Across PLA Branches and Programs
Ground Forces (PLA Army)
China’s Ground Forces have traditionally been less exposed to foreign supply than other branches, owing to older-generation equipment and long-standing Western arms embargoes (in place since 1989). The PLA Army’s tanks, armored vehicles, artillery, and small arms are largely produced domestically by conglomerates like Norinco. However, modern ground warfare is increasingly tech-intensive, and here the supply squeeze is felt. Advanced sensors and electronics for tanks and infantry fighting vehicles are one vulnerability. Modern tanks rely on thermal imaging sights, laser rangefinders, and digital fire-control – technologies where Western firms historically led. In the 2000s, for instance, some Chinese tanks incorporated French-made thermal imagers and other imported sub-systems, significantly improving their night-fighting capability. Today, such imports are curtailed: export controls (both U.S. and allied) now classify many imaging sensors and targeting electronics as dual-use, blocking sale to China’s military companies. The PLA is racing to produce indigenous thermal cameras and scopes, but quality and performance may lag behind Western equivalents, potentially constraining the effectiveness of China’s latest armored units.
The communications gear and battle management systems linking PLA ground units are also impacted. Advanced digital radios, satellite communicators, and C4I (command, control, communications, computers, and intelligence) systems often depend on high-end microelectronics. U.S. sanctions on Chinese tech firms have limited PLA access to state-of-the-art microprocessors and encryption chips for these systems. As a result, the Ground Forces might have to rely on slightly older-generation electronics that are more vulnerable to interception and less adept at handling data. For example, if secure U.S.-made FPGAs (field-programmable gate arrays) or processors are no longer available, Chinese developers must substitute with less powerful domestic chips. This could slow the PLA’s drive toward a fully networked force, where every soldier and vehicle is connected with real-time battlefield data.
Another area is vehicles and propulsion. While China produces its own military truck engines and armored vehicle powerplants, it has occasionally sourced specialized vehicle engines from abroad. Notably, some Chinese attack helicopter programs in the past used Western-designed engines (often via third countries). With tighter export scrutiny, even civilian-certified aircraft engines that could equip military rotorcraft are harder to obtain. A case in point: Canadian and French helicopter engines that China once imported for certain models are now largely off-limits. This may delay fielding of new indigenously-designed helicopters or UAVs for the Army Aviation branch if domestic engine alternatives are underpowered or still in testing. Overall, the Ground Forces will still modernize, but the pace and sophistication of upgrades – particularly in sensors, comms, and niche systems – are being checked by the tech restrictions.
Strategic Rocket Force (Missiles and Nuclear Forces)
The PLA Rocket Force, in charge of China’s strategic and tactical missile arsenal, is highly dependent on advanced technology – and thus acutely sensitive to the semiconductor embargo and related bans. Modern missiles (whether ICBMs, hypersonic glide vehicles, or precision short-range ballistic missiles) require powerful onboard computers, high-performance sensors, and specialized materials. Guidance and control systems for missiles rely on radiation-hardened microchips, precision gyroscopes, and accelerometers. Many of these components have been sourced (directly or indirectly) from Western suppliers in the past. Now, U.S. export controls are clamping down on any such sales. American and allied authorities have tightened oversight to prevent chips or guidance tech from reaching China’s missile programs – even chips that aren’t cutting-edge but can be used in military applications are subject to denial if the end-user is linked to the Rocket Force. This forces China to either produce these components domestically or procure them covertly. Chinese engineers are working to replace foreign DSPs and microcontrollers in missile electronics with homegrown versions, but designing equally reliable components takes time. Any slips in quality control could mean missiles with less accuracy or robustness.
Moreover, the development of next-generation missiles (like hypersonic glide vehicles or advanced MIRVed nuclear warheads) demands extensive simulation, testing, and cutting-edge materials. High Performance Computing (HPC) is crucial for modeling aerodynamics, warhead physics, and guidance algorithms. The U.S. chip ban explicitly aims to limit China’s HPC capabilities for military R&D. By denying access to top-tier CPUs/GPUs and accelerators, the U.S. hopes to “freeze” China’s progress in areas like hypersonics. Indeed, advanced semiconductors underpin everything from autonomous vehicles to hypersonic weapon systems. Without access to the latest processors (e.g. NVIDIA A100 GPUs or advanced Intel/AMD CPUs), Chinese researchers may have to use older, slower systems, potentially lengthening development timelines for complex missile systems.
There is also the issue of materials and components for rockets. China’s rockets and missiles use composites, high-grade carbon fiber, and exotic alloys. Some of these were historically imported or made with foreign machinery. U.S. export control lists include specialized carbon fibers and machine tools for winding rocket motor casings, aiming to hinder China’s production of solid-fuel rockets. If Chinese manufacturers can’t acquire the best carbon fiber (often made in Japan or the West) due to U.S. pressure on allies, their missile casings might end up heavier or less reliable until domestic materials improve. Similarly, sensors like infrared seekers for cruise missiles might require mercury cadmium telluride detectors or other tech that Western firms dominate; those are now harder to come by. Beijing is not sitting idle – it has likely stockpiled certain components and will allocate top priority to missile programs – but overall, the export controls could slow the Rocket Force’s drive to field more sophisticated and diverse missiles. The PLA may have to stick with slightly older electronics in some systems, or iterate more to perfect indigenous substitutes, delaying some modernization milestones.
Navy (PLA Navy/PLAN)
China’s Navy has undergone a rapid buildup, but it, too, faces headwinds from the trade and tech war. A critical vulnerability for the PLAN is propulsion and powerplant technology for its ships and submarines. For years, China imported or illicitly acquired advanced marine engines: e.g. high-performance diesel engines for frigates and destroyers were sourced from German and French manufacturers (MTU, SEMT Pielstick) and gas turbines for larger warships were based on Ukrainian or Western designs. As geopolitical tensions rose, those sources started drying up. Now, with the current climate, any remaining trickle of Western engine parts or technical support is effectively cut off. China has developed domestic marine diesel engines and even gas turbines (like the QC-280 for its Type 055 destroyers, adapted from Ukrainian tech), but quality and reliability issues have persisted. The absence of foreign options means the Navy must fully rely on these domestic powerplants. If they prove less efficient or prone to breakdown, the PLAN’s operational tempo or the performance of its warships could suffer. For instance, slightly lower power-to-weight ratios might result in slower acceleration for warships or shorter time between overhauls, affecting combat readiness.
Another impact is on the PLAN’s sensor and electronics suites. Modern warships bristle with radars, sonar systems, electronic warfare gear, and integrated combat systems – all of which depend on high-end electronics. Many PLAN vessels use phased-array radars (AESA radars) that require specialized semiconductors (like gallium nitride (GaN) modules and high-speed signal processors). The U.S. blacklisting of Chinese defense-electronics firms (like CETC, which develops radars) means they cannot import certain chip components or Electronic Design Automation software from abroad. This might slow improvements in radar performance or production. Additionally, China has been known to import some undersea warfare technology – for example, advanced sonar transducers or maritime helicopter dipping sonars – from Western or Russian sources. With a tighter tech noose, acquiring state-of-the-art anti-submarine warfare (ASW) gear is more challenging. That could leave a gap in PLAN capabilities, e.g. in tracking submarines, if domestic sonar tech isn’t yet at the cutting edge.
The Navy’s shipbuilding logistics could also feel indirect tariff effects. Prior to tariff escalation, Chinese shipyards sometimes imported specific high-grade components (navigation systems, diesel generator parts, etc.) from Europe or the U.S. for indigenously built civilian ships – components that could be shared with naval projects. U.S.–China tariffs on industrial goods and Chinese counter-tariffs can raise costs or cause delays in getting even non-restricted items like high-end bearings, pumps, or valves if they had U.S. origin. Now those must be sourced elsewhere or locally at possibly lower quality initially. Furthermore, China’s newly launched aircraft carriers and forthcoming submarines rely on specialty materials – for example, arresting gear for carriers or quieting tech for subs – which in Western navies often involve proprietary tech. Any covert attempts by China to import or license such tech will be vigilantly blocked by new export control regimes. In summary, the PLAN will continue launching ships at an impressive rate, but some of those platforms might not achieve their full design potential due to constraints in engines, electronics, and sub-systems stemming from trade restrictions.
Air Force (PLAAF)
The Air Force is perhaps the branch where high technology matters most – and consequently where U.S. tech-denial strategies bite hardest. Jet engines remain the PLA Air Force’s Achilles’ heel. Despite progress, China has struggled for decades to master advanced turbofan engines for fighters and transports. It often relied on Russian engines (like AL-31F and D-30KP) to power jets such as the J-10, J-11, and Y-20 transport. It also sought Western engine know-how when possible (e.g. the WS-10 engine lineage benefited indirectly from CFM56 tech in the 1980s). Today, direct Western support is off the table: export sanctions and arms embargoes ensure no Western aerospace firm can legally transfer engine technology. Even civilian engines – like the CFM LEAP powerplant used in China’s C919 airliner – are under careful U.S. scrutiny to prevent diversion to military use. If U.S.-China relations further worsen, the U.S. could move to block delivery of such civilian engines as well. In practice, that compels China to accelerate development of indigenous engines (e.g. WS-15 for the J-20 stealth fighter, WS-20 for heavy transports). But indigenous engines have faced testing troubles and delays – achieving the necessary combination of thrust, fuel efficiency, and durability is extremely challenging without foreign expertise. A protracted inability to perfect these engines means front-line fighters might fly with less powerful interim engines (limiting their supercruise or full stealth potential), and the Air Force’s goal of a fully home-grown fleet remains elusive.
Avionics and electronics of the PLAAF are equally affected. Modern combat aircraft depend on a suite of avionics: fire-control radar, mission computers, electronic warfare systems, helmet-mounted displays, and more. Many of these subsystems benefit from advanced microprocessors, FPGA chips, and specialized semiconductor devices (like analog-to-digital converters for radar signals) which historically came from U.S. or allied suppliers. Chinese military jet developers (such as AVIC’s institutes) often incorporated Western-sourced microelectronics whenever possible for better performance. The tightening export noose means that even commercial-grade aviation electronics that could be adapted for military use are difficult to import. For example, if a Chinese fighter’s radar was using a high-end FPGA from Xilinx (a U.S. company) in its signal processor, that supply may now be cut off. The PLA will need to use either older stock or lower-performance local chips, which could result in radars with reduced detection range or slower processing of targets. Similarly, the software and simulation tools for developing aircraft (like computer-aided engineering software, or even wind-tunnel sensor equipment) often originate from the West. The U.S. has been urging allied nations to curb sales of any aerospace testing equipment to China’s military programs. If China can’t get the latest simulation tools, it could slow the iterative design of new aircraft or munitions.
Another angle is materials for stealth and avionics. Stealth fighters like the J-20 rely on radar-absorbent coatings and high-end composites for airframes. The chemicals and machines for stealth coatings can be export-controlled items. Likewise, aircraft electronics require rare earth elements (for radar components, sensors, and high-temp magnets) – which China itself produces in abundance, so raw supply isn’t an issue domestically. However, certain processing techniques and high-purity outputs might have previously been obtained from abroad. With China itself restricting export of rare earth processing tech and the U.S. blocking other specialized materials, both sides are essentially in a tech race to see who can fill gaps faster. For the PLAAF, in the short run, this means some of their newest planes might not have the absolute latest generation of subsystems. A stealth drone or advanced fighter coming out in 2025 might internally resemble a 2018-era technology level rather than bleeding-edge, due to inability to import a few cutting-edge components. This could narrow the capability gap between new Chinese aircraft and those of the U.S., which continues to incorporate state-of-the-art tech (with secure supply chains) into platforms like the F-35. The PLA Air Force will still field formidable aircraft, but the tech sanctions inject uncertainty into how rapidly it can improve things like engine reliability, sensor fusion, and other force-multiplying features.
Military Logistics and C4ISR
Efficient logistics and robust C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, Reconnaissance) are the behind-the-scenes glue of modern military power. The PLA has been working to improve its logistics management and C4ISR networks to support high-tempo, far-from-mainland operations. These efforts rely heavily on information technology, where U.S. and allied sanctions strike at critical points. For instance, the PLA’s logistics system is adopting RFID tracking, computerized supply databases, and AI-assisted planning – essentially the kind of enterprise IT systems used by large corporations. Many of the high-end servers and networking equipment to run such systems come from the commercial tech world. Companies like Huawei and Alibaba were expected to provide cloud computing and big-data analytics to the military under China’s MCF strategy. Yet Huawei and similar Chinese ICT firms have themselves been crippled by U.S. sanctions – unable to buy top-tier server CPUs (like Intel Xeon or AMD Epyc) or specialized AI chips for their data centers. This means any cloud infrastructure the PLA Logistic Support Department builds will be running on either older tech or domestic chips (such as Huawei’s Kunpeng CPUs or Phytium chips) that may not match the performance of Western hardware. The net effect could be slower or less efficient logistics software, potentially reducing the responsiveness of China’s military supply chain under stress.
C4ISR systems – which include satellites, reconnaissance drones, secure communication links, and command centers – are similarly constrained by tech access. China has launched dozens of military satellites for imaging, navigation (Beidou), and communications. The satellites themselves often used some foreign components (satellite-grade microchips, sensors, solar cells) obtained from European suppliers or others. The U.S. has been tightening loopholes that previously allowed European satellite parts to be sold to China’s space program. As a result, the newest Chinese spy satellites or early-warning satellites might face delays or reduced capability if certain components can’t be sourced or must be indigenously made at lower quality. On the ground, PLA units depend on encrypted radio and data links (akin to NATO’s tactical datalinks). Ensuring those links are secure against jamming and interception requires up-to-date encryption modules and software-defined radios – many of which would normally use Western-origin technology. With those off the table, China must push its domestic electronics industry to fill the void. In the short term, the security and resiliency of PLA communications might be weaker than it otherwise would be, as they iron out bugs in home-grown cryptographic chips or radio firmware.
Beyond hardware, even organizational know-how is impacted: pre-trade war, the PLA could hire Western logistics consultants or buy specialized software (for maintenance management, etc.) from Western vendors indirectly. Now, such exchanges are politically untenable or illegal under sanctions. Thus, the PLA’s learning curve in areas like joint logistics and complex project management might be steeper. The military has responded by more tightly controlling information outflows (e.g. new counter-espionage laws) and likely by increasing cyber espionage to steal what it can’t buy. But in sum, while the PLA’s logistics and C4ISR modernization continues, the trade conflict has introduced friction. The Chinese military cannot rely on importing any “shortcuts” for its digital infrastructure – it must reinvent many wheels itself, which is doable but time-consuming.
Potential Taiwan Invasion Scenarios
All of these constraints have direct relevance to a potential Taiwan contingency. A PLA campaign against Taiwan would be the most complex military operation China has ever undertaken – requiring air superiority, naval blockade, amphibious assault, massive missile barrages, and seamless coordination and supply. Tariffs and tech sanctions do not stop the bullets from flying, but they shape the balance of readiness and capability leading up to such a scenario. Because of the trade war-induced supply disruptions, the PLA in 2025 may not be quite the force China envisioned a decade earlier. Some analysts suggest that U.S. tech controls could delay the PLA’s achievement of certain breakthroughs (for example, a fully stealth-capable air wing or a hardened, networked C4ISR architecture) that Beijing might deem necessary for a high-confidence invasion. If critical systems – like a next-gen anti-ship ballistic missile or a drone swarming AI network – are not fully matured due to chip shortages or lack of testing, China’s leaders might recalculate the risks of an invasion and hold off longer than they otherwise would. In essence, the trade and tech war is buying time for the U.S. and Taiwan by slowing the PLA’s modernization timetable.
On the ground, an invasion of Taiwan would require tens of thousands of troops and vehicles crossing the strait. The PLA Navy’s ability to escort and land this force hinges on reliable ships and sufficient amphibious lift. If Chinese shipyards have encountered delays building large amphibious assault ships (Type 075 LHDs, for example) due to engine or electronics supply issues, the available fleet for an invasion might be smaller or less equipped than planned. Each destroyer or submarine lacking its optimal sensors or maintenance could degrade the overall effectiveness of the blockade or fleet air defense. Similarly, the munitions stockpile is a huge factor – China would rely on massive salvos of missiles (ballistic and cruise) to suppress Taiwan’s defenses and potentially deter U.S. intervention. Those missiles, as noted, are sensitive to component availability. A shortage of high-end electronics or specialty materials could mean China has produced fewer advanced missiles by 2025 than its targets – or had to keep some older models in service longer. That could translate to less saturation of Taiwan’s defenses or fewer precision strikes on critical targets, affecting the invasion’s prospects.
Another angle is sustainability. An invasion that isn’t a quick fait accompli could become a protracted conflict or even draw in U.S. forces – in which case, logistics endurance and war economy become vital. Here, the degree of economic decoupling matters greatly. By cutting off each other’s supplies, both China and the U.S. would face wartime constraints. China is the world’s manufacturing hub, but under heavy sanctions (as would occur in a war scenario), its ability to churn out high-tech replacements – like more drones, guided weapons, satellite components – would depend on stockpiled resources and fully domestic supply chains. The current tariff/sanctions environment is essentially stress-testing China’s ability to fight in isolation. If China finds itself unable to produce key components at scale without foreign inputs, that is a significant vulnerability in a long war over Taiwan. For instance, if semiconductor export controls remain effective, China might struggle to replace satellite losses or degraded C4ISR networks during a conflict, whereas the U.S., with its onshore or allied chip production, could more easily reconstitute capabilities.
That said, the decoupling cuts both ways. The U.S. military is quickly trying to eliminate Chinese dependence in its own arsenal (discussed more below), but currently it still relies on China (or the global market China dominates) for many inputs. Should deterrence fail and conflict erupt, the U.S. could face shortages or delays in ramping up certain armaments – e.g. if rare earth magnet supply from China is completely severed, production of missiles and jets might bottleneck until alternate sources or reserves kick in. The 2025 tariff war environment, where effectively 84–125% tariffs and bans are in place, is almost a simulation of wartime trade cutoff. It forces both sides to prepare as if decoupling is permanent. In a Taiwan invasion scenario, the side that has adapted better to supply chain independence will have a strategic edge. Currently, the U.S. is scrambling to bolster stockpiles and alternate suppliers (and Taiwan itself has been stockpiling munitions), while China is pushing a crash program of self-reliance. The policy choices made now – in tariff and sanction form – may very well determine how an actual clash in the Taiwan Strait could play out or whether it’s deterred altogether. As one analyst observed, China’s ability to wage high-tech warfare might plateau if it’s locked out of the latest tech, potentially postponing the point at which PLA leaders feel confident in victory. Meanwhile, the U.S. and allies are urgently trying to patch their vulnerabilities to avoid a supply chain choke in conflict. The next section looks at those U.S. vulnerabilities in detail.
U.S. Defense Contractors’ Exposure to Chinese Supply Chain Disruptions
China’s counter-strikes in the trade war – especially export controls on rare earths and other dual-use materials – have put a spotlight on U.S. defense contractors’ dependence on Chinese supply chains. The U.S. defense-industrial base, while formidable, has not been immune to globalization; many key inputs for American weapons come from or are processed in China. As Beijing tightens exports of these inputs and even explicitly blacklists certain U.S. defense firms, American companies face supply shocks that could ripple into production of jets, missiles, ships, and more. Below we identify major publicly traded U.S. defense contractors (with their stock ticker symbols) and examine their exposure and vulnerabilities:
Lockheed Martin (LMT) – As the world’s largest defense contractor (maker of the F-35 fighter, among many other systems), Lockheed Martin is notably exposed to Chinese supply choke points. Most prominently, rare earth elements from China are used in the F-35 and other Lockheed products. An F-35 Lightning II contains over 920 pounds of rare earth materials in its electronic systems, electric motors, and actuators. In 2022, a scandal emerged when a Chinese-sourced alloy was found in an F-35 component, halting deliveries. While that alloy was deemed non-security-critical, it underscored how Chinese rare earth magnets had quietly entered the supply chain. Lockheed’s missiles and satellites similarly rely on rare earth permanent magnets (for guidance systems, control fins, etc.). China’s new export license controls on rare earths and magnets directly threaten Lockheed’s supply. State media in China warned that without Chinese rare earths, Lockheed’s production would be “seriously disrupted”. The company has said it is working to source these materials elsewhere or recycle, but in the near term alternatives are limited. Lockheed also uses electronics that may have Chinese-origin subcomponents. For example, some avionics or display units could contain printed circuit boards or capacitors made in China. The Chinese January 2025 ban on exports to Lockheed specifically means Chinese suppliers can no longer ship anything to the company – forcing Lockheed to vet its vendor list and find non-Chinese sources for even mundane items. Platforms at risk from supply hiccups include the F-35 fighter, Patriot/THAAD missile interceptors, and Aegis combat system components, all of which use specialty electronics and materials that have global (often China-centric) supply chains. Investors have been warned of these risks, and the Pentagon has granted waivers or funding in some cases to help Lockheed replace Chinese parts.
Raytheon Technologies (RTX) – Raytheon (now encompassing Pratt & Whitney engines, Collins avionics, plus missiles and radars) likewise depends on Chinese materials. Raytheon’s missiles (Patriot, AMRAAM, Tomahawk, etc.) use rare earth magnets for fin actuators and guidance units. Its radar systems and electronic warfare gear need rare earths like gadolinium and yttrium for specialized components. The April 2025 Chinese export control covered exactly those heavy rare earths, which “U.S. aerospace manufacturers are sole-sourced from China for use in avionics”. Raytheon declined to comment on specific impacts, but clearly it faces a scramble to secure new supply. Raytheon’s Pratt & Whitney jet engines require superalloys that include elements like rhenium – while not China-controlled, the supply chains are global and sensitive to disruptions. Another worry is electronics: Raytheon’s defense electronics segment uses many commercial off-the-shelf parts, and a large share of the world’s basic electronic components (silicon chips, PCB boards, connectors) are made in China. For instance, a circuit board in a radar or a seeker might have been fabricated in China or have Chinese-made IC chips for power management. With China banning exports to Raytheon and its units, any such parts must be quickly re-sourced. In 2022, China had sanctioned Raytheon over Taiwan arms sales, signaling these moves are also politically motivated. If China were to cut off, say, tungsten exports (which it has threatened and partly done), it would hit Raytheon’s munitions: tungsten is used in kinetic warhead fragments and armor-penetrators for missiles. Raytheon’s ability to deliver weapons on time may be affected by rising costs and lead times for these critical inputs.
Boeing (BA) – Boeing’s defense division (Boeing Defense, Space & Security) is on China’s ban list, and although Boeing is a big commercial player, the intertwining of its commercial and defense supply chains means Chinese restrictions bite Boeing Inc. as a whole. Boeing’s commercial aircraft production has until now relied significantly on China – Chinese factories make parts like 737 fuselage sections, and China is a huge market for jets. Tariffs and Chinese retaliatory moves (like potentially canceling orders or slowing aviation exports) directly hurt Boeing’s revenue, reducing resources for its defense side R&D. Specifically for defense products: satellites and space – Boeing builds satellites that historically used some Chinese-sourced components (in the 2000s, this caused ITAR violations issues). Now Boeing must ensure no Chinese parts in satellites as China won’t supply them anyway. Aircraft like the P-8 Poseidon (a Navy patrol plane based on the 737) use many commercial 737 components – any China-made part in those (say, wiring harnesses or metal fasteners) could be subject to the new export ban, necessitating rapid qualification of new suppliers. Boeing’s F/A-18 Super Hornet and F-15EX fighters, while made in the U.S., contain electronic assemblies that may have Chinese-origin subcomponents from the global supply chain. Even a tiny part like a resistor or microchip now banned could stall a production line if not quickly replaced. On the materials side, Boeing’s products (both civil and military) require rare earths for sensors and actuators (e.g. in jets’ electrical systems). As noted, the U.S. has virtually no domestic processing for heavy rare earths – Boeing will be competing with others to get non-Chinese sources, and prices are likely to rise. In summary, Boeing’s defense products’ production of aircraft (fighters, patrol aircraft, tankers) and missiles (through its joint ventures) may see higher costs and schedule risk due to the supply chain decoupling.
General Dynamics (GD) – General Dynamics, which makes everything from M1 Abrams tanks to Virginia-class submarines and Arleigh Burke destroyers (through Bath Iron Works), is deeply exposed to raw material supply issues. A prime example is rare earth magnets in naval systems: each Arleigh Burke DDG-51 destroyer uses about 5,200 pounds of rare earth elements, and a Virginia-class attack submarine uses roughly 9,200 pounds. These go into electric motors, nuclear reactor control systems, sonar transducers, etc. China’s rare earth clampdown thus hits the heart of GD’s shipbuilding. GD Electric Boat (subs) and Bath (surface ships) will need to find alternative magnet suppliers or stockpile, and the U.S. DOD is indeed scrambling to stand up domestic magnet production. In ground vehicles, GD’s Land Systems unit uses tungsten for armor and ammunition (China produces over 80% of the world’s tungsten). If China throttles tungsten exports, the U.S. Army’s supply of tank ammunition (the APFSDS rounds, if they use tungsten penetrators) or armor packages could be affected. On the aerospace side, GD’s Gulfstream business jets (while not defense, some are modified for surveillance) have many parts made in or sourced from China’s civil aviation supply chain – those could face tariffs or export license hurdles now. Strategically, China specifically named General Dynamics in its January 2025 dual-use export ban, so no Chinese entity can ship GD any product. This likely encompasses small components; for instance, if a GD supplier had offshored PCB manufacturing to China, that pipeline is now cut. The company will incur costs and potential delays qualifying new suppliers (often in other Asian countries or back to the U.S.). The production of submarines, destroyers, and combat vehicles may see schedule and cost challenges as a result.
Northrop Grumman (NOC) – Northrop Grumman produces high-tech systems like the B-21 Raider stealth bomber, intercontinental ballistic missiles (GBSD program), and air defense radars. These sophisticated platforms are heavy users of electronics and rare materials. The B-21 bomber, for example, will incorporate advanced stealth coatings and radar-absorbent materials – some precursors for which might have been sourced from global suppliers, potentially including China. If any chemical compounds or processing equipment came from China, Northrop must find domestic alternatives. Northrop’s radar and sensor systems (e.g. for the F-35 radar or AWACS) require rare earth elements and specialized alloys. The Chinese rare earth export curb on heavy elements like samarium, terbium, dysprosium, etc., directly threatens supplies for Northrop’s Directed energy weapons (which use rare-earth magnets in power generators) and satellite components. Northrop also relies on microelectronics; it had supply chain issues in the past with things like counterfeit or untrusted chips. Now, with Chinese PCB dominance, Northrop must ensure its subcontractors are not sourcing boards or chips from China. Any hidden dependency could be suddenly exposed by China’s ban. Given Northrop’s role in building America’s strategic systems, the U.S. government has been investing to create secure domestic sources (for instance, a “mine-to-magnet” rare earth supply chain by 2027 is a stated goal). But until those initiatives bear fruit, Northrop’s programs like the GBSD/ Sentinel ICBM, B-21, and even space launch vehicles could experience bottlenecks if Chinese-supplied materials run short.
L3Harris Technologies (LHX) – L3Harris is a major provider of communications systems, avionics, and sensors for the Pentagon. Its products – from tactical radios and night vision goggles to aircraft electronics – are built with a plethora of commercial components. Printed Circuit Boards (PCBs) and microelectronic assemblies are a particularly weak link: fully 56% of global PCB manufacturing is in China. L3Harris, like many defense electronics firms, has historically sourced boards from Asia. With Congress mandating elimination of Chinese-made electronics by 2027 for defense systems, L3Harris must pivot quickly. The current Chinese restrictions simply accelerate the urgency – Chinese PCB fabs likely can no longer supply L3Harris due to the ban on defense exports. This could create short-term disruptions in delivering items like military radios or surveillance gear if alternate PCB supply isn’t ready immediately. Additionally, L3Harris uses many COTS (commercial off-the-shelf) components (microcontrollers, analog chips, etc.) in its devices. While these might be U.S. or European brands, the manufacturing is often fabbed or packaged in China. With tech decoupling, even that packaging step may face scrutiny or need to be moved. L3Harris’ space and airborne systems (e.g. ISR sensors) also depend on specialty optics and materials; Chinese companies are dominant suppliers of certain optical components and germanium for infrared lenses. Notably, China imposed export license requirements on germanium (vital for infrared sensors) in 2023. If L3Harris or its suppliers cannot get refined germanium, production of night vision systems and IR sensors could slow down until other sources (like Canada or Australia) fill the gap. Overall, as a mid-tier integrator, L3Harris is heavily incentivized to audit its supply chain and root out Chinese dependencies now – a challenging task given that “more than half of second- and third-tier electronic components come from China” in general.
Huntington Ingalls Industries (HII) – HII, America’s premier shipbuilder for aircraft carriers and an important submarine builder (in partnership with GD), faces similar issues to GD. It needs a reliable supply of high-grade steel, aluminum and copper alloys, and electronics for its massive ships. Many raw metal inputs aren’t directly from China (steel comes domestically), but rare earths are needed in carrier catapult systems (electromagnetic aircraft launch system uses powerful magnets) and in the quieting systems of submarines. If Chinese neodymium or dysprosium supply is throttled, HII’s contractors for those subsystems must find new sources. HII is also on China’s list due to its work on carriers that could oppose a Chinese invasion of Taiwan. The company will have to ensure even basic equipment like pumps or electronics on its ships don’t have Chinese origin parts. The Navy has already discovered Chinese parts in components like helicopter radios and even coolant pumps in earlier years – now the spotlight is on eliminating that. HII’s new Columbia-class submarines, for example, are so complex that even a small part shortage can cause schedule slips. Thus the Chinese export ban acts as a stress test: any component from a Chinese supplier will trigger a line-down situation. HII’s dependence on global supply (some ship components come from Europe or Asia) means it must work with Navy/DOD to build more onshore or ally-based resilience.
(The above are some of the principal publicly traded contractors; other companies like Textron (TXT), which makes helicopters and drones, or BAE Systems (BAESY), a British company with U.S. operations, also face related issues – e.g. reliance on Chinese rare earth magnets for aviation and ground vehicle components. Even smaller specialized firms are not immune: for instance, a supplier of circuit boards to missile programs, Mercury Systems (MRCY), revealed a few years ago that Chinese-made components in its boards raised security alarms. The breadth of exposure is wide, hence the across-the-board efforts to purge Chinese content.)
The implications for U.S. defense readiness are serious. Pentagon officials have warned that “we are one supply chain disruption away from grounding entire fleets” if rare earth magnet supplies were suddenly cut. That is no longer a hypothetical – Beijing’s actions in 2025 essentially weaponize this threat. The U.S. government has begun invoking the Defense Production Act and other measures to fund domestic mining and refining of rare earths, as well as production of things like rocket-grade tungsten alloys. For example, DOD has invested hundreds of millions of dollars since 2020 to stand up rare earth separation facilities in California and magnet factories in Texas. But these efforts will take years to reach scale. In the interim, contractors have to rely on stockpiles (the U.S. maintains small strategic reserves of some minerals, but “not enough to supply its defense contractors in perpetuity”) and on alternate foreign sources (like Australia for rare earth ore, or Estonia for processing, etc.). The PCBs and microelectronics issue is being addressed by new legislation and the CHIPS Act, but as of 2024 the U.S. produces only 4% of the world’s PCBs and virtually 0% of certain substrates – meaning defense companies in the near term must either pay a premium for the limited non-Chinese capacity or work with allies (Taiwan, Japan, South Korea) to ensure supply. Any hiccup in those countries (for instance, a Taiwan crisis itself) would exacerbate matters.
In summary, the supply chain fragility exposed by the trade war is prompting U.S. defense firms and the Pentagon to fundamentally reorient procurement. What had been a cost-efficient globalized model is now deemed a security risk. Contractors are mapping sub-tier suppliers to identify Chinese inputs, investing in redesigns to eliminate single-source dependencies, and partnering with government to fund new production lines in the U.S. or friendly nations. These shifts, while necessary, come with higher costs and likely initial production delays – potentially slowing the roll-out of new military systems or the replenishment of inventories in the short run. The next section looks at the broader policy and strategic implications of this decoupling dynamic.
Broader Policy Implications: Decoupling and Defense Strategy
The U.S.–China tariff and tech confrontation is reshaping defense policy and strategic calculations on both sides. One immediate effect is the acceleration of technology decoupling between the two great powers. What started as a trade war has evolved into an all-encompassing techno-security competition, in which each nation is trying to minimize dependence on the other for critical defense-related needs. This decoupling carries both risks and opportunities, and it is already influencing military posture and long-term planning:
Industrial Policy and Defense Posture: In the United States, awareness of supply chain vulnerabilities has prompted a renaissance in industrial policy tools for defense. The Pentagon’s 2023 National Defense Industrial Strategy explicitly calls for a “modernized defense industrial ecosystem” with resilient supply chains and reduced single-points-of-failure overseas. We see concrete policy responses: Congress and the Administration are pouring money into domestic manufacturing for semiconductors (through the CHIPS Act) and rare earths (through DPA Title III projects). Allies are being roped in to build a “friend-shoring” network – for example, Australia and Canada on minerals, Japan and Netherlands on semiconductor equipment. This marks a significant shift in defense posture: supply chain security is now viewed as integral to national security. The U.S. military is even adjusting procurement requirements to favor trusted sources; by law, certain Chinese components will be banned from all defense contracts by 2027. On the flip side, China’s defense establishment has doubled down on its self-reliance campaign. The concept of “self-circulation” in technology, a key theme in China’s recent Five-Year Plans, has been supercharged by the tariffs and sanctions. Beijing is investing enormous resources to indigenize everything from jet engine turbines to semiconductor lithography machines. The PLA’s procurement strategy is adapting to “use what we have” – placing a priority on quantity and iterative improvement with domestic tech, rather than waiting for Western-grade components. This could lead the PLA to field certain systems sooner but perhaps less advanced than they would have been with foreign tech. Strategically, China may also adjust its military timelines: for instance, if 2030 was the year by which it aimed to have a world-class military, the supply chain friction might push that timeline out – or conversely, it might pressure them to achieve breakthroughs with purely national resources faster.
Economic Warfare and Strategic Signaling: Both the U.S. and China are now openly using economic levers as instruments of military strategy. Tariffs and export controls are no longer viewed in isolation from defense—they are signals and shaping tools. When the U.S. Commerce Department adds a Chinese drone maker or chip firm to the Entity List citing PLA links, it’s telegraphing to Beijing that any aid to the Chinese military will be punished economically. China’s retaliatory rare earth restrictions and the targeting of U.S. defense giants are equally strategic signals: a warning that U.S. military power could be hamstrung if economic escalation continues. This two-way economic warfare complicates strategic planning. For the U.S., it must weigh how far to push tech denials – crippling China’s military tech progress is beneficial, but going too far could backfire if China preemptively uses its own economic nukes (like a total rare earth embargo, which could grind U.S. industry to a halt in the short term). Indeed, China’s April 2025 rare earth magnet controls were described as “an opening salvo in an iterative game of negotiation”. Each side is probing how resilient the other is. This dynamic could either stabilize at a new normal of limited tech trade, or spiral into more severe sanctions. Strategic planning now has to include scenarios of long-term resource denial: the U.S. military is asking, can we fight a high-tech war if we have no access to Chinese materials? And China’s PLA is planning, how do we operate if cut off from Western chips? The answers drive stockpiling strategies, alliance considerations, and timelines for action (for instance, some speculate China might feel a “closing window” if U.S. controls really start to bite, potentially making risky moves before its capabilities erode – though as noted earlier, it could also simply delay until it can replace U.S. tech internally).
Arms Race and Modernization Trajectories: There is a paradoxical effect on the arms race. On one hand, tariffs and sanctions impede China’s ability to modernize – slowing its access to the newest tech and thereby slowing certain military advancements. This could delay the quantitative or qualitative arms race in some domains (like AI-enabled weapons or 5th-gen aircraft) to the U.S.’s advantage. On the other hand, the pressure has prompted China to over-invest in some areas to catch up, potentially leading to breakthroughs born of necessity. For example, China might pour massive funds into chip fabrication techniques not reliant on U.S. IP (like new methods of lithography) and eventually succeed, which would leave it in a stronger, sanction-proof position. Similarly, the U.S. drive to secure supply chains could revitalize parts of its defense industry that had atrophied. We may see redundant capabilities emerge: two parallel sets of tech ecosystems, one U.S.-led and one China-led, each racing to outperform the other. This has echoes of Cold War-era competition, except deeply intertwined with commercial tech. Militaries on both sides are keenly aware that future warfare (from cyber to space to autonomous systems) will depend on microelectronics and materials. The policies now in place are shaping who will have the advantage in those domains a decade hence.
Alliance and Global Reaction: U.S. allies and partners have mostly aligned with Washington’s approach, tightening their own export controls (e.g., Japan and Netherlands restricting semiconductor equipment to China, and Europe screening Chinese investments). They too are concerned about China’s military rise and have their own dependencies on Chinese supply (Europe, for instance, needs rare earths for its defense industry). These nations are collaborating to mitigate China’s leverage – for instance, Australia ramping up rare earth mining and Japan investing in non-Chinese magnet factories. On China’s side, these developments push it closer to other partner states like Russia (for energy, some military tech exchange) and to doubling down on influence in resource-rich regions (Africa, Latin America) to secure alternative supply lines for minerals and to export its defense products where possible. However, even partners like Russia cannot replace Western tech; Russia itself struggles under sanctions and often depended on Western components. So China remains in a somewhat isolated position for cutting-edge tech – which its policy-makers likely interpret as justification that the U.S. is attempting “technological containment.” This narrative could harden positions further, reducing incentive for compromise. At the same time, both sides have to consider global economic stability: an extreme decoupling would hurt not just the U.S. and China, but many other economies. Already, volatility in critical minerals markets and the rerouting of supply chains are causing price spikes and uncertainty. Defense planning now includes ensuring economic resilience – the U.S. for example is trying to onshore key industries without causing unacceptable inflation or corporate failure. China is managing a delicate balance of punishing the U.S. (like halting rare earth exports which hit American companies) without crippling its own export earnings or encouraging the West to fully cut China out of supply chains (which would in the long run hurt Chinese industry).
In conclusion, the tariff escalation and associated sanctions as of June 2025 have unleashed powerful forces that are reconfiguring the global defense landscape. China’s defense industrial base, once rapidly advancing on the back of global integration and technology imports, is now forced into a more insular, self-reliant posture. Key PLA-supporting firms, from state-run giants to nimble private tech ventures, have felt the pinch – facing either lack of crucial inputs or direct legal barriers to international cooperation. This is slowing – though not stopping – PLA modernization, injecting uncertainty into China’s timelines for achieving parity with the U.S. military. Meanwhile, U.S. defense contractors have received a rude awakening about the fragility of their supply lines. Companies that for decades benefited from cheap overseas suppliers must now reevaluate cost vs. security, and invest in rebuilding capabilities at home or in friendly nations. In the short term, this raises costs and complicates production of everything from fighter jets to frigates. Yet, in the long term, it could lead to a more robust defense industrial base less subject to adversary influence.
Strategically, both the U.S. and China are incorporating the lessons of this economic conflict into their war planning. The U.S. is preparing for a potential conflict with a peer where it cannot assume access to a globalized commercial market for replenishment – hence initiatives for stockpiling and quick surge production. China is preparing for the possibility of a protracted standoff where its economy might be partially blockaded or sanctioned – hence its focus on internal circulation and even civil contingency planning for tech shortages. The trade war has, in effect, moved the U.S. and China into a pre-conflict competitive stance, where each is hardening its system against vulnerabilities the other can exploit. This is a double-edged sword: it may deter conflict by reducing temptations for opportunism (since both sides show they can impose costs), or it may remove interdependencies that once restrained hostility.
For policy-makers, the situation presents a delicate task: managing escalation in the economic domain so that it achieves security goals without triggering a military confrontation or unnecessary economic fallout. Thus far, measures like export controls on semiconductors have been deemed “the most damaging” yet necessary tools to blunt China’s military development. China’s riposte with rare earths and export bans shows it too has potent economic weapons, though wielding them risks spurring the West to achieve independence even faster. Both sides are effectively in a resilience race.
The trajectory as of mid-2025 suggests that techno-economic tensions will remain at the forefront of U.S.–China relations, with the defense sector as a primary arena. A key indicator to watch will be how quickly the U.S. can shore up domestic production of things like chips and rare earth magnets versus how quickly China can develop homegrown equivalents of American technology. Each success or setback on these fronts will reverberate in military capabilities in the years ahead. In the meantime, defense planners must contend with a transitional period of uncertainty – juggling modernization programs with contingencies for supply disruptions. The trade war may have started over tariffs on consumer goods, but its legacy could be a fundamental decoupling in high-end defense tech, a reshuffling of global alliances around secure supply chains, and a recasting of both the American and Chinese military outlooks for the foreseeable future.
Sources: This analysis drew on official U.S. reports and statements (e.g. the Department of Defense and Congressional studies), Chinese government announcements, reputable defense think tank analyses (CSIS, RAND, SIPRI), and financial and trade data regarding publicly listed companies. Key sources include the Pentagon’s 2024 report on China’s military (on export control impacts), U.S. congressional testimony on supply chain security, Reuters and other news outlets detailing the 2025 tariff exchanges and Chinese countermeasures, and company filings highlighting reliance on Chinese materials. These provide a fact-based foundation for assessing how economic policy is interwoven with defense capabilities on both sides of the Pacific.