Rare Earth Export Controls in Your 10-K Risk Factor: A Segment-by-Segment Guide

China's 2025 rare earth export controls rewrote the supply chain risk calculus for hundreds of public companies. If your 10-K risk factor still reads like a generic "we may be affected by trade restrictions" boilerplate, the SEC's comment letter staff will notice, and so will investors who have been watching dysprosium prices spike and magnet shipments stall.

This guide is for SEC reporting teams at companies with material exposure to rare earth elements (REEs): defense primes, EV and auto OEMs, semiconductor manufacturers, clean energy developers, and the miners and processors trying to fill the gap. Each segment faces a different disclosure obligation, and the right risk factor language depends on where you sit in the supply chain.

Key takeaway: Generic rare earth risk language is no longer defensible. The SEC expects company-specific disclosure tied to named elements, quantified exposure, and identified mitigation steps, not a paragraph that could apply to any manufacturer.

What China's Rare Earth Export Controls Actually Cover (2025-2026 Status)

China introduced two waves of rare earth export controls in 2025, and the current status matters for every filer drafting a 10-K today.

The first wave, announced on 4 April 2025, imposed licensing requirements on seven heavy REEs: dysprosium, terbium, gadolinium, lutetium, samarium, scandium, and yttrium, along with related compounds, metals, and magnets. Exporters must name end users, a requirement that many firms found operationally burdensome and commercially sensitive, per the European Parliament Research Service's November 2025 analysis.

The second wave, announced by China's Ministry of Commerce (MOFCOM) on 9 October 2025, added five more medium and heavy REEs, rare earth production and processing equipment, and, critically, extraterritorial reach. Under MOFCOM's de minimis rule, foreign-made products that incorporate Chinese-origin REEs at or above a 0.1% value threshold require a Chinese export license. Products manufactured abroad using Chinese rare earth mining, smelting, separation, or magnet-making technologies are also covered, effective December 1, 2025, per Mayer Brown's analysis of the October 2025 MOFCOM proclamations.

On 7 November 2025, China suspended the second wave until 10 November 2026, per the European Parliament Research Service. The first wave remains in force. For 10-K filers with a December 31 fiscal year end, both waves are live facts that belong in the risk factor, the suspension is temporary and the extraterritorial framework exists.

The suspension does not eliminate the disclosure obligation. A risk that is temporarily paused but structurally unresolved is still a material risk under Item 1A of Form 10-K.

Why the SEC Expects More Than Boilerplate

The SEC's comment letter practice on supply chain risk has moved decisively toward specificity. Staff routinely challenge filers who describe geopolitical or trade risks in abstract terms when the company's own operations make those risks concrete and quantifiable.

The standard the SEC applies is whether the risk factor "adequately describes" the risk as it actually applies to the registrant, per Item 503(c) of Regulation S-K (now codified under Item 105). A risk factor that says "export controls on rare earth materials could adversely affect our business" without naming the elements, the share of inputs sourced from China, or the financial exposure fails that standard for any company with genuine REE dependency.

Micron Technology's 2026 10-Q risk factor language is instructive: it calls out "restrictions on supplies, equipment, and raw materials, including rare earth minerals" as a specific named risk within its broader trade restriction disclosure, per Micron's Q3 2026 Form 10-Q. That level of specificity is now the floor, not the ceiling.

For guidance on the broader architecture of trade and tariff disclosures in SEC filings, see Tariff Disclosures in SEC Filings: 2026 Best Practices and Supply Chain Risk Disclosure in a 10-K.

Segment-by-Segment: What Your Risk Factor Needs to Say

The right disclosure depends on where your company sits in the REE value chain. Below is a segment-by-segment breakdown of the key facts, exposure vectors, and language considerations.

Defense Primes and Aerospace Manufacturers

Defense contractors face the sharpest exposure. Heavy REEs, dysprosium and terbium in particular, are essential for the permanent magnets in precision-guided munitions, radar systems, and electric motors in aircraft. China controls approximately 60% of global REE production and 90% of global refining, per the European Parliament Research Service, a concentration that has no near-term substitute.

For defense filers, the risk factor should address:

• Named elements and end uses. Identify which REEs (e.g., dysprosium for NdFeB magnets in actuators, terbium for magnetostrictive materials) are used in which programs.
• ITAR and export control interaction. The PRC's "50% rule", which extends MOFCOM's presumptive denial posture to subsidiaries and affiliates 50% or more owned by listed entities, creates counterparty diligence obligations that may intersect with DFARS supply chain requirements.
• Stockpile and lead time disclosure. If the company holds strategic inventory, disclose the duration of coverage. If it does not, disclose the exposure to licensing delays.
• Program-level materiality. If a specific program (e.g., a major DoD contract) depends on a single-source REE input, that concentration is material and belongs in the risk factor, not just in a footnote.

Electric Vehicle and Automotive OEMs

EV manufacturers use NdFeB permanent magnets in traction motors, with dysprosium added to maintain magnetic performance at high temperatures. A mid-size EV traction motor typically contains several kilograms of rare earth magnet material, and there is no commercially viable magnet-free alternative at scale for high-performance motors.

China's April 2025 controls disrupted automotive supply lines almost immediately. The Andersen Institute's analysis noted that automakers were among the first sectors to report shipping delays after Wave 1 took effect.

For EV and auto OEMs, the risk factor should address:

• Tier 1 and Tier 2 supplier exposure. The European Central Bank found that over 80% of large European firms are no more than three intermediaries away from a Chinese REE producer, per the European Parliament Research Service. US OEMs face comparable indirect exposure through their magnet suppliers.
• Price impact quantification. The IEA reported REE prices in the EU of up to six times higher after Wave 1 restrictions, per the European Parliament Research Service. If your cost of goods sold includes REE-dependent components, quantify the sensitivity.
• Wave 2 extraterritorial risk. If your magnet suppliers manufacture outside China but use Chinese REE inputs or Chinese processing technology, they fall within MOFCOM's 0.1% de minimis rule when Wave 2 is reinstated. Disclose whether your supply chain has mapped this exposure.
• Production stoppage risk. If a licensing delay would halt production of a specific vehicle line, that is a material operational risk that belongs in Item 1A, not just in the MD&A.

Semiconductor and Electronics Manufacturers

Semiconductor fabs use REEs in polishing compounds (cerium), phosphors, and specialty alloys. The exposure is less concentrated than in magnets, but the October 2025 Wave 2 controls on rare earth production equipment add a new vector: equipment used in semiconductor manufacturing that incorporates Chinese-origin REE components may now require MOFCOM licensing.

For semiconductor filers, the risk factor should address:

• Equipment and technology controls. Wave 2 covered rare earth production and processing equipment. If your fab equipment supply chain touches Chinese-origin REE components, the extraterritorial rule applies when Wave 2 is reinstated.
• Compound and sputtering target exposure. MOFCOM's Annex Section II specifically lists rare earth permanent magnet materials and certain sputtering targets. Identify whether your process inputs fall within scope.
• Interaction with US export controls. MOFCOM framed its October 2025 measures as responsive to US export control expansions affecting affiliates of listed parties. The bidirectional escalation creates a compliance environment where both US BIS and Chinese MOFCOM rules must be tracked simultaneously.

Clean Energy Developers and Wind Turbine Manufacturers

Direct-drive wind turbines use large NdFeB permanent magnets, a multi-megawatt offshore turbine can contain several tonnes of rare earth magnet material. The EU sources 98% of its rare earth magnets from China, per the European Parliament Research Service, and US clean energy manufacturers face comparable dependency.

For clean energy filers, the risk factor should address:

• Project timeline risk. Licensing delays for magnet shipments can push turbine installation schedules, affecting revenue recognition timing and PPA compliance.
• ESG and supply chain disclosure interaction. If your company makes public commitments about supply chain transparency or responsible sourcing, the opacity of MOFCOM's licensing process (described by exporters as selective and slow by design) creates a tension worth disclosing.
• Alternative supplier development. If you are actively qualifying non-Chinese magnet suppliers or investing in recycling, disclose the timeline and the gap it leaves in the interim.

Rare Earth Miners and Processors (the Upstream Filers)

For companies like USA Rare Earth (USAR), the controls are simultaneously a risk and a commercial opportunity. USAR's fiscal year 2025 10-K, filed with the SEC, discloses that its business involves substantial risks tied to laws and regulations, per USAR's 2025 Form 10-K. But upstream filers face a distinct set of Item 1A obligations.

For miners and processors, the risk factor should address:

• Permitting and development timeline risk. US domestic REE projects face multi-year permitting timelines. If Chinese controls accelerate customer demand but your production timeline cannot match it, disclose the mismatch.
• Offtake and pricing risk. REE prices are volatile and China-influenced. Disclose whether offtake agreements are fixed-price or index-linked, and the exposure if Chinese controls are lifted and prices normalize.
• Technology and processing dependency. Even US-based miners may rely on Chinese processing technology or equipment. If so, Wave 2's technology controls are a direct risk, not a downstream one.
• Customer concentration. If defense or EV customers represent a concentrated revenue base, and those customers face their own REE-related production risk, the second-order effect on your revenue is material.

How to Structure the Risk Factor Language

A defensible rare earth export controls risk factor has four components, regardless of segment:

1. Factual predicate. State what the controls are, when they took effect, and their current status. Name the specific elements covered that are relevant to your business. Do not rely on the reader knowing the regulatory background.
2. Company-specific exposure. Identify the percentage of inputs sourced from China or Chinese-controlled supply chains, the specific products or programs affected, and the financial magnitude of the exposure (cost of goods, revenue at risk, or capital expenditure dependency).
3. Operational consequence. Describe what happens if the risk materializes: production delays, cost increases, program cancellations, or revenue shortfalls. Be specific about the mechanism, not just the outcome.
4. Mitigation and residual risk. Disclose what the company is doing (supplier diversification, stockpiling, alternative material qualification) and what residual risk remains after those steps. Overstating mitigation is as problematic as understating exposure.

Key takeaway: The four-component structure, predicate, exposure, consequence, mitigation, is what separates a risk factor that survives SEC comment letter review from one that generates a follow-up request for "more specific disclosure."

Common Drafting Mistakes to Avoid

• Treating Wave 2 suspension as resolution. The suspension runs until 10 November 2026. It is not a withdrawal. A 10-K filed in early 2026 for fiscal year 2025 must treat the reinstatement risk as live.
• Omitting the extraterritorial dimension. The 0.1% de minimis rule means companies with no direct China sourcing may still be caught if their suppliers use Chinese inputs or technology. This is the gap most generic risk factors miss entirely.
• Conflating REE risk with general tariff risk. Rare earth export controls operate under China's Export Control Law, not tariff schedules. The legal mechanism, the compliance obligation, and the mitigation options are different. Folding REE risk into a general tariff risk factor obscures the specific exposure.
• No quantification. If REE-dependent inputs represent a material share of COGS or a specific program represents a material share of revenue, the SEC expects numbers, not adjectives.

For the broader framework of how geopolitical risks translate into SEC disclosure obligations, see Why Your Company's SEC Report Can't Ignore Geopolitics Anymore.

FAQ

Does the Wave 2 suspension mean we don't need to disclose rare earth export control risk in our 2025 10-K? No. The suspension runs until 10 November 2026 and is temporary. The regulatory framework exists, the first wave remains in force, and the extraterritorial provisions are law. A risk that is temporarily paused is still a material risk under Item 1A.

Which specific rare earth elements should we name in our risk factor? Name the elements your company actually uses or sources. Wave 1 covers dysprosium, terbium, gadolinium, lutetium, samarium, scandium, and yttrium. Wave 2 added five more medium and heavy REEs. If your products use NdFeB magnets, dysprosium and terbium are almost certainly relevant.

Does the 0.1% de minimis rule apply to our products if we don't source directly from China? Potentially yes. If your suppliers incorporate Chinese-origin REEs at or above 0.1% of value, or if they use Chinese rare earth processing technology, your products fall within MOFCOM's extraterritorial jurisdiction when Wave 2 is reinstated. Supplier-level mapping is required to answer this definitively.

What is the SEC's current comment letter posture on supply chain risk factors? The SEC expects specificity: named materials, quantified exposure, and identified consequences. Generic language that could apply to any manufacturer in any industry is the most common basis for a comment letter request on supply chain risk factors.

How does the PRC "50% rule" affect our counterparty diligence obligations? MOFCOM's presumptive denial posture extends to subsidiaries, branches, and affiliates 50% or more owned by entities on China's Controlled List or Watch List. This mirrors recent US BIS affiliate rules. If any of your REE suppliers have Chinese state-owned enterprise ownership at or above that threshold, your supply chain diligence needs to capture it.