Trump tightens defense supply chain waiver rules

President Donald Trump on Monday signed an executive order making it harder for U.S. defense contractors to obtain waivers allowing them to buy critical minerals and other materials from China and other prohibited foreign suppliers, the administration's latest effort to reduce reliance on overseas supply chains for weapons production.

The new rules mean defense contractors will have to do more than simply show that a Chinese supplier is the easiest or cheapest option. Companies seeking a waiver will need to prove they searched for alternatives, disclose the origins of their materials and provide a plan to reduce reliance on prohibited suppliers.

Contractors that fail to comply with the new requirements could face procurement consequences, including the loss of contract opportunities.

"No more: 'we tried nothing and we're out of options'," Peter Navarro, the White House senior counselor for trade and manufacturing, told reporters during a briefing before the executive order was released.

Shares of MP Materials MP.N, in which the Pentagon has an investment of about 15%, turned positive after the news and closed 1% higher at $45.70 on Monday.

PENTAGON PUSHES SUPPLY-CHAIN OVERHAUL

The Pentagon has been pushing defense contractors like Lockheed Martin LMT.N and Boeing BA.N to rapidly expand weapons production while trying to identify and eliminate vulnerabilities buried deep inside the military supply chain.

Many critical minerals and processed materials used in missiles, aircraft and other advanced systems still rely on Chinese suppliers, leaving companies caught between demands to reduce dependence on Beijing and the urgent need to keep weapons flowing to U.S. forces and allies.

China has gradually restricted access to critical minerals and used supply chains as leverage.

The Trump administration is seeking to pull back the curtain on a defense supply chain that can stretch through dozens of suppliers before reaching the company that builds the final weapon.

MAPPING THE INDUSTRIAL BASE

The order directs the Pentagon to map those lower tiers of the industrial base, giving officials a clearer view of where critical minerals, components and other materials originate and whether foreign-controlled suppliers could threaten weapons production during a conflict.

"This is not paperwork. It is battlefield preparation," Navarro said, arguing the Pentagon needs to know whether missile systems or other military platforms depend on foreign-controlled suppliers before a conflict begins.

The order also requires contractors to assess suppliers for foreign ownership, financial vulnerability and manufacturing risks, and to replace suppliers deemed unreliable.

-Reporting by Jarrett Renshaw in Washington; Editing by Michelle Nichols and Matthew Lewis/Reuters