U.S.-China Rare Earths Rivalry: Investment Opportunities in a Geopolitical Crossfire

The U.S.-China trade war has entered a new phase, with rare earth elements (REEs) at the center of a high-stakes geopolitical contest. China's 2025 export restrictions-ranging from stricter licensing to case-by-case reviews for advanced processing technologies-have triggered a seismic shift in global supply chains, according to a MarketMinute report. These measures, framed as national security imperatives, have already caused dysprosium prices to triple and U.S. rare earth shipments from China to plummet by 93%, the report adds. For investors, this volatility signals both risk and opportunity.

China's Strategic Leverage and Market Dynamics

China's dominance in the REE sector is unparalleled. In 2023, it produced 68.6% of global REEs (240,000 tons) and controls 90% of global processing, rising to 99% for heavy rare earths, according to a Big News Network report. The October 2025 policy changes extend this control to downstream technologies, including those used in semiconductors and AI, as noted in a Daily CPEC article. Northern Rare Earth Group, a state-backed giant, exemplifies this power: its Q3 2025 revenue surged 33% year-over-year to ¥11.43 billion, driven by a 63% increase in rare-earth oxide production, according to a Northern Rare Earth report. Baogang Group and Northern Rare Earth further tightened the market by announcing a 37% price hike for Q4 2025, per a Sourceability report.

U.S. and Allied Hedging Strategies

The U.S. response has been twofold: diversifying supply chains and accelerating domestic production. A $200 million Export-Import Bank investment in Australia's Goschen Rare Earths project underscores Washington's push to reduce reliance on China, as reported in an OilPrice analysis. Simultaneously, a $8.5 billion critical minerals deal with Australia and a strategic framework with Japan aim to streamline permitting and joint investments in mining and processing, outlined in the US-Japan framework. These moves align with MP Materials' (MP) expansion in Texas, which seeks to fill the void left by China's export curbs, according to a GuruFocus analysis.

Near-Term Investment Opportunities

1. U.S. and Australian Producers: Companies like MP Materials and Australian miner Lynas Rare Earths are benefiting from U.S. policy tailwinds. Noveon's partnership with Lynas, for instance, targets rare earth separation and magnet production, as described in a Finance & Commerce report.
2. Recycling and Processing Tech: As China restricts access to advanced technologies, firms specializing in rare earth recycling-such as those involved in neodymium-iron-boron (NdFeB) scrap initiatives-could see demand spikes, as noted in the Northern Rare Earth report.
3. Geopolitical Diversification Funds: The US-Japan framework and Australia's ASX-listed miners present opportunities for investors seeking exposure to diversified supply chains, as outlined in the US-Japan framework.

Risks and Strategic Considerations

While the U.S. and its allies are making strides, challenges remain. China's 40% rare earth reserves and operational efficiency give it long-term pricing power, the Big News Network report notes. Additionally, U.S. tariffs on Chinese goods could provoke retaliatory measures, further destabilizing markets, a GuruFocus analysis warns. Investors must balance short-term gains with the reality that global supply chain rebalancing will take years.

Conclusion

The rare earths sector is a microcosm of the broader U.S.-China rivalry, offering both strategic risks and high-reward opportunities. For those willing to navigate the volatility, investments in U.S.-backed producers, recycling technologies, and diversified supply chains could yield outsized returns. However, success will require close monitoring of policy shifts and a willingness to hedge against China's enduring influence.