US-China Rare Earths Tensions and Aviation Supply Chain Risks: A Strategic Investment Playbook

The U.S.-China rivalry over rare earth elements (REEs) has escalated into a full-blown supply chain crisis, with profound implications for the aviation and defense sectors. As China flexes its geopolitical muscle by imposing export controls on seven critical rare earths and magnetsU.S. is unable to replace rare earths supply from China, warns CSIS^[1], the U.S. is racing to build a self-sufficient supply chain. For investors, this tension creates a unique opportunity to capitalize on companies positioned to benefit from both the crisis and the response.

The Geopolitical Flashpoint: Rare Earths as a Strategic Commodity

China's 90% dominance in rare earth processingU.S. is unable to replace rare earths supply from China, warns CSIS^[1] has left the U.S. exposed. . in June 2025US-China Rare Earth Talks: Strategic Supply Chain Impact^[3]—a temporary reprieve—masks the fragility of the system. Defense contractors like Lockheed Martin and Northrop Grumman are scrambling to qualify non-Chinese suppliersAerospace and defense stocks could surge to close 2025^[4], . This gap is where the real money lies.

MP Materials (NYSE: MP), the U.S.'s sole rare earth miner, , . Its planned magnet factory, operational by 2028, is a linchpin in the 's strategy to counter China's leverageRare Earth Revival: Top U.S. Stocks to Watch as DoD …^[2]. Similarly, , leveraging its Mountain Pass mine and expanding U.S. processing facilities. These companies are not just surviving the crisis—they're thriving.

Aerospace and Defense: The High-Stakes Rebuild

The aviation sector's reliance on rare earths for jet engines, radar systems, and hypersonic techU.S. is unable to replace rare earths supply from China, warns CSIS^[1] means supply chain disruptions could cripple production. Yet this crisis is fueling a surge in defense spending. , .

Lockheed Martin and Northrop Grumman are doubling down on next-gen fighter jet programs, while Boeing benefits from a rebound in commercial aviation demandAerospace and defense stocks could surge to close 2025^[4]. But the real alpha comes from smaller players like Energy Fuels (NYSE American: UUUU), which is pivoting from uranium to rare earth processing with federal contractsRare Earth Revival: Top U.S. Stocks to Watch as DoD …^[2]. For investors, this sector offers a dual play: geopolitical hedges and secular growth from modernization.

The Investment Playbook: Balancing Risk and Reward

While rare earths and defense stocks are volatile, they provide a critical diversification tool. During the 2019 U.S.-China trade war, , and 2025 is shaping up similarly. .

However, not all bets are equal. Junior miners like Phoenix Tailings and USA Rare Earth offer speculative upside but face regulatory and technical hurdlesU.S. is unable to replace rare earths supply from China, warns CSIS^[1]. Stick to established names like MP Materials and Lynas, which have government backing and proven production. For defense, prioritize primes with robust order backlogs, such as General Dynamics and Raytheon TechnologiesAerospace and defense stocks could surge to close 2025^[4].

Conclusion: Navigating the Storm

The U.S.-China rare earths war is far from over, but the market is already pricing in a long-term shift. Investors who act now can position themselves to benefit from both the crisis and the U.S.'s scramble to rebuild its supply chains. As Deloitte's 2025 aerospace outlook notes, AI-driven supply chain optimization and strategic acquisitions will define the next eraRare Earth Revival: Top U.S. Stocks to Watch as DoD …^[2]. For those willing to stomach short-term volatility, the rewards are substantial—and the geopolitical stakes could not be higher.