The U.S.-China Rare Earth Trade Truce: Strategic Implications for Critical Minerals and Defense Supply Chains

The U.S.-China rare earth trade truce of 2025, though a temporary easing of tensions, has underscored the deepening strategic competition over critical minerals. As the world's largest consumer of rare earth elements (REEs) and the producer of 61% of global rare earth processing capacity, China's control over these materials remains a geopolitical lever. The 90-day tariff reduction—U.S. tariffs on Chinese goods dropped from 145% to 30%, while China cut its tariffs from 125% to 10%—has not resolved the core issue: Beijing's selective export licensing regime for rare earth magnets and minerals. This dynamic creates both risks and opportunities for investors in the rare earth sector.

The Geopolitical Chessboard: Rare Earths as a Strategic Weapon

China's export control system, which requires government approval for each shipment of rare earths and magnets, has given it unprecedented visibility into global supply chains. For instance, U.S. defense contractors now face delays of up to 45 working days for export licenses, with Beijing asking sensitive questions about end-users. This “one batch, one license” model allows China to selectively restrict access to critical materials, particularly for advanced military technologies like F-35 fighter jets and hypersonic missiles. Meanwhile, the U.S. is racing to build domestic production, with the Department of Defense (DoD) taking a 15% equity stake in MP Materials and funding a $450 million magnet manufacturing facility in Texas.

The truce has also exposed the fragility of global supply chains. While the U.S. seeks to reduce reliance on China, it still imports nearly 80% of its rare earth magnets. This gap has created a window of opportunity for companies like MP Materials (MP), Energy Fuels (UUUU), and Lynas Rare Earths (LYC), which are positioning themselves as key players in a post-China supply chain.

Investment Opportunities in a Diversifying Supply Chain

MP Materials (MP): The DoD-Backed Giant

MP Materials, operator of the sole U.S. rare earth mine at Mountain Pass, has emerged as a central figure in the Biden administration's strategy to insulate defense and industrial sectors from Chinese dominance. The company's recent $400 million equity stake from the DoD, coupled with a $150 million loan for a heavy rare earth separation plant, has positioned it for rapid growth. The DoD's guaranteed price floor of $110 per kilogram for critical rare earths (compared to China's $55–$60 range) ensures a stable revenue stream.

MP's 2025 financials reflect this momentum: a 273% stock price surge year-to-date and a production capacity expansion of 50% by 2028. However, the company's reliance on government contracts and the lengthy lead times for mine development (often 30 years) pose risks. Investors must weigh the geopolitical tailwinds against the company's exposure to U.S. budget constraints.

Lynas Rare Earths (LYC): Australia's Global Player

Lynas Rare Earths, the largest non-Chinese rare earth producer, has benefited from both U.S. and Australian policy support. Its Mount Weld mine in Western Australia and expanding U.S. processing facilities in Texas position it to capture a growing share of the non-China supply chain. Lynas' recent AU$20 million government grant to expand its Apatite leach circuit and its 92% resource increase at Mount Weld highlight its strategic importance.

Analysts at Jefferies upgraded Lynas to “buy” in July 2025, citing the potential for a 50% stock price increase. However, Lynas faces operational risks, including its reliance on third-party suppliers for monazite sands and the need for significant capital expenditure to scale its U.S. operations.

Energy Fuels (UUUU): Uranium and Rare Earths Dual Play

Energy Fuels, a U.S.-based producer of uranium and rare earths, has leveraged its White Mesa mill in Utah to produce commercial-grade neodymium-praseodymium (NdPr) oxide. With $210 million in liquidity and no debt, the company is well-positioned to capitalize on U.S. policies favoring domestic critical mineral production. Its recent $58.5 million federal grant for magnet manufacturing and a 22% increase in uranium production guidance in 2025 further bolster its appeal.

However, Energy Fuels' profitability hinges on uranium prices, which remain volatile. The company's focus on dual-use materials (uranium and rare earths) offers diversification but also exposes it to regulatory and geopolitical risks in both sectors.

The Recycling Revolution: A New Frontier

As new mines take decades to develop, recycling e-waste has emerged as a critical alternative. Companies like Cyclic Materials and Illumynt are pioneering technologies to extract rare earths from discarded electronics, wind turbine components, and EV batteries. While recycling accounts for only 15–20% of e-waste in the U.S., the sector's growth potential is immense. Investors should monitor startups in this space, though they face challenges like low margins and regulatory hurdles.

Risks and the Road Ahead

The rare earth sector remains a high-stakes bet. While U.S. and Australian policies are creating a more favorable environment, companies must navigate funding uncertainties, technical bottlenecks, and geopolitical volatility. The U.S.-China truce is a temporary pause, not a resolution. Investors should prioritize firms with strong government partnerships, diversified revenue streams, and scalable technologies.

In conclusion, the rare earth trade truce has accelerated the shift toward a multipolar supply chain. For investors, this means opportunities in companies like MP Materials, Lynas, and Energy Fuels—but also a need for caution in a sector where geopolitical risks remain as acute as ever.