US-China Trade Deal: The Rare Earth Truce and EV Supply Chain Power Shifts

The US-China trade agreement finalized in June 2025 marks a pivotal moment in the global battle for technological dominance. While headlines focus on tariff reductions and diplomatic thawing, the deal's true significance lies in its codification of China's structural advantages in rare earths and electric vehicle (EV) supply chains. For investors, this is a clarion call to position in sectors that align with the geopolitical truce—and profit from the reshaped industrial order.

The Rare Earth Truce: China's Iron Grip on Critical Minerals

The Memorandum of Understanding (MOU) resolves immediate disruptions but does little to weaken China's stranglehold on rare earths. The agreement allows U.S. firms access to civilian-grade magnets and elements like neodymium and praseodymium for EV motors and wind turbines. However, military-grade materials—such as samarium for fighter jets—remain off-limits. This bifurcation highlights China's strategy: control the high-value end of the supply chain while granting token concessions to avoid escalation.

The data reveals China's dominance: it accounts for 87% of global rare earth refining capacity, with U.S. and ASEAN players still in their infancy. Investors should focus on firms with low-cost, high-purity deposits or partnerships with Chinese processors. Examples include MP Materials (MP), the sole U.S. rare earth producer, and Lynas Corp (LYC) in Australia, which recently secured a Texas-based separation plant with Pentagon backing.

EV Supply Chains: Betting on Chinese Tech Superiority

The MOU's civilian carve-out creates a golden opportunity for EV manufacturers reliant on Chinese battery technology. Companies like Tesla (TSLA) and Ford (F), which source 80% of EV batteries from China, now face less immediate supply risk. The truce's 55% tariff structure—split between fentanyl-linked duties and legacy levies—also reduces cost volatility for battery components like lithium and cobalt.

The correlation is stark: Tesla's share price surged during periods of stable Chinese exports, dipping when trade tensions flared. Investors should overweight EV leaders with vertical integration (e.g., BYD (002594.SZ), which owns battery and rare earth refining assets) or those partnering with ASEAN suppliers to diversify risk.

Diversification in the Global South: ASEAN's Infrastructure Play

The deal's most underappreciated angle is its acceleration of supply chain “China+1” strategies. ASEAN nations, with their proximity and lower labor costs, are becoming critical hubs for rare earth processing and EV assembly. Governments in Indonesia, Vietnam, and Malaysia are offering tax breaks and land to attract U.S.-China neutral manufacturers.

Look for plays in infrastructure development firms like Bechtel (BECL) or Veolia (VIE.PA), which are building battery recycling and rare earth separation facilities in the region. Additionally, materials suppliers such as Iluka Resources (ILU.AX)—partnering with Indonesia on nickel and rare earth projects—are poised to capitalize on ASEAN's rise.

Investment Thesis: Buy the Truce, Bet on China's Structural Edge

The June agreement is a tactical win for U.S. manufacturers but a strategic loss for U.S. industrial policy. China's control over heavy rare earths (dysprosium, terbium) and magnet manufacturing ensures its dominance in high-margin segments. Investors should:
1. Overweight rare earth miners with U.S./ASEAN exposure (MP, LYC).
2. Hold EV leaders tied to Chinese battery ecosystems (TSLA, BYD).
3. Diversify into ASEAN infrastructure plays (BECL, VIE.PA).

The near-term tariff truce creates a window to buy undervalued supply chain stocks ahead of 2026–2027, when China's competitors may finally scale production. Yet, even with U.S. investments, the math remains grim: MP Materials' Texas magnet plant will produce 0.3% of China's output by 2026. Geopolitical truces cannot erase physics—only realign expectations around China's enduring industrial might.