U.S.-China Trade Truce Extension and Rare Earths: Strategic Opportunities Amid Geopolitical Uncertainty

The U.S.-China trade truce extension through November 10, 2025, has injected a critical layer of stability into global supply chains, particularly in the rare earths sector. This pause in tariff escalations—suspending U.S. duties on Chinese goods at 30% and China's retaliatory tariffs at 10%—has provided a temporary buffer for industries reliant on critical minerals. However, the truce also underscores the strategic leverage Beijing holds over rare earths, a resource that remains central to the U.S.-China technological and geopolitical rivalry. For investors, this dynamic creates both risks and opportunities, demanding a nuanced understanding of how supply chain vulnerabilities and policy shifts could reshape markets.

China's Rare Earths Leverage: A Double-Edged Sword

China's dominance in the rare earths supply chain is unparalleled. It controls 85% of global refining capacity and 65–90% of lithium, cobalt, and nickel, essential for electric vehicles, semiconductors, and renewable energy technologies. The May 2025 agreement to resume rare earths exports to the U.S. and expedite licensing processes has eased immediate bottlenecks, but Beijing's ability to manipulate access to these materials remains a wildcard. For instance, in June 2025, China's rare earth exports surged to 7,742 metric tons—the highest since 2012—while U.S. firms received 353 metric tons of rare earth magnets, a seven-fold increase from the prior month. This surge suggests China is using its rare earths as a bargaining chip, balancing cooperation with strategic control.

The U.S. response has been twofold: diversifying supply chains and accelerating domestic production. Strategic partnerships with Saudi Arabia, Namibia, and Australia aim to reduce dependency on China, while U.S. firms like Lynas Corp (LYC.AX) and Albemarle (ALB) are central to processing and production. Investors should monitor these companies, as they are positioned to benefit from both geopolitical tensions and U.S. policy incentives.

Opportunities in Diversification and Innovation

The truce extension offers a window for U.S. and allied nations to strengthen alternative supply chains. For example, Australia's Browns Range project aims to become the first major dysprosium producer outside China, while Japan and Vietnam collaborate on rare earths processing. These initiatives, though still in early stages, could mitigate long-term risks. Investors should consider the VanEck Vectors Rare Earth/Industrial Metals ETF (REMX), which provides diversified exposure to rare earths equities and industrial metals.

Additionally, the U.S. government's 15% revenue-sharing policy for chip companies like AMD and Nvidia—on sales to China—signals a monetization strategy that blurs economic and security interests. This policy could influence how rare earths and semiconductor technologies are exchanged, creating opportunities for firms that adapt to dual-use export controls.

Risks and Strategic Considerations

While the truce stabilizes short-term trade, it does not resolve deeper structural issues. China's potential to weaponize rare earths—such as reimposing export restrictions or delaying licensing—remains a risk. For instance, in Q2 2025, China's export restrictions on seven rare earth elements (including dysprosium and terbium) disrupted U.S. defense and aerospace sectors, highlighting vulnerabilities in critical mineral access.

Investors must also weigh the U.S. Department of Defense's (DOD) efforts to build domestic rare earths capacity. While the DOD has allocated $439 million since 2020 for projects like MP Materials and Lynas USA, these initiatives are still far from matching China's scale. By 2025, MP Materials is projected to produce only 1,000 tons of NdFeB magnets—less than 1% of China's 2018 output. This lag in production capacity means U.S. reliance on China will persist for years, creating volatility in rare earths pricing and supply.

Conclusion: Navigating the Geopolitical Tightrope

The U.S.-China trade truce extension is a tactical pause, not a resolution. For investors, the key lies in balancing exposure to companies that benefit from U.S. diversification efforts while hedging against potential disruptions from China's strategic leverage. Rare earths ETFs like REMX offer broad diversification, while individual equities such as LYC.AX and ALB provide targeted exposure to critical mineral production.

As the U.S. and China navigate the next phase of negotiations, investors should remain agile, prioritizing firms with strong geopolitical positioning and technological innovation. The rare earths sector, though fraught with risks, holds significant upside for those who can navigate the interplay of policy, supply chain dynamics, and market demand. In this high-stakes environment, strategic foresight and portfolio diversification will be paramount.