Cobalt and Rare Earths: Strategic Metals in the U.S.-China Tech and Military Cold War

In the shadow of the U.S.-China tech and military cold war, a quiet but critical battle is unfolding in the world of critical minerals. Cobalt and rare earth elements (REEs) have emerged as the new frontlines, with their strategic importance transcending traditional resource economics to become linchpins of national security, clean energy, and advanced manufacturing. For investors, this dynamic presents both a high-stakes geopolitical chessboard and a compelling opportunity to hedge against supply chain volatility.

The Strategic Imperative: Why Cobalt and Rare Earths Matter

Cobalt and REEs are indispensable to modern technology and defense systems. Neodymium-iron-boron magnets, derived from REEs, are vital for the precision motion systems in F-35 fighter jets and wind turbines. Cobalt, a key component in lithium-ion batteries, powers everything from electric vehicles (EVs) to military drones. Yet, the U.S. lacks the domestic infrastructure to refine these materials. While the Mountain Pass Rare Earth Mine in California produces raw materials, 90% of global rare earth refining and nearly all cobalt processing still occur in China. This dependency creates a vulnerability: a single move by Beijing—such as its 2025 export controls on rare earth magnets—can cripple global supply chains, as seen in European automotive plant shutdowns.

Geopolitical Leverage and Supply Chain Fragility

China's dominance in refining and processing is not accidental but a decades-long industrial policy. By controlling 90% of rare earth magnet processing and refining, Beijing can dictate terms, whether through tariffs, export restrictions, or strategic partnerships. The U.S. military's reliance on these materials—such as cobalt in its advanced battery systems—heightens the stakes. Even as the Biden administration allocates billions via the Inflation Reduction Act and CHIPS Act to revive domestic production, the reality is stark: building a refining industry from scratch takes 10–20 years.

The Quad Critical Minerals Initiative, launched in July 2025, represents a glimmer of hope. By pooling resources with Australia, Japan, and India, the U.S. aims to diversify supply chains and reduce reliance on Chinese processing. However, challenges persist. Regulatory delays, environmental compliance hurdles, and financing gaps for capital-intensive projects mean true independence remains a decade away.

Investing in Resilience: A Portfolio for the New Cold War

For investors, the solution lies in strategic positioning. Here's how to align with the energy transition while hedging against geopolitical risks:

1. Integrated Producers with Government Backing
2. MP Materials (MP): The largest U.S. rare earth producer is expanding its Mountain Pass mine and building the first U.S. rare earth magnet plant. A 10-year offtake agreement with the Department of Defense underscores its strategic value.

3. Lynas Rare Earths (LYC): Australia's Lynas is scaling up dysprosium and terbium production in Malaysia, leveraging proximity to Asian markets while diversifying away from China.

4. Downstream Manufacturers and Recyclers

5. Tesla and General Motors: Both are pivoting to domestic rare earth suppliers to mitigate bottlenecks. Tesla's recent partnership with a U.S. recycler highlights the shift toward circular supply chains.

6. Mkango Resources (MKA): A leader in post-consumer magnet recycling, Mkango offers a less vulnerable supply alternative as EV demand surges.

7. ETFs for Diversified Exposure

8. VanEck Rare Earth and Strategic Metals ETF (REMX): Focuses on companies like Arcadium Lithium and Albemarle, providing access to refining and recycling technologies.
9. Sprott Critical Materials ETF (SETM): A pure-play fund targeting lithium, cobalt, and rare earths, ideal for investors seeking direct exposure to the energy transition.

Hedging Against Volatility: The Role of Recycling and Partnerships

The sector's volatility demands a hedging strategy. Long-term offtake agreements, diversified sourcing, and recycling investments are critical. For example, NioCorp Developments (NB) is scaling post-consumer magnet recycling, while Aclara Resources and Iluka Resources are expanding into Brazil and Madagascar to reduce China dependency. Investors should also monitor the U.S. Department of Energy's $1 billion funding initiative, which supports domestic processing and recycling projects.

Risks and Realities

While the sector offers growth potential, risks abound. Price swings, geopolitical tensions, and regulatory shifts can disrupt returns. For instance, China's selective cooperation with the U.S. on civilian EV materials contrasts with its restrictions on defense applications, creating a complex landscape. Environmental concerns and permitting delays further complicate projects.

Conclusion: A Strategic Investment for the Long Game

Investing in critical minerals is not just about capitalizing on the energy transition—it's about securing a stake in the future of global supply chains. For those willing to navigate the risks, the rewards are clear: a portfolio that aligns with national security priorities, technological innovation, and the decarbonization imperative. As the U.S.-China cold war intensifies, cobalt and rare earths will remain at the heart of the next industrial revolution.

In this new era, the metals that power our world are also the ones that define its geopolitical future. For investors, the key is to act with foresight, diversification, and a clear understanding of the stakes. The cold war may be cold, but the heat in critical minerals is anything but.