Geopolitical Risks in the US-China-Taiwan Triangle and Their Impact on Rare Earths and Tech Supply Chains

The U.S.-China-Taiwan geopolitical triangle has become a focal point for global investors, particularly as rare earth supply chain vulnerabilities and shifting U.S. policy priorities collide with the strategic ambitions of Beijing. China's near-total dominance in rare earth production-controlling 90% of global refining and 70% of mining operations-positions it as a critical lever in the global tech and defense sectors according to reports. Meanwhile, President Trump's evolving foreign policy, including his planned visit to China and emphasis on Taiwan's unification with the mainland, introduces further uncertainty. For investors in AI, semiconductors, and defense contractors, the interplay of these dynamics creates both risks and opportunities that demand careful navigation.

China's Rare Earth Dominance and Strategic Leverage

China's control over rare earth elements (REEs)-critical for AI hardware, semiconductors, and defense systems-remains unchallenged despite temporary policy shifts. A one-year suspension of export restrictions agreed under the Trump-Xi deal in 2024 briefly stabilized prices but did not address the structural advantages Beijing holds, including low production costs and advanced processing capabilities according to analysts. Analysts warn that this dominance allows China to weaponize its supply chain during geopolitical tensions, as seen in past export quotas on gallium and germanium according to reports. For instance, neodymium-iron-boron (NdFeB) magnets, essential for high-performance server cooling and defense applications, remain heavily reliant on Chinese processing according to industry analysis.

The U.S. and its allies are struggling to close this gap. While projects like California's Mountain Pass facility aim to boost domestic refining capacity, they remain insufficient to meet demand, forcing reliance on international partnerships and stockpiles according to market analysis. This asymmetry leaves U.S. tech and defense firms exposed to price volatility and supply disruptions, particularly as AI infrastructure demand surges.

Trump's Foreign Policy and the Taiwan Factor

President Trump's 2025 foreign policy agenda has prioritized stabilizing U.S.-China relations, including negotiations to lift rare earth export restrictions according to official statements. However, his emphasis on Taiwan's return to China under the post-World War II international order has raised concerns about potential concessions that could undermine U.S. leverage in the semiconductor and defense sectors. During recent high-level talks, Xi Jinping pressed Trump to reaffirm non-interference in cross-Strait issues, signaling Beijing's intent to use Taiwan as a bargaining chip according to diplomatic sources.

This dynamic is particularly acute for Taiwan Semiconductor Manufacturing Company (TSMC), which produces 92% of advanced chips at 7nm and below according to industry reports. TSMC's fabs are vital for U.S. AI and defense systems, yet its operations in Taiwan remain a geopolitical flashpoint. The Trump administration's balancing act-between securing rare earth access and safeguarding TSMC's role in global supply chains-highlights the fragility of U.S. tech security.

Investment Risks and Opportunities in Tech Sectors

The rare earth bottleneck and U.S.-China tensions are reshaping investment landscapes in three key areas:

1. Semiconductors: TSMC's strategic importance has made it a linchpin for U.S. and allied production. The CHIPS Act has incentivized TSMC to expand U.S. fabrication facilities, but this shift comes with higher costs and operational inefficiencies according to industry analysis. For investors, TSMC's ability to navigate geopolitical risks while maintaining technological leadership will be critical. Conversely, Chinese firms face headwinds as U.S. export controls force them to rely on older or domestic technologies, fragmenting the global semiconductor ecosystem according to market reports.

2. AI and Energy Management: Companies like C3.ai are leveraging partnerships with hyperscalers (e.g., Microsoft) to mitigate supply chain risks. C3.ai's Agentic AI Platform, integrated with Azure AI Foundry, enables secure, scalable AI deployments for defense and enterprise clients according to company statements. Such collaborations highlight opportunities for firms that can decouple AI innovation from rare earth dependencies. However, the sector remains vulnerable to price shocks in REEs, which are indispensable for server cooling and high-performance magnets according to industry analysis.

3. Defense Contractors: The U.S. military's reliance on TSMC for advanced chips underscores the sector's exposure to cross-Strait tensions. While diversification efforts are underway, the lack of viable alternatives to Chinese rare earth processing creates a strategic vulnerability according to defense analysts. Defense firms that invest in alternative materials or recycling technologies may gain an edge, but these solutions are still nascent.

Strategic Responses and Emerging Solutions

U.S. firms are adopting innovative strategies to counter supply chain risks. Turret Labs, for instance, has introduced BlockEnRoll™, a platform combining AI, blockchain, and quantum computing to enhance supply chain resilience according to press releases. By enabling real-time data verification and modular system updates, such tools help firms adapt to geopolitical disruptions. Similarly, C3.ai's focus on secure AI deployment through Microsoft's cloud infrastructure illustrates how strategic partnerships can buffer against rare earth volatility according to company reports.

Conclusion

The U.S.-China-Taiwan triangle's geopolitical tensions are amplifying risks in rare earth-dependent sectors while creating opportunities for firms that can innovate around these constraints. Investors must weigh the likelihood of Chinese policy shifts, Trump's diplomatic maneuvers, and the long-term viability of U.S. supply chain strategies. For AI, semiconductors, and defense contractors, the path forward hinges on diversification, strategic partnerships, and technological ingenuity-factors that will define the next phase of global tech competition.