The New Nuclear Divide: How U.S.-China Trade Wars Are Reshaping Global Supply Chains

The escalating U.S.-China trade and technology conflict has reached a critical juncture, with nuclear trade restrictions and rare earth element (REE) controls now central to the rivalry. Recent U.S. Bureau of Industry and Security (BIS) actions—such as adding 80 entities to the Entity List in March 2025—have directly targeted China's access to advanced technologies, including those with dual-use applications in nuclear programs. In retaliation, China imposed stringent export controls on rare earth elements in April 2025, creating a feedback loop of supply chain fragmentation and accelerating Beijing's push for self-reliance. For investors, this bifurcated landscape presents both opportunities and risks.

The U.S. Playbook: Cutting Off Nuclear-Linked Technologies

The BIS's March 2025 Entity List additions explicitly targeted entities involved in unsafeguarded nuclear activities, ballistic missiles, and quantum computing. By imposing a “presumption of denial” licensing policy, the U.S. has effectively blocked Chinese firms from acquiring U.S.-origin components critical to nuclear infrastructure, such as reactor control systems or advanced materials for neutron shielding.

The strategic calculus is clear: curtail China's ability to develop nuclear-powered submarines, hypersonic missiles, or next-gen nuclear reactors. However, this move has also intensified China's resolve to insulate its supply chains. For instance, have already declined by over 40%, with April's restrictions further complicating access to heavy REEs like dysprosium and terbium—critical for nuclear reactor magnets and shielding.

China's Countermove: Weaponizing Rare Earths

Beijing's April 2025 export controls on seven medium/heavy REEs—requiring special licenses for U.S. buyers—have exposed the fragility of global nuclear supply chains. U.S. defense contractors, already reliant on Chinese-refined REEs for advanced magnets in submarines and missiles, face a stark choice: pay exorbitant premiums for licensed exports or accelerate domestic production.

The data is stark: shows that China controls 99% of heavy REE refining, with U.S. projects like MP Materials' Texas facility (targeting 1,000 tons/year by 2025) producing less than 1% of China's output. Even if the U.S. achieves its 2027 goal of a domestic REE-to-magnet supply chain, it will remain years behind.

Investment Implications: Riding the Self-Reliance Wave

1. Chinese Nuclear Tech Firms: State-owned enterprises like China National Nuclear Corporation (CNNC) and China General Nuclear Power Group (CGN) are beneficiaries of Beijing's push to secure nuclear supply chains. Their projects—such as the Hualong One reactor and domestic REE processing—will see increased funding and policy support.

2. Opportunity: Long-term investors could consider ETFs tracking Chinese industrials (e.g., FXI) or direct stakes in firms like Ganzhou Rare Metal (a key REE processor).

3. Rare Earth Recyclers: With primary supply constrained, recycling is becoming a strategic alternative. Firms like Shandong Rare Earth and American Molybdenum (specializing in magnet recycling) could see demand surge.

4. Data Watch: may reveal inflection points for recyclers.

5. Geopolitical Arbitrage: Firms bridging the U.S.-China divide—such as Lynas Rare Earths (Australia) or Avalon Advanced Materials (Canada)—may profit from niche roles in non-Chinese REE production.

The Risks of Prolonged Decoupling

While short-term gains exist in self-reliance plays, prolonged U.S.-China tech decoupling poses systemic risks. Key concerns:
- Supply Chain Balkanization: Nuclear projects, from small modular reactors to fusion experiments, may face delays as global collaboration frays.
- Cost Inflation: The U.S. Department of Defense's $439 million investment in domestic REE facilities underscores the premium paid for “secure” supply—a burden that could reduce returns for investors in traditional sectors.
- Technical Gaps: China's monopoly on advanced solvent extraction techniques means even non-Chinese miners like Lynas rely on Chinese refineries until 2026, creating dependency risks.

Conclusion: Navigate the Divide, but Stay Pragmatic

Investors should embrace opportunities in Chinese nuclear tech firms and recyclers but remain wary of overexposure to prolonged decoupling. Short-term plays—such as shorting U.S. defense contractors reliant on Chinese REEs—could also profit from supply chain bottlenecks. However, the ultimate test lies in whether global leaders can find a middle ground. Until then, the new nuclear divide will remain a defining feature of global supply chains.

Final Takeaway: Position for self-reliance winners, but hedge against the economic drag of fragmentation. The race to decouple is here—investors must pick their bets wisely.