The Rare Earth Rally: How Geopolitical Tensions Are Fueling Opportunities in Critical Mineral Equities

The U.S.-China trade war has entered a new phase of volatility, with rare earth minerals emerging as a key battleground. As tariff disputes linger and supply chains face existential risks, investors are being offered a rare chance to position themselves in companies and ETFs poised to thrive amid the geopolitical storm. The stakes are high: these elements—vital for electric vehicles (EVs), defense systems, and AI—are now central to both economic and national security strategies. For shrewd investors, the coming months could be a defining moment to buy dips in critical mineral equities.

The Trade Truce: A Fragile Buffer Against Supply Chain Chaos

The temporary tariff reductions agreed in May 2024 have done little to quell the underlying tensions. U.S. tariffs on Chinese imports remain at 30%, while China's retaliatory measures hover at 10%, but the August 2025 expiration of the 90-day truce threatens to reignite a full-scale trade war. At the heart of the dispute: rare earth elements. China's dominance in processing 90% of global rare earth minerals gives it immense leverage, as automakers like GM and Ford scramble to avoid production halts due to shortages.

The U.S. response? Accelerating domestic production and diversifying supply chains. This is where investors find their edge.

MP Materials (MP): The U.S. Rare Earth Play

MP Materials, operator of California's Mountain Pass mine, is the linchpin of American rare earth independence. Despite a Q1 2025 net loss of $22.6 million—driven by rising production costs and a 16% drop in neodymium-praseodymium (NdPr) prices—the company's strategic moves are undeniable:
- Vertical Integration: Its $35 million Pentagon-backed Texas magnet plant aims to produce 1,000 tons of NdFeB magnets annually by late 2025, targeting EV and defense markets.
- Geopolitical Tailwinds: U.S. policies like the CHIPS Act and Inflation Reduction Act provide tax credits and funding, while Pentagon partnerships secure demand.
- Cash Reserves: With $759 million in liquidity, MP can weather short-term price swings.

Analysts project MP's non-Chinese rare earth processing market share to hit 40% by 2030. For investors, the key is recognizing that EV magnet demand will triple by 2030—a trend MP is uniquely positioned to capitalize on.

Lynas Rare Earths (LYC.AX): The Australian Alternative

Australia's Lynas offers a critical counter to China's heavy rare earth dominance. Its Malaysian refinery produces dysprosium oxide (99.1% purity), vital for EV motors and defense systems. While geopolitical risks in Malaysia persist, Lynas's role as a non-Chinese supplier makes it a strategic buy.

ETFs: Diversification in a Volatile Landscape

The VanEck Rare Earth/Strategic Metals ETF (REMX) provides a diversified play on the sector. Key holdings like Lynas and emerging recyclers like Cyclic Materials (which aims to boost rare earth recovery from e-waste) offer exposure to both production and innovation.

REMX's strength lies in its mix of miners and tech enablers. For example, Ucore Rare Metals (UCEPF) is pioneering cerium-based alloys that reduce reliance on China's heavy rare earths.

Semiconductors: TSMC and SK Hynix Lead the Decoupling

The chip sector is no stranger to trade tensions, but companies like TSMC (TSM) are proving their resilience. Its $40 billion Texas plant—operating at full capacity—buffers against China's export bans on gallium and germanium. TSM's 3nm chips, critical for AI, are driving a 45% CAGR in AI-related revenue.

SK Hynix (000660.KS) is another winner, pivoting to gallium oxide alternatives and partnering with Australian rare earth suppliers. Both companies exemplify Asia's “third-way” strategy—reducing reliance on both U.S. and Chinese supply chains.

Risks and the Case for Patience

• Commodity Volatility: NdPr prices dropped 16% in Q1 2025, pressuring margins.
• Execution Risks: MP still relies on China for 40% of its heavy rare earth processing.
• Geopolitical Whiplash: The August tariff truce expiry could trigger renewed volatility.

But here's the key: long-term demand is unshakable. EV adoption, 5G, and AI are all rare earth-intensive. The U.S. and allies are pouring billions into domestic production—$38–42 billion in TSMC's 2025 CapEx alone.

Investment Strategy: Buy the Dip, Play the Long Game

• MP Materials (MP): A core holding for its strategic importance. Look for dips below $18/share (as of June 2025) to average into positions.
• REMX ETF: Ideal for broad exposure; consider dollar-cost averaging as commodity prices stabilize.
• TSM and SK Hynix: Hold for their technological leadership and geopolitical hedging.

The window to act is narrowing. With the August truce deadline looming, investors who move now can secure stakes in companies at valuations that don't yet reflect their critical role in the next industrial revolution.

The rare earth rally isn't just about tariffs—it's about the future of energy, tech, and security. For those willing to navigate the volatility, the rewards are rare indeed.