Rare Earth Rivalry: How US-China Trade Tensions Threaten Defense Supply Chains

The global race for rare earth elements (REEs)—critical minerals used in everything from missiles to electric vehicles—has taken a dangerous turn. As U.S.-China trade tensions escalate, the stakes for national security and global industry are rising. With China controlling 60% of global rare earth production and 90% of refining capacity, the world faces a precarious reliance on a single supplier for materials that underpin modern militaries and tech.

The Weaponization of Rare Earths

In April 2025, China tightened export controls on seven critical rare earth elements—dysprosium, gadolinium, lutetium, samarium, scandium, terbium, and yttrium—along with rare earth magnets. These materials are essential for advanced defense systems: samarium cobalt magnets power fighter jets like the F-35, while neodymium-iron-boron magnets are critical for electric vehicle motors. The move, retaliation for U.S. tariffs, has already caused chaos.

• Automotive Industry: Ford halted production of the Ford Explorer in May 2025 due to shortages, while German automakers saw magnet shipments drop 50% in April.
• Defense Sector: The U.S. Department of Defense warned that delays in permit approvals for samarium cobalt imports could jeopardize F-35 production timelines.
• Global Supply Chains: Japan's Suzuki suspended car production, and European defense stocks like German manufacturer Renk plummeted amid fears of bottlenecks.

Data: China's share rose from 97% to 60% due to geopolitical pressures, but it still dominates processing.

The U.S. Response: Building Resilience

The Biden administration is racing to reduce reliance on China. Key efforts include:
1. Domestic Production: MP Materials, the U.S.'s largest rare earth producer, aims to expand its Mountain Pass mine to supply 1,000 tons of NdFeB magnets annually by 2027—a fraction of China's 138,000-ton annual output.
2. Strategic Partnerships: Australia's Lynas Rare Earths and the EU's Critical Raw Materials Act (targeting 25% EU-sourced rare earths by 2030) are critical to diversifying supply.
3. Recycling Innovations: Companies like American Manganese Inc. are pioneering recycling methods that recover up to 90% of rare earths from electronic waste.

Data: Shares rose 40% in 2024 as the company secured defense contracts, but remain volatile amid trade tensions.

Investment Opportunities—and Risks

Investors seeking exposure to rare earths must balance strategic potential with geopolitical risk:
- Long-Term Plays:
- MP Materials (MP): The leader in U.S. rare earth processing, but vulnerable to regulatory delays and high capital costs.
- Lynas Rare Earths (LYD): Australia's largest producer, benefiting from strong U.S.-Australia ties.
- ETFs: The Global X Rare Earth & Strategic Metals ETF (REMX) offers diversified exposure to miners like China's Shenghe Resources and U.S. firms.

• Risks:
• Geopolitical Volatility: U.S.-China trade talks in June 2025 yielded a “green channel” for automakers, but defense-related exports remain constrained.
• Time Lag: Even with $439 million in DOD funding, U.S. production won't match China's scale until the late 2020s.
• Environmental Costs: Rare earth mining's toxic byproducts could trigger regulatory pushback.

Conclusion: A Fragile Truce

The rare earth crisis is a stark reminder of how supply chains can become battlegrounds. While the June 2025 trade deal eased some automotive shortages, defense vulnerabilities remain unresolved. Investors should prioritize companies with diversified supply chains and government contracts, but remain cautious about overvalued stocks in this nascent sector. The true test will come when China's next move—whether to tighten or loosen the screws—reshapes the global balance of power.

Invest wisely, and keep an eye on the next U.S.-China trade roundtable.