Rare Earth Rush: Capitalizing on US-China Trade Tensions Before the Tariff Truce Expires

The US-China trade war has entered a critical phase, with the fragile 90-day tariff truce set to expire on August 10, 2025, and tensions over rare earth minerals and semiconductors intensifying. This volatile environment presents a unique opportunity for investors to position themselves in industries pivotal to the global supply chain reshuffle. With China controlling 99% of refined heavy rare earths (REEs) and the U.S. tightening export curbs on advanced chips, the race is on to diversify supply chains and invest in alternatives. Here's how to capitalize.

The Rare Earth Dominance: China's Coercive Tool

China's April 2024 export controls on seven critical rare earth elements—samarium, gadolinium, and others—have exposed global vulnerabilities. These metals are indispensable for defense systems (e.g., F-35 fighter jets), electric vehicles, and wind turbines. U.S. defense contractors and automakers now face supply bottlenecks, while European and Indian manufacturers risk production halts due to licensing delays.

Investment Play: Exposure to rare earth miners and processors outside China is essential.
- MP Materials (MP): The U.S.'s sole integrated rare earth producer, scaling up magnet production to 1,000 tons by 2025.
- Lynas Rare Earths (LYD.AX): Australia's dominant rare earth miner, with projects in Malaysia and partnerships with U.S. firms.
- Global X Lithium & Rare Earths ETF (RETH): Tracks companies involved in mining and processing these strategic minerals.

Semiconductors: The New Cold War Battlefield

The U.S. has weaponized export controls, banning sales of advanced chips and design software to Chinese firms like SMIC. In retaliation, China has restricted rare earth exports to U.S. semiconductor manufacturers. This tit-for-tat highlights the need for alternatives.

Investment Play: Back firms developing non-U.S. semiconductor ecosystems.
- ASML Holding (ASML): Dutch leader in chip lithography equipment, critical for EU-based production.
- TSMC (TSM): Taiwan's global chipmaking giant, expanding facilities in Japan and the U.S.
- Intel (INTC): Investing heavily in domestic chip factories, though risks remain due to U.S.-China tech decoupling.

Why the Clock is Ticking

The tariff truce's August expiration looms large. If unresolved, reciprocal tariffs could jump from 30% to 50%+, exacerbating supply chain costs. Even if extended, the U.S. and China are unlikely to resolve deeper issues like rare earth dominance and tech control.

Actionable Advice:
1. Double down on rare earth plays: MP Materials and Lynas offer direct exposure to the U.S.-China rare earth arms race.
2. Diversify semiconductor bets: Allocate to ASML and TSMC, which are less dependent on U.S. tech.
3. Avoid auto and consumer electronics stocks: Companies reliant on Chinese-manufactured REEs or chips (e.g., Tesla, Ford) face margin pressure from rising tariffs and shortages.

The Bottom Line

The US-China trade war isn't a temporary squabble—it's a structural shift. Investors ignoring rare earth and semiconductor alternatives risk missing out on multi-year opportunities. With the tariff truce's August deadline fast approaching, now is the time to secure positions in industries that will define the next era of global supply chains.