Rare Earths in the Crosshairs: Navigating Trade Tensions for Strategic Commodity Profits

The U.S.-China trade war over rare earth minerals has escalated into a high-stakes battle for control of the materials that power modern technology and defense systems. As tariffs rise and export restrictions tighten, investors are left to navigate a geopolitical minefield while seeking opportunities in one of the world's most critical commodity sectors. Here's how to position for profit—and risk—in this strategic showdown.

The Rare Earth Rivalry: Why It Matters

Rare earth elements (REEs) are the unsung heroes of the 21st century. From neodymium in electric vehicle (EV) motors to samarium in fighter jet guidance systems, these 17 elements are indispensable for advanced industries. China's dominance—controlling 70% of global rare earth mining and over 90% of refining—has turned supply into a geopolitical weapon.

The latest round of trade talks in June 2025 offers glimmers of hope for resolution, but underlying tensions persist. China's April 2025 export restrictions on seven critical REEs, including samarium and dysprosium, have disrupted U.S. defense supply chains, while U.S. tariffs on Chinese goods remain punitive. The result? A volatile market ripe for strategic investment—if investors can parse the risks.

Investment Opportunities: Where to Look

1. Rare Earth Miners with U.S. Footprints

The U.S. government's push to build domestic supply chains has fast-tracked projects like MP Materials' heavy rare earth processing plant in California. MP Materials (NYSE: MP), the largest U.S. rare earth producer, stands to benefit from $439 million in Defense Department funding to scale up magnet production.

Risk: MP's current output (1,000 tons of NdFeB magnets annually) is just 0.7% of China's capacity. Progress depends on federal subsidies and technological breakthroughs.

2. Global Refiners with Diversified Supply Chains

Lynas Corporation (ASX: LYC), an Australian firm with a rare earth refinery in Malaysia, is a key non-Chinese supplier. Its partnership with Japan to develop refining technology could carve out a niche in the market.

Opportunity: Lynas' access to Australia's Browns Range dysprosium project—a critical source of heavy REEs—could offset China's dominance.

3. Recycling and Substitution Plays

With REE recycling still in its infancy, companies like American Manganese (TSXV: AMY) are pioneering processes to recover REEs from EV batteries and industrial waste.

Why Now?: Recycling could reduce reliance on Chinese imports by 10–15% by 2030, according to the U.S. Geological Survey.

4. Defense Contractors Betting on Autonomy

Lockheed Martin (NYSE: LMT) and Raytheon Technologies (NYSE: RTX) are accelerating efforts to source REEs domestically. Their stock prices may correlate with geopolitical risk:

Risk: Defense projects rely on steady REE supply. A prolonged shortage could delay production and hurt valuations.

The Risks: Dependency and Delays

• China's Leverage: Beijing's ability to throttle exports—seen in the 34.5% drop in May 2025 U.S. rare earth imports—remains a Sword of Damocles.
• Slow Diversification: The U.S. aims to achieve a “mine-to-magnet” supply chain by 2027, but technical hurdles (e.g., solvent extraction expertise) could delay progress.
• Commodity Price Volatility: REE prices (e.g., praseodymium-neodymium oxide) have fluctuated 40% since 2020. Investors need a long-term horizon to weather swings.

Investment Strategy: A Balanced Approach

1. Core Position: Allocate 20–30% to diversified miners like MP Materials and Lynas, which benefit from both geopolitical tailwinds and EV demand.
2. Satellite Plays: Use smaller stakes (5–10%) in recycling firms like American Manganese to hedge against price drops.
3. Defense Exposure: Pair 10–15% in defense stocks to capture upside from Pentagon spending on REE security.

When to Bail?

• Trade Deal Breakthrough: If U.S.-China tariffs are fully resolved by late 2025, REE prices could drop as supply normalizes.
• Technological Substitution: Advances in magnet alternatives (e.g., iron-nitrogen-boron) could reduce REE dependency.

Conclusion: A Geopolitical Commodity for the Decade

Rare earths are no longer niche—they're the lifeblood of global tech and defense. While U.S.-China talks may yield temporary truces, the structural shortage of non-Chinese supply ensures long-term demand. Investors who combine patience with a focus on companies bridging the supply gap will find fertile ground here. But tread carefully: this is a race where the finish line—and the risks—are both moving targets.

Consider this a call to position for the next phase of the trade war, not just today's headlines.