The Rare Earths Deadlock: Why US-China Trade Deal Leaves Military Supply Chains Exposed—and Where Investors Should Look Next

The U.S.-China rare earths trade deal finalized in June 2025 offers a temporary reprieve for civilian industries but leaves critical military supply chains dangling in the wind. While the agreement reopens export channels for rare earth elements (REEs) and permanent magnets, it explicitly excludes military-grade materials like samarium-cobalt magnets—components essential to fighter jets, missiles, and advanced weaponry. This calculated exclusion underscores the fragility of the deal and highlights a glaring vulnerability in U.S. defense readiness. For investors, the stalemate presents a stark choice: bet on a geopolitical gamble with China or back the emerging alternative producers racing to insulate global supply chains.

The Deal's Flawed Foundation

The trade pact's exclusion of military-grade rare earths is a red line for the U.S. defense sector. China's refusal to lift export controls on samarium—a key ingredient for high-temperature magnets used in F-35 fighter jets and missile systems—threatens to disrupt production lines at Lockheed Martin and other contractors. With U.S. inventories of samarium dwindling and no domestic production capacity for heavy rare earth elements (HREEs), the military faces a ticking clock.

The terms of the deal further complicate matters: temporary six-month export licenses for civilian industries create uncertainty for long-term planning, while Beijing retains leverage over critical materials like dysprosium and terbium, which strengthen magnets in electric vehicles and drones.

Supply Chain Gaps: Where the U.S. Falls Short

The U.S. has invested $439 million since 2020 to build domestic REE infrastructure, but progress remains uneven. MP Materials, the sole U.S. rare earth producer, focuses on light rare earths (like neodymium for EV motors) and lacks the capacity to process heavy rare earths (HREEs) needed for military magnets. Its Texas plant produces 1,000 tonnes of NdFeB magnets annually—a fraction of China's 300,000-tonne output—and cannot refine samarium or other HREEs.

Australia's Lynas Corp, by contrast, is advancing a Texas-based HREE separation project to address U.S. defense needs. However, its output will focus on dysprosium and terbium, leaving samarium-cobalt magnets unaddressed. Meanwhile, Saudi Arabia's ambitious mine-to-magnet supply chain partnership with MP Materials faces delays, underscoring the years it will take to achieve true self-sufficiency.

MP's stock has underperformed the broader market amid supply chain uncertainty, but its role in U.S. defense initiatives could revalue it if production scales.

Investment Opportunities in Geopolitically Insulated Supply Chains

The deadlock creates a clear investment thesis: prioritize companies positioned to reduce reliance on China's rare earth dominance.

1. Lynas Corporation (LYD.AX):
   Australia's Lynas is the world's second-largest rare earth producer and the only non-Chinese supplier of HREEs. Its Malaysian refinery processes ore from Western Australia, and its Texas expansion could secure a U.S. foothold in critical HREEs like dysprosium.

2. MP Materials (MP):
   Despite its current limitations, MP's scale and government partnerships make it a linchpin of U.S. rare earth strategy. A breakthrough in HREE processing or partnerships with defense contractors could unlock its full potential.

3. ioneer Limited (IONR):
   This Australian miner is advancing a Nevada-based rare earth project targeting neodymium and praseodymium, critical for EV motors. Its direct-to-separations strategy avoids reliance on Chinese refining, making it a pure-play bet on U.S. supply chain resilience.

4. ETFs for Diversification:
   The VanEck Rare Earth/Strategic Metals ETF (REMX) offers exposure to a basket of global producers, including non-Chinese firms like Hitachi Metals (Japan) and Solvay (Europe).

Risks and Considerations

Investors must account for geopolitical volatility and long timelines. China's export bans could intensify if U.S.-China tensions flare, while alternative producers face permitting delays and capital constraints. A sustained focus on government funding—like the $52 billion allocated under the CHIPS and Science Act—will be critical to scaling these projects.

Final Take: Diversify or Deteriorate

The June deal's exclusion of military-grade rare earths is a wake-up call. Investors ignoring the fragility of supply chains risk exposure to a “samarium shortage” that could cripple defense systems. Instead, stakes should be placed in companies like Lynas and MP Materials, which are building the infrastructure to insulate supply chains. The path to self-sufficiency is years long, but those who act now will position themselves to profit as the world pivots away from China's chokehold.

Actionable Advice:
- Accumulate shares in Lynas Corp and MP Materials as core holdings.
- Use REMX for diversified exposure while monitoring geopolitical developments.
- Avoid overvaluation traps—wait for dips in stock prices before scaling positions.

The rare earths deadlock isn't just a trade dispute; it's a race to secure the minerals that will define 21st-century power. The winners will be those who bet on diversification before it's too late.

China's dominance is clear, but non-Chinese production (Australia, U.S., Africa) is growing—slowly.