Rare Earths, Geopolitics, and the Race to Diversify Supply Chains: Investment Opportunities Ahead of the G7 Summit

The global race to secure rare earth elements (REEs)—critical for everything from electric vehicles to defense systems—is intensifying as geopolitical tensions collide with supply chain vulnerabilities. With China controlling 60% of global rare earth production and 90% of magnet manufacturing, the stakes are high. Now, Japan's proposal to collaborate with the U.S. on rare earth supply chains could unlock tariff concessions, redefine trade dynamics, and create a wave of investment opportunities in firms positioned to capitalize on this shift.

The Catalyst: Suzuki's Production Halt and China's Rare Earth Gambit

The recent halt in Suzuki Motor's Swift production—due to China's April 2025 export restrictions on dysprosium and terbium—serves as a stark warning. These rare earth elements are vital for magnets in electric motors, catalytic converters, and sensors. The suspension, affecting over 10,000 vehicles, exposed Japan's overreliance on Chinese supply chains. While Suzuki partially restarted production by mid-June, the crisis has forced automakers worldwide to confront the reality: China's leverage over critical materials is a geopolitical weapon.

Japan's Proposal: Tariff Concessions in Exchange for Supply Chain Resilience
Japan's offer to partner with the U.S. on rare earths and critical minerals is not just about diversifying supply chains—it's a strategic bid to secure tariff relief. Key elements of the proposal include:
- Technical Collaboration: Joint projects to refine and process rare earths in third countries, reducing reliance on China.
- Automotive Tariff Relief: Japan seeks exemptions from U.S. auto tariffs (24% by July 2025), which threaten its $100 billion automotive exports.
- Semiconductor and Shipbuilding Partnerships: Leveraging Japan's semiconductor expertise and U.S. defense needs to counter China's 70% shipbuilding market share.

The U.S., meanwhile, faces its own urgency: China's export curbs on heavy rare earths threaten its defense and EV sectors. A deal before the June 15–17 G7 Summit in Canada could avert further disruptions, making this a pivotal moment for investors.

Investment Themes: Processors, Recyclers, and Supply Chain Winners
The geopolitical push for supply chain diversification opens doors for companies with rare earth exposure. Here's where to focus:

1. Rare Earth Processors:
2. MP Materials (MP): The U.S.'s only domestic rare earth processor, currently expanding its Mountain Pass mine.
   

3. Lynas Corporation (LYD): Australia's top rare earth producer, with refining facilities in Malaysia.

4. Recycling and Substitution Tech:

5. Phoenix Tailings: A U.S. firm developing closed-loop rare earth recycling from mining waste.

6. Ucore Rare Metals (UCCRF): Focused on Alaska's Bokan Mountain deposit, with advanced separation technologies.

7. Automakers and Component Suppliers:

8. Toyota (TM): Investing in rare earth recycling partnerships to secure long-term supplies.

9. Nidec Corporation (6594): A Japanese motor manufacturer reducing rare earth use via neodymium-free designs.

10. ETF Plays:

11. Global X Rare Earth & Strategic Metals ETF (REMX): Tracks companies across the supply chain, including processors and miners.

Geopolitical Risks and the G7 Catalyst
The G7 summit could deliver three outcomes critical to investors:
1. Tariff Deal: A U.S.-Japan agreement on auto tariffs, easing pressure on Japan's automakers and freeing capital for supply chain investments.
2. Rare Earth Partnership: A joint initiative to fund refining facilities in third countries, reducing China's chokehold.
3. Sanctions on Chinese Exports: Possible U.S.-EU alignment to penalize Beijing's export tactics, accelerating the shift to alternatives.

Investment Strategy: Position Ahead of the G7
- Buy Processors and Recyclers: MP and Lynas are positioned to benefit from U.S.-Japan demand.
- Hold ETFs for Diversification: REMX offers broad exposure to the sector.
- Avoid Overexposed Automakers: Firms like Suzuki (7203) face near-term risks until supply chains stabilize.

The rare earth crisis is not just about materials—it's about control. With the G7 summit less than two weeks away, investors ignoring this geopolitical pivot risk missing a transformative opportunity. The race to diversify supply chains has begun; the question is, are you in it?