Securing Rare Earth Dominance: The US-led Anchor Market Strategy Against China

The global race to secure control over critical minerals, particularly rare earth elements (REEs), has intensified as geopolitical tensions and supply chain vulnerabilities come to a head. China's near-monopoly on REE refining—accounting for 85% of global capacity—and its use of export restrictions have left Western economies exposed. To counter this, the U.S., through the Minerals Security Partnership (MSP) and G7 collaboration, is pushing to establish a unified “anchor market” with allies. This strategy aims to create pricing leverage, diversify supply chains, and incentivize Western production. The stakes are high: failure could mean prolonged dependence on Beijing, while success could redefine the geopolitical economy of the 21st century.

The Current Landscape: China's Grip and Western Vulnerabilities
China's dominance stems not just from its mining capacity but from its vertical integration in refining and manufacturing. Its 2024 export quotas on permanent magnets—a key component in electric vehicles (EVs) and defense systems—highlight how Beijing can weaponize supply chains. Meanwhile, Western nations face fragmented efforts, with projects like Lynas Rare Earths in Australia and MP Materials in the U.S. lagging behind China's scale.

The G7's June 2025 Critical Minerals Action Plan signals a turning point. It proposes three pillars: standards-based markets, capital mobilization, and innovation. The plan targets a $125 billion financing gap by 2030, with G7 nations aiming to secure 40% of this through coordinated investment. Australia's Lynas, for instance, has become a linchpin, producing 20% of non-Chinese rare earth oxides.

Building the Anchor Market: Coordinated Policies for Leverage
The proposed unified anchor market hinges on three interlocking strategies:

1. Coordinated Tariffs and Phased Quotas
   The G7 aims to counter China's price manipulation by synchronizing tariffs on subsidized REE exports and implementing phased quotas. For example, the U.S. Section 232 investigation into critical minerals could recommend tariffs on non-compliant imports, while the EU's proposed Critical Raw Materials Act could impose tariffs on low-standard producers. Phased quotas would cap Chinese imports while incentivizing domestic production.

Such measures would stabilize prices and reduce China's ability to undercut global markets through artificially low pricing.

1. Investment Safeguards and Standards-Based Markets
   The G7's emphasis on standards-based markets ensures projects adhere to environmental, labor, and governance (ESG) standards. This creates a “good actor” market where Western producers like MP Materials (NYSE: MP) and Australia's Iluka Resources (ASX: IUK) can compete fairly. The MSP's financing mechanisms—such as the $105 million KfW-backed EcoGraf graphite project in Tanzania—show how blended finance can de-risk investments in high-ESG projects.

2. Recycling and Circular Economy Initiatives
   The G7 plan targets a leap from below 5% to over 60% rare earth recycling rates by 2035. HyProMag's Birmingham plant, recycling 500 tons of magnet scrap annually, exemplifies this shift. Scaling such projects reduces reliance on primary mining and creates new revenue streams for investors in recycling tech firms.

Risks and the Urgency for Collective Action
The path is fraught with challenges. China's export controls, such as its 2024 magnet quotas, could trigger shortages if Western supply fails to scale. Smaller producers may struggle with compliance costs under the G7's ESG standards, risking fragmentation. Additionally, geopolitical rivalries—e.g., the U.S.-China trade framework's opaque rare earth export rules—could derail progress.

The September 2025 Chicago conference and the MSP's Africa Critical Minerals Initiative offer critical windows to align policies. Without swift action, prolonged supply vulnerabilities could cripple EV and defense industries, cementing China's dominance.

Investment Recommendations
1. Rare Earth Producers with MSP Ties:
- Lynas Corporation (LYC): A cornerstone of the non-Chinese supply chain, benefiting from Australia's strategic partnership and Lynas USA's $1 billion Texas processing plant.
- MP Materials (MP): The U.S.'s largest rare earth processor, poised to grow under DPA Title III grants and offtake agreements with automakers.

1. Recycling and Technology Plays:
2. HyProMag (private): Its HPMS recycling tech could scale rapidly; look for public listings or strategic partnerships.

3. EcoGraf (ASX: EGR): Benefiting from German-EU financing for high-ESG graphite projects.

4. ETFs Tracking Critical Minerals:

5. Global X Rare Earth & Strategic Minerals ETF (REEM): Tracks companies in the supply chain, offering diversified exposure.

Conclusion
The U.S.-led anchor market strategy is not merely about price competition—it's a geopolitical imperative to reshape the rules of the rare earth game. Investors should prioritize firms aligned with the MSP and G7's standards-based, circular economy vision. Risks remain, but the alternative—continued reliance on China—is far costlier. The next 18 months, marked by the G7's implementation framework and MSP's Africa initiative, will determine whether this bold experiment succeeds. For investors, the time to position for the rare earth revolution is now.

Disclosure: This analysis is for informational purposes only and does not constitute financial advice.