The Volatility and Strategic Potential of USA Rare Earth (USAR) Amid U.S.-China Trade Dynamics

The rare earth sector has become a geopolitical battleground, with the U.S.-China trade relationship shaping the trajectory of companies like USA Rare Earth (USAR). As the world's largest consumer of rare earth elements (REEs), the U.S. remains heavily dependent on China for processing and magnet manufacturing, a vulnerability that has intensified amid escalating trade tensions. For investors, USAR represents a high-stakes bet on a sector where geopolitical risk and strategic potential are inextricably linked.

USAR's Financial and Strategic Position

USA Rare Earth has made significant strides in 2025, bolstering its balance sheet with $400 million in cash from equity investments and warrant exercises, despite a net loss per share of $1.64 in Q3 2025. The company's Round Top project in Texas, a rare earth mining and processing initiative, is advancing toward commissioning, while its acquisition of Less Common Metals Ltd. (LCM) has expanded downstream capabilities in rare earth metal manufacturing. Strategic partnerships, including a joint development agreement with ePropelled underscore USAR's push to vertically integrate its operations. However, operational and administrative costs continue to weigh on profitability, raising questions about its ability to scale efficiently in a capital-intensive industry.

U.S.-China Trade Dynamics: A Temporary Truce, Long-Term Uncertainty

The October 2025 U.S.-China trade deal, brokered during the Trump-Xi summit, temporarily suspended new Chinese export controls on rare earths, gallium, and other critical minerals for one year. This agreement, framed as a "diplomatic framework" to de-escalate tensions, provided immediate relief to U.S. industries reliant on Chinese-sourced materials. China, which controls 70-80% of global rare earth processing capacity, and 90% of high-performance magnet production, has used its dominance as leverage in trade negotiations. The U.S. response has included investments in domestic producers like MP Materials and partnerships with allies such as Australia and Japan to diversify supply chains. Yet, analysts caution that these efforts will take a decade or more to yield results, leaving the U.S. exposed to Chinese supply chain disruptions in the short term.

USAR's Exposure and Resilience

USA Rare Earth's exposure to U.S.-China trade dynamics is twofold: it benefits from Washington's push to reduce reliance on Chinese rare earths but faces risks from China's export controls and market volatility. The recent trade deal has created a window for USAR to expand its Round Top project and solidify partnerships, such as its collaboration with a UK-based rare earth manufacturer. However, the company's reliance on non-Chinese processing infrastructure remains limited, and its financial pressures-evidenced by declining free cash flow-highlight the challenges of competing with China's entrenched supply chain.

Market reactions to the U.S.-China deal have been mixed. While the agreement eased immediate supply concerns, rare earth stocks like USAR and MP Materials fell in the short term, as investors anticipated that the deal would not resolve long-term structural imbalances. This volatility reflects the sector's sensitivity to geopolitical shifts, with USAR's stock price surging 16.09% in late 2025 amid strategic expansions but remaining vulnerable to policy reversals.

Investment Considerations: Balancing Risk and Opportunity

For investors, USAR embodies the dual-edged nature of rare earth investments. On one hand, its strategic alignment with U.S. efforts to secure domestic supply chains-such as its acquisition of LCM and partnerships with defense-focused firms-positions it to benefit from government support and long-term demand growth in clean energy and defense sectors. On the other, the company's financial fragility and dependence on geopolitical outcomes make it a high-risk proposition.

The Trump administration's $400 million equity investment in MP Materials and its $150 million loan to expand processing capacity illustrate the scale of U.S. intervention required to counter China's dominance. USAR's ability to replicate such support while scaling its operations will be critical. Meanwhile, China's recent licensing requirements for rare earth exports-now extended to components and assemblies-add another layer of complexity, potentially disrupting global supply chains even after the 2025 trade truce expires.

Conclusion

USA Rare Earth operates at the intersection of geopolitical strategy and market volatility. While its progress in 2025-bolstered by cash reserves, strategic acquisitions, and U.S. policy tailwinds-signals potential, the company remains a long-term bet on a sector defined by uncertainty. Investors must weigh the allure of strategic positioning against the realities of China's dominance, U.S. policy execution risks, and the technical challenges of building a self-sufficient rare earth industry. For those with a high-risk tolerance and a multi-decade horizon, USAR could offer a compelling play on the rare earth renaissance-but only if it navigates the geopolitical minefield ahead.