Rare earths are China's bargaining chip in the trade war — the U.S. is trying to fix that

China's near-monopoly on rare earths, controlling 70% of mining and 90% of processing, has become a strategic weapon in the U.S.-China trade war, with recent export controls disrupting industries like automotive. In response, the U.S. is accelerating efforts to establish a domestic supply chain, highlighted by the Department of Defense's $400 million investment in MP Materials, the sole U.S. rare earth miner, and a $1 billion loan from Goldman Sachs and JPMorgan for its expansion. Energy Fuels is also scaling up rare earth refining, with plans to increase NdPr production to 6,000 metric tons, although experts note the U.S. remains significantly dependent on China for these critical materials.

Analysis

China's strategic dominance of the global rare earth elements (REE) market, controlling approximately 70% of mining and 90% of processing, has been overtly weaponized through export controls amid trade tensions with the U.S. These actions have created significant supply chain disruptions, notably impacting the automotive sector. In response, the U.S. is actively fostering a domestic supply chain, underscored by a $400 million Department of Defense investment in MP Materials (MP), the country's only operational REE miner. This initiative is further amplified by a $1 billion loan from Goldman Sachs and JPMorgan to expand MP's magnet-making operations. Concurrently, Energy Fuels (UUUU) is scaling its REE refining capabilities, leveraging its existing infrastructure to produce neodymium-praseodymium (NdPr) oxide with plans to expand capacity from 1,000 to 6,000 metric tons. Despite these targeted investments and positive developments for domestic producers, expert consensus cited in the report indicates the U.S. remains far from breaking its dependence on China, signaling a prolonged period of geopolitical risk and strategic competition in this critical sector.

Key Decisions for Investors

• Given the significant government and financial backing, investors should evaluate the long-term potential of domestic producers like MP Materials and Energy Fuels, which are the primary vehicles for the strategic onshoring of the rare earths supply chain.
• Portfolio managers with holdings in the automotive, defense, and high-tech sectors must scrutinize their exposure to supply chain disruptions stemming from China's control over rare earth processing and exports.
• It is critical to monitor for new U.S. government incentives or changes in Chinese export policies, as these geopolitical developments will serve as major catalysts for equity performance across the entire value chain.