The Rare Earth race
The Rare Earth Race
If one was to summarise the market and economic events of 2025 to date in one word, ‘tariffs’ stand out as a primary descriptor.
For many months now, President Trump has pushed tariffs and trade restrictions on US’ global partners to unprecedented levels as part of his strategy to cut the trade deficit and boost American manufacturing. While tariffs have been levied against everyone, China is seen as the key trade adversary. With tariffs soaring to as high as 150% in some instances, the Trump administration saw this as a success and were quick to publicly announce their upper hand and seeming victory. Beijing then turned the tables, essentially shutting down exports of one thing the modern world cannot function without: rare earth minerals (often referred to as ‘rare earths’).
In this week’s investment comment, I look to explore the history of China’s dominance in this space, their use cases and how China has been able to weaponise its dominance in rare earths to shift the negotiating balance with the US and other trading partners.
What are they?
Rare Earth Elements are a group of 17 specific metallic elements (15 lanthanides plus scandium and yttrium), that are found in the Earth’s crust. Despite their name, rare earths are not actually rare and are even more abundant than common metals such as lead or copper. The term ‘rare’ originated from the difficulty in extracting and purifying them from their oxides in the 18th and 19th centuries, as they are typically dispersed and not found in high concentrations that make them economically viable to mine.
Rare earths have a wide array of use cases, ranging from LED lights and medical lasers to the tiny yet powerful ‘permanent magnets’ essential in F-35 jets, wind turbines and electric vehicles (‘EVs’). Even Ukraine's battlefields experienced the squeeze. Bloomberg reported last month that limited magnet shipments to Western nations began impacting drone and drone part deliveries to Ukraine. European officials connected this directly to China's export restrictions on drone components, including magnets, pointing out that Russia meanwhile, continued to receive these supplies.
As an example, dysprosium and terbium were among the seven materials whose export China recently restricted in response to US President Donald Trump’s trade war. The most important application of dysprosium and terbium, which belong to a subgroup known as the heavy rare earths, is in devices called neodymium boron magnets, or neo magnets for short. In small quantities, dysprosium and terbium allow neo magnets to operate at far higher temperatures than they otherwise could. Thus improved, they are key components in the drivetrains of EVs; the stronger the magnets, the more efficient an electric motor can be. They can also enhance the rotation of wind turbines and are used in the precision targeting systems of missiles.
A brief history
Until the early 1990s, the U.S. produced most of its own rare earths. But as companies sought cheaper labour and less stringent environmental rules, rare-earth production largely moved to China. This shift was so dramatic that by the mid-2000s, China supplied 97% of the world's mined rare earths. By 2010, China started to tighten its environmental controls, forcing many smaller, less regulated rare-earth mines, to close. This policy shift dramatically cut the official output of heavy rare earths, just as global demand was significantly rising.
Mine reserves (tonnes, mn)
Source: Artorius, US Geological Survey
Evidently, China’s grip on rare earths isn’t new. China started imposing export quotas on rare earths in the early 2000s, but it was in 2010 that it first strategically deployed them as a trade lever, disrupting shipments to Japan amid a naval disagreement. This spurred Tokyo to undertake a difficult and costly campaign to lessen its reliance on Chinese supply, a process that unfolded slower than expected. Although China relaxed its export quotas in 2015 after losing a World Trade Organisation (WTO) case demand for these critical materials has continued to skyrocket.
Back down to earth
Earlier this week, China and the US are reported to have agreed an extension on maintaining a tariff truce after meeting in Stockholm. This is ahead of a 12th August deadline during a 90-day suspension of sky-high tariffs that had threatened to cut off bilateral trade. This is following the news that China’s exports of rare-earth products jumped in June. Customs data released earlier this month show exports of all rare-earth products rose 80% from a five-year low in May, when the country was in the midst of implementing sweeping export controls. The chart below shows that whilst Chinese exports of magnets have bounced back in June, they are still well below their usual levels when compared to previous years.
Chinese Rare Earth Magnets Exports
Source: Artorius, Bloomberg
Japan's experience offers a clear lesson: while processing can be accelerated and permits streamlined, even significant financial backing won't bring a new mine online for several years. Nevertheless, this has not deterred the US from increasing investment in this space. The ‘Ukraine-United States Mineral Resources Agreement’ signed in April is a symbol of this. A primary objective of this agreement is to develop Ukraine’s vast, largely untapped reserves of critical minerals which include rare earth elements. Greenland, a territory President Trump has set his eyes on is also known for its icebound resources. It should be noted that both Ukraine and Greenland currently have no active rare-earth mines.
More recently, Apple struck a deal worth $500 million to buy rare-earth minerals from MP Materials Corp., a US producer that has secured backing from the Pentagon and has revived a dormant mine in California. The deal is seen as the US’ biggest move to counter China’s dominance in the production and distribution of rare earths, adding impetus to US efforts in building a domestic alternative. The sheer scale of US commitment, with the Pentagon being the largest shareholder in MP Materials, underscores the strategic importance of rare earth magnets.
Closer to home, the European Commission earlier this month proposed a strategic project to create emergency stockpiles of rare earth elements. The proposal sets clear industrial sovereignty benchmarks for 2030 which includes a 10% target for EU annual demand from domestic extraction and no more than 65% dependence on a single third country at any point in the supply chain.
Conclusion
What began as a bilateral trade dispute has escalated. China’s subsequent aggressive retaliatory export measures for critical minerals serves as a clear reminder that geopolitical tensions can quickly escalate with meaningful economic consequences. This latest episode of President Trump’s foreign policy drama has demonstrated how quickly China’s advantage in rare earths can be deployed to secure concessions from countries whenever tensions arise. Their actions send a clear signal to Europe and the US: they are prepared to retaliate forcefully if their interests are threatened.
Many market commentators agree that China has played the card of rare earths very well. After President Trump and his aides insisted for months that China couldn’t withstand Washington’s onslaught (of punitive tariffs). What transpired was President Trump granting extensions to tariff truces and reversing their own restrictions on exports (e.g. semiconductors) in the hope of re-entering negotiations with the ambition of better trading terms.
President Trump’s trade war has indirectly demonstrated the power of China’s near monopoly on the industry. Though the near-term outlook for rare earths is still a China story, Beijing’s lead is unlikely to last forever. The latest crisis will likely be enough to spur the investment needed to get rare earths supply chains developing elsewhere, even if it takes a decade or more.
For investors, recent developments serve as a potent reminder of the precarious balance in global trade and geopolitics, underscoring how swiftly supply-side shock events can flare up when nations choose to exercise their economic leverage.
Yuval Peshchanitsky
Portfolio Analyst
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