Rare Earths Explained: Why U.S.–China Supply Tensions Matter for Tech and Defense Stocks

Educational research only — not investment advice.

Rare earth stocks are attracting attention again as tensions between the United States and China expose a major weakness in global technology and defense supply chains.

Rare earth elements are used in everything from semiconductors and electric vehicles to radar systems, missiles and aircraft.

The problem is concentration.

China accounted for roughly 85% of global rare-earth refining in 2025, giving it enormous influence over how these materials reach global manufacturers.

That makes rare earths much more than a mining story.

They are increasingly a technology, defense and geopolitical supply-chain issue.

What Are Rare Earths?

Rare earths are a group of metallic elements with unusual magnetic, electrical and heat-resistant properties.

They are often used in very small quantities, but those small quantities can be essential.

Important examples include:

  • neodymium
  • dysprosium
  • terbium
  • yttrium
  • samarium

Many are used to manufacture powerful permanent magnets or specialized components.

That means a relatively small disruption in supply can affect a much larger finished product.

Why Does China Matter So Much?

The main issue is not simply where rare-earth minerals are mined.

Processing and refining are even more important.

China has spent decades building expertise and industrial capacity across the rare-earth supply chain.

Even after new U.S. and Malaysian investment, China’s share of global rare-earth refining only fell from more than 90% in 2023 to around 85% in 2025. The International Energy Agency estimates that China could still control roughly 70%–73% of refining in 2035 even if planned global projects are completed.

That means diversification will take years.

Why Are U.S.–China Tensions Important?

Rare earths have increasingly become part of trade negotiations.

Some Chinese suppliers have recently refused to ship rare-earth materials to U.S. companies because they fear becoming caught between American and Chinese restrictions.

Reuters reports that U.S. companies in aerospace, semiconductors and other sensitive industries are still struggling to obtain some materials.

Rare-earth access is expected to be discussed when U.S. President Donald Trump meets Chinese President Xi Jinping in Washington on September 24.

The market risk is straightforward:

export restrictions → lower supply → higher prices → production delays

Why Tech Companies Care

Rare earths and related critical minerals appear throughout the technology supply chain.

They can be found in:

  • advanced electronics
  • semiconductor equipment
  • data centers
  • electric motors
  • smartphones
  • renewable-energy systems

Yttrium, for example, is used in semiconductor and aerospace applications, while rare-earth magnets are essential in many high-performance motors.

A shortage does not necessarily stop production immediately.

But companies may need to:

  • pay higher prices
  • hold larger inventories
  • redesign products
  • qualify alternative suppliers

All of those responses can raise costs.

Why Defense Stocks Are Especially Exposed

Defense supply chains have even less room for substitution.

Heavy rare earths such as dysprosium and terbium are used in high-performance magnets needed for applications including fighter aircraft, missile guidance and radar systems.

That makes supply security strategically important.

Lockheed Martin has already been exploring purchases of critical minerals from U.S. mines as Washington pushes defense contractors to reduce dependence on Chinese supply.

For defense companies, the issue is not simply the price of the raw material.

It is whether enough material is available to maintain production schedules.

Why Rare Earth Stocks Can Benefit

Supply concerns can create opportunities for producers outside China.

If governments and manufacturers want alternative sources, they may support new:

  • mines
  • processing facilities
  • magnet plants
  • long-term supply agreements

The U.S. government has invested directly in companies including MP Materials, USA Rare Earth and other critical-mineral projects as part of efforts to build domestic supply.

This creates potential demand for companies positioned to supply non-Chinese materials.

But investors should be careful.

Rare-earth projects can take years to permit, finance and build.

Why Higher Prices Are Not Always Good

A supply shortage can push rare-earth prices higher.

That may help existing producers.

But very high prices can also encourage:

new supply + recycling + substitution + product redesign

The sector is therefore still cyclical.

A company may appear extremely valuable during a shortage, only for prices to weaken once new production arrives.

This is why investors need to distinguish between:

temporary scarcity

and

sustainable competitive advantage

Can the U.S. Reduce Its Dependence on China?

Yes, but not quickly.

The United States is expanding domestic mining and processing, financing new projects and building strategic inventories.

However, refining remains a major bottleneck.

The IEA expects global demand for critical minerals to at least double by 2040, which means new supply must grow while demand is also rising.

That makes diversification harder.

The challenge is not simply replacing today’s Chinese supply.

It is building enough new supply for tomorrow’s larger market.

What Could Ease the Risk?

Several developments could reduce pressure:

Improved U.S.–China trade relations
More predictable export licences could improve supply.

New Western refining capacity
Additional processing outside China would reduce concentration.

Recycling
Recovering rare earths from existing products could supplement mining.

Material substitution
Companies may redesign products to use fewer constrained elements.

But all of these solutions require time.

What Should Investors Watch?

The most useful signals are Chinese export controls, rare-earth prices, U.S.–China negotiations, new mining projects, refining capacity and defense procurement.

The central issue is simple:

Rare earths are inexpensive compared with many finished products, but without them those products may be impossible to manufacture.

That gives relatively small parts of the global commodity market enormous strategic importance.

For technology and defense companies, supply security may therefore matter just as much as the price of the material itself.

And for rare earth stocks, the key question is whether global diversification creates sustainable demand for new producers—or simply a temporary investment boom.

Analyze Macro Trends With TradingSimuLab

TradingSimuLab’s Macro tools help users study changing supply-chain risks, economic regimes and market trends rather than reacting to individual geopolitical headlines.

For more quantitative market research and educational trading tools, sign up to TradingSimuLab.

TradingSimuLab is for educational and research purposes only and does not provide investment advice.

Continue exploring TradingSimuLab.

  • Tariffs vs Quotas: How Trade Restrictions Change Prices, Profits and Supply Chains

    Governments can restrict imports in two very different ways. They can make imports more expensive. Or they can limit how much is allowed in. That is the basic difference between tariffs vs quotas. The distinction is especially relevant today. China and the EU have been negotiating restrictions on Chinese hybrid-vehicle exports after tariffs on Chinese…

  • Aircraft Leasing Explained: Why Airlines Rent Nearly Half the World’s Planes

    Airlines do not need to own every aircraft they fly. In fact, leasing companies now control roughly half of the global airline fleet. That makes aircraft leasing one of the most important—but least understood—parts of aviation. The basic idea is simple: Lessor buys aircraft → airline pays rent → lessor owns the asset For airlines,…

  • Jet Fuel Hedging Explained: Why Two Airlines Can Face the Same Oil Price but Different Profits

    Jet Fuel Hedging Explained: Why Two Airlines Can Face the Same Oil Price but Different Profits Two airlines can buy fuel in the same market and still pay very different effective prices. The reason is fuel hedging. Airlines can use financial contracts to lock in or protect against future jet-fuel prices. That can reduce the…

  • Airline Stocks Explained: Why Full Planes Can Still Produce Weak Profits

    An airline can fill almost every seat and still struggle to make money. That is the unusual economics behind airline stocks. Delta recently cut its 2026 profit forecast by nearly 25%, even though travel demand remained strong and ticket prices increased. The problem was cost: its annual fuel bill is now expected to rise by…

  • LNG Prices Explained: Why Natural Gas Is Much Harder to Move Than Oil

    Natural gas can be abundant underground and still become extremely expensive in another part of the world. That is because gas is much harder to transport than oil. This physical limitation is one of the biggest drivers of LNG prices. The issue is especially visible today. Qatar, one of the world’s largest LNG exporters, has…

  • Advanced Chip Packaging Explained: Why CoWoS Is Becoming an AI Bottleneck

    AI chips are becoming faster. But making the processor is only part of the challenge. Modern AI systems also need processors and high-bandwidth memory connected extremely closely together. That is where advanced chip packaging becomes critical. Demand for TSMC’s CoWoS packaging remains strong alongside demand for its leading-edge AI chips, while TSMC is expected to…

  • TSMC Stock: How the Foundry Model Profits From the AI Chip Boom

    Nvidia designs chips. Apple designs chips. Many other technology companies design their own processors. But somebody still has to manufacture them. That is the power behind TSMC stock and the semiconductor foundry model. TSMC’s September 2026 revenue jumped 54.6% year over year, while revenue for the first nine months of the year rose 41.1%. The…

  • Credit Default Swaps Explained: The Market Signal Investors Often Ignore

    Stock prices get most of the attention. But credit markets often send warnings earlier. One of the most useful signals is credit default swaps, or CDS. A CDS is essentially a contract that protects against the risk that a company or government cannot repay its debt. The simple idea is: Higher CDS cost = higher…

  • Bull Markets Explained: Why Stock Market Rallies Do Not Die of Old Age

    The current U.S. bull market has now reached its fourth anniversary. Since the S&P 500 bottomed in October 2022, the index has gained roughly 117%, making this the eighth-longest U.S. bull market since World War II. That naturally raises one question: Is the rally getting too old? Not necessarily. Bull markets rarely end simply because…