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.

  • HBM Memory Explained: Why AI Is Creating a New Semiconductor Bottleneck

    AI chips need more than powerful processors. They also need memory fast enough to keep those processors busy. That is why HBM memory, or high-bandwidth memory, has become one of the most important parts of the AI semiconductor supply chain. Samsung recently said HBM could consume nearly 30% of global DRAM wafer capacity next year,…

  • AI Inference Explained: Why Running AI Models Could Become Bigger Than Training Them

    Most attention in AI has focused on training bigger models. But the next major infrastructure opportunity may be AI inference. Inference is what happens after a model has been trained. Every time a user asks a chatbot a question, generates an image or runs an AI agent, the model must perform inference to produce the…

  • Customer Concentration Risk: When Two Clients Can Make or Break a Company

    Rapid revenue growth can make a company look strong. But investors should always ask: Who is actually paying that revenue? Anthropic recently disclosed that nearly one-quarter of its revenue comes from just two customers. That means impressive growth can still carry an important weakness: customer concentration risk. This is an evergreen lesson for AI companies,…

  • AI IPO Explained: How Do You Value an AI Company Before Profits Arrive?

    AI companies can generate enormous revenue while still losing enormous amounts of money. That creates a difficult question for investors: How do you value an AI IPO before mature profits exist? Anthropic provides a striking example. Its IPO prospectus shows revenue rising roughly twelvefold to almost $4.6 billion in 2025, while the company recorded a…

  • Stock Market Breadth: Why Record Indexes Can Hide Weakness

    A stock index can hit a record high even when many stocks underneath it are struggling. That is why stock market breadth matters. On September 22, the Nasdaq closed at a record 27,244, helped by gains in large AI-related stocks. But underneath the headline, the Nasdaq recorded only 48 new 52-week highs versus 110 new…

  • Money Market Funds: Why High Cash Yields Can Compete With Stocks

    Cash is no longer automatically a low-return asset. When Treasury yields and short-term interest rates are high, investors can earn meaningful income without taking the volatility of the stock market. That makes money market funds an important competitor for stocks. Recent U.S. fund-flow data show how actively investors are moving between asset classes. U.S. equity…

  • Convertible Bonds Explained: Why Fast-Growing AI Companies Use Them

    Fast-growing AI companies need enormous amounts of capital. But issuing ordinary debt can be expensive, while selling too much equity can dilute existing shareholders. That is where convertible bonds come in. AI-cloud company Nscale recently agreed to sell about $3.1 billion of convertible bonds, including $1 billion to Nvidia, as it prepares for a U.S.…

  • Strong Dollar Stocks: Why a Rising Dollar Can Hurt U.S. Companies

    A strong U.S. economy can push the dollar higher. But a stronger dollar is not always good news for U.S. stocks. The reason is simple: many large American companies earn a significant share of their revenue overseas. When the dollar rises, those foreign earnings become worth less when converted back into dollars. That creates an…

  • Small Cap Stocks: Why Interest Rates Matter More Than for Mega-Caps

    Small companies can react much more strongly to interest-rate changes than America’s biggest corporations. That is why small cap stocks often attract attention when investors expect borrowing costs to fall. Recently, U.S. small-cap funds attracted about $568 million of inflows even as large-cap funds suffered roughly $28.7 billion of withdrawals. The shift came during renewed…