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.

  • Cyber Risk and Financial Markets: How One Major Attack Could Spread Through Banks and Markets

    A cyberattack on one bank may look like a technology problem. But if the attack disrupts payments, trading or funding, it can quickly become a financial-market problem. That is why financial cyber risk matters. The basic chain is: cyberattack → operational disruption → liquidity stress → loss of confidence → market volatility Why Banks Are…

  • Hedge Fund Leverage Explained: How Forced Selling Can Turn a Small Shock Into a Market Crash

    A small market decline does not always stay small. When investors use large amounts of borrowed money, losses can trigger forced selling. That is why hedge fund leverage matters. The basic chain is: market falls → leveraged losses rise → margin calls → forced selling → market falls further What Is Hedge Fund Leverage? Leverage…

  • Market Complacency Explained: Why Low Fear Can Sometimes Be a Warning Sign

    A calm stock market feels safe. But sometimes low fear can create more risk, not less. When investors become too confident, they may take larger positions, use more leverage and accept smaller returns for taking risk. That is market complacency. The basic idea is: low fear → more risk-taking → higher valuations → greater vulnerability…

  • The IMF’s AI Warning: What Happens If Artificial Intelligence Investment Suddenly Slows?

    AI investment is no longer just a technology story. It is supporting: That means an AI investment slowdown could spread far beyond technology stocks. The basic chain is: less AI spending → weaker chip demand → lower profits → less investment → slower economic growth Why AI Investment Matters So Much Companies are spending enormous…

  • Trading Revenue Risk: Why Wall Street Banks Cannot Depend on Record Market Activity Forever

    Wall Street banks can make enormous amounts of money when markets are volatile. More movement usually means more clients trading, hedging and repositioning portfolios. That can boost trading revenue. But there is a problem: record market activity does not last forever. Why Volatility Helps Banks Large banks operate trading desks across: When markets move sharply,…

  • Loan Growth Explained: Why Banks Can Report Strong Profits While the Economy Is Slowing

    A bank can report record profits while the economy underneath it is beginning to weaken. That is why bank loan growth matters. Headline earnings tell investors what happened recently. Loan growth can provide clues about what may happen next. The basic relationship is: less borrowing → less spending and investment → slower economic growth What…

  • Bank Earnings Season: Five Numbers That Reveal Whether High Rates Are Helping or Hurting Banks

    Bank Earnings Season: Five Numbers That Reveal Whether High Rates Are Helping or Hurting Banks High interest rates can help banks. They can also hurt them. That is why bank earnings matter so much when rates stay elevated. The key question is not simply: “Did profit rise?” It is: “Are higher rates improving the bank’s…

  • Goldman Sachs Earnings Explained: Why Trading Revenue Can Matter More Than Deal Fees

    Goldman Sachs is famous for mergers, IPOs and corporate deals. But in volatile markets, another business can matter even more: trading. That is why investors watching Goldman Sachs earnings should look beyond investment-banking fees. The basic relationship is: more market volatility → more client trading → potentially more Goldman revenue How Goldman Makes Money Goldman…

  • JPMorgan Earnings Explained: What America’s Biggest Bank Can Tell Us About the U.S. Economy

    JPMorgan is more than a bank stock. Because it lends to consumers, businesses and corporations across the U.S., JPMorgan earnings can provide clues about the health of the entire economy. Investors should look beyond headline profit. The key question is: What are JPMorgan’s customers actually doing? 1. Are Consumers Still Spending? JPMorgan processes enormous volumes…