Hightlights
- The U.S. and allies work to disrupt China’s rare earth dominance with new tariffs.
- Key investment trends include domestic production, sustainability, and innovation.
- Rising demand for rare earths is driven by EVs and renewable energy sectors.
With western governments intent on disrupting China’s dominance in rare earth production and reserves, countries such as the United States, Canada, and Australia are on a mission to boost their own mining and processing efforts, part of that post-COVID-19 bid to transform supply chains. A tariff from the United States on imports of Chinese rare earth magnets commences in 2026, only adding to the pressure.
In May of this year, the U.S. government announced (opens in a new tab) a 25% tariff seeking to protect the American rare earth sector from what are potentially monopolistic practices emanating from China. The move by the Biden administration represents the first time rare-earth elements are included in Section 301 tariffs.
What are 301 tariffs?
Section 301 tariffs (opens in a new tab) are trade sanctions that the United States can impose on foreign countries that engage in unfair trade practices or violate trade agreements. The United States can use Section 301 to pressure countries to open their markets to U.S. exports or eliminate trade barriers.
In 2019, under the Trump administration, the U.S. imposed Section 301 tariffs on China after an investigation found that China’s policies and practices related to intellectual property, innovation, and technology transfer were discriminatory and unreasonable. The tariffs increased from 7.5% to 25% on about $370 billion of imports from China.
Then following suit, the Biden administration in 2024 announced additional tariff increases on certain products, including:
| Target | Tariff |
| Lithium-ion EV batteries: Tariff rate increases | 7.5% to 25% |
| Lithium-ion non-EV batteries: Tariff rate increased | 7.5% to 25% in 2026 |
| Battery parts: Tariff rate increased | 7.5% to 25% in 2024 |
| Natural graphite and permanent magnets: Tariff rate increased | zero to 25% in 2026 |
| Medical gloves: Tariff rate increased | 50% in 2025 and then to 100% in 2026 |
| Syringes and needles: Tariff rate increased | 100% beginning on September 27, 2024 |
| Disposable textile face masks: Tariff rate increased | 25% on January 1, 2025 |
The U.S. also introduced a policy that allows stakeholders to request tariff exclusions for certain U.S. imports. All of this points to the buildup to a US-China trade conflict, especially as the American government continues to implement a policy bolstering energy and national security.
What’s an example of a magnet affected by this tariff? The sintered neodymium-iron-boron (NdFeB) magnets, mission-critical for electric vehicle motors as well as wind turbines.
Importantly, the European Union also seeks to lessen its dependence on Chinese rare earths via a new law enacted in May 2024. The EU will markedly increase domestic production of critical minerals, including rare earths, by 2030.
All of these moves by western governments prompt China to tighten its rules in anticipation of a trade war. The China State Council (opens in a new tab) just over the summer introduced (opens in a new tab) new regulations to tighten up control over the nation’s predominant rare earth resources along with the protection of its rare earth supply China.
Commencing October 1, 2024, China’s government carried out strict controls over mining, smelting, and trading of rare earth elements. The world’s second-largest economy (as measured by GDP) bans the exportation of technology used to facilitate the extraction and separating of rare earths. This ban also includes the technology used to produce rare earth magnets.
Consequently, investment capital and investors, both in private and publicly held companies, move money around into companies that are part of this transformation worldwide. Especially in the west, those companies that are involved with disrupting the rare earth supply chain will receive investor attention.
Investment Trends
The REE industry has become increasingly critical due to its role in emerging technologies such as electric vehicles (EVs), renewable energy, and military applications. The following investment trends highlight the shifts in the rare earth supply chain post-COVID and amid geopolitical concerns.
The biggest driving trend, of course, is the diversification away from China.
China dominates the rare earth supply chain, controlling over 80%-85% of global refining capacity. Many nations and companies are seeking to reduce reliance on China due to supply chain vulnerabilities and geopolitical risks. This trend is prompting investments in rare earth mining and processing facilities in other countries.
For example, the United States is investing in domestic rare earth production, as seen with companies like MP Materials (Mountain Pass Mine) (opens in a new tab) focusing on processing within the US rather than relying on China for refining.
Moreover, the government pumps funding into strategic investments. Governments, particularly in the United States, European Union, and Australia, are offering incentives to encourage domestic rare earth mining, processing, and refining. For example:
The U.S. Department of Defense has provided funding to develop domestic supply chains, while the EU accelerates investment in rare earth projects as part of its broader strategy to secure critical minerals.
These investments are aimed at reducing supply chain dependency and enhancing security in the face of possible trade disruptions.
An expansion of mining and refining capacity. Major players like Lynas Rare Earths (opens in a new tab) in Australia are expanding their mining and refining capabilities to meet the growing demand for rare earth elements, driven by industries like electric vehicles, wind turbines, and electronics.
New rare earth projects are being launched globally, especially in countries like Canada, Greenland, and Brazil, with an eye on building alternative supply chains to China’s dominance.
Another investment theme covered in Rare Earth Exchanges is recycling and sustainability. Given the environmental impact of mining rare earth elements, there is a growing trend in investing in recycling technologies to recover REEs from electronic waste and other sources. Companies are exploring methods to reuse REEs from devices like smartphones, batteries, and electric motors.
Recycling initiatives are particularly strong in Europe, where sustainability is a key policy driver. Startups and large companies are investigating urban mining techniques to recover rare earths from discarded products.
Investors monitor for opportunity in disruptive technologies in the field of extraction. As demand for rare earth elements grows, companies are investing in innovative extraction and separation technologies to make the process more efficient, cost-effective, and environmentally friendly.
Examples abound in Rare Earth Exchanges. For instance, novel solvent extraction methods and biotechnology-based processes are being explored to reduce the environmental impact of rare earth extraction.
Driving all of this REE space activity is the growing demand for products in the electric vehicle and renewable energy sectors. The transition to electric vehicles (EVs) and renewable energy is driving strong demand for rare earth elements, particularly neodymium and dysprosium, which are used in permanent magnets for EV motors and wind turbines.
As governments push for decarbonization, investment is surging in the materials needed for clean energy technologies, bolstering the rare earth sector.
Part of this transitioning market also involves vertical integration, as moves to secure supply chains involve industry participants in the sector involved in manufacturing products reliant on REEs, such as automakers and electronics companies, seeking investment or partnerships with rare earth mining and refining operations.
Tesla (opens in a new tab) can be an example for the above dynamic. The company has taken steps to secure raw materials for its electric vehicles, including rare earth elements used in electric motors. Here at Rare Earth Exchanges, we cannot downplay the geopolitical risks and supply chain security drivers involved with all of this ongoing, unfolding transformative time.
For example, tensions between the US and China, as well as global supply chain disruptions caused by events like the COVID-19 pandemic, have heightened awareness about the strategic importance of rare earths.
A dynamic that has led to increasing foreign direct investment (opens in a new tab) (FDI) in rare earth projects in countries like Australia and Canada, where political risk is perceived to be lower.
Summary
Recent tariffs reflect mounting tension between the west and China, with the rare earth industry as an economic battleground. Driven by a greater flow of investments due to the rising demand from technology and renewable energy sectors and geopolitical efforts to diversify supply chains away from China. Governments and private companies are focusing on securing supply, expanding refining capacity, and innovating more sustainable extraction technologies.
Daniel
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