Highlights

• China's new rare earth export regime covers 12 of 17 rare earth elements, giving Beijing strategic leverage over global high-tech and defense sectors.
• The U.S. must develop a comprehensive industrial policy to compete with China's control over rare earth processing and magnet manufacturing.
• The long-term winner in rare earth competition will be the nation that can scale mine-to-magnet redundancy faster, with potential shifting by 2030-2035.

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The U.S.–China trade dialogue is at a fragile inflection point. After several rounds—including London in June—progress has been tactical, not strategic; both sides remain at the table, but the rare earth and defense-grade magnet impasse keeps America exposed.

Earlier this year, China introduced export licensing for seven rare earth elements via Announcement No. 18, triggering supply bottlenecks and delays in obtaining licenses. The U.S. and China then struck a 90-day tariff truce in May, restoring access for U.S. firms that had been removed from China’s trade blacklist. But the “truce” left unresolved Beijing’s refusal to grant clear export approvals for military-grade magnets, which the U.S. considers a nonnegotiable supply-chain issue.  Consequently, under President Trump, the U.S. has mobilized the most activity in the rare earth element supply chain in decades. 

As of now, there is no confirmed date for the next formal U.S.–China negotiating session specifically tackling rare earths. However, an imminent summit—likely tied to the APEC meeting scheduled later this month in South Korea—remains the most plausible venue for direct engagement between President Trump and President Xi.

China’s New Rare Earth Regime: What’s Changed

As reported by REEx and media around the world, on October 9, 2025, China expanded its controls—now covering 12 of the 17 rare earth elements, tightened licensing for magnets and associated processing gear, and introduced a Foreign Direct Product Rule (FDPR-style) mechanism that applies to foreign firms using Chinese rare earths or equipment—even abroad. For semiconductors, AI, and defense uses, approvals will be subject to case-by-case review or outright denial. This imposes onerous requirements leading to serious implications for commerce across multiple sectors.

Distribution of quotas for 2025 has also been conducted quietly—without public announcement—to reinforce state control without alerting market actors. The broader export regime effectively gives China instant leverage: it can choke the supply of raw material, semiprocessed intermediates, and magnet components, while using licensing as both a carrot and a stick.

The immediate pressure point is mid-stream control—i.e., separation, alloying, and magnet manufacture—not raw mining as REEx has continuously reported.  China already processes ~90 % of REEs globally. In China’s hands lies the ability to slow or deny flows not just of raw elements, but of value-added components that underpin defense electronics, EV motors, and AI hardware.

Implications & Stakes (U.S. and Global)

As delineated earlier today, the implications are projected by time stages. First, the short term (0–6 months): China holds the upper hand. The new rules raise uncertainty across defense and high-tech sectors. Foreign firms are already delaying orders, inventorying raw material, or halting projects. Meanwhile, U.S. policy options—tariffs, sanctions, export controls—are reactive, not designed to build industrial capacity overnight.  More on what REEx has advocated below (critical-mineral industrial policy).

How about the medium term (6–24 months)? A bifurcated outcome is likely. Escalation via tariffs or counter-sanctions can very likely raise global costs, in some cases severely.  Deeper industrial policy or not, the U.S., EU, Japan, and Korea will now accelerate investments in recycling, substitution, and onshore refining. But heavy-rare earths—with China’s entrenched grip—will remain chokepoints, limiting how much leverage the U.S. can draw from its own tariffs in the short to intermediate run. And this represents a big problem.

Long term (2–5 years): The winner will be whichever side scales mine-to-magnet redundancy faster.  REEx has advocated, via the media platform, the vital necessity of a critical mineral (including rare-earth element) industrial policy now.  Under President Trump, the U.S. has mobilized more rare-earth activity than at any point in decades. But it’s not enough to thwart China’s long-term strategic plan, leveraging its rare-earth monopoly. That strategy emphasizes downstream innovation and disruption, exponential capital accumulation (electrification of transportation, green energy, etc.), and ultimately oversight over digital currency worldwide. 

Need Industrial Policy Push

With a more comprehensive industrial policy, Western governments and industry can accelerate the development of domestic and/or allied pipelines at scale. In that case, China’s dominance could erode by 2030 (REEx forecast suggests 2030-2035 with an Operation Warp Speed-type program for rare earth elements and critical minerals). If they fail, China’s FDPR-style export regime risks becoming a standing regulatory veto over U.S./allied defense, EV, and semiconductor supply chains.

Already, U.S. rare earth players like MP Materials (opens in a new tab) (NYSE: MP), the U.S. rare earth treasure trove, are working to bring downstream metal and magnet processes to U.S. soil.  Other players include Energy Fuels, US Rare Earth Inc (opens in a new tab) (NASDAQ: USAR), American Resources Corporation (opens in a new tab) (NASDAQ: AREC)—owner of ReElement Technologies (opens in a new tab), but also other major players such as Lynas Rare Earths (opens in a new tab) (LYC.AX), the leading ex-China rare earth mining and processing operation and promising assets from Arafura Rare Earths (opens in a new tab) (ARU.AX) to Brazilian Rare Earths (opens in a new tab) (BRE.XA), plus nascent processing groups such as Carester (opens in a new tab) (ex-Solvay) and more—for example, magnet manufacturers such as Permag (opens in a new tab) and Noveon Magnetics (opens in a new tab)---both privately held.

See REEx rankings for light rare earth and heavy rare earth projects, magnet manufacturers and processors.

Importantly, the REEx U.S. & Allied Rare Earth Supply Chain ETF provides proprietary, targeted, pure-play exposure to the ex-China rare earth and magnet value chain—spanning miners, processors, and manufacturers vital to EVs, renewable energy, advanced electronics, and defense.  REEx’s internal modeling—based on a simulated index of rare-earth and magnet equities—shows historical outperformance versus major benchmarks, underscoring the potential of this emerging sector.

Designed for investors seeking diversification away from mega-cap tech and into the critical minerals backbone of the energy transition, the model based on our analyses has outperformed both the NASDAQ 100 and S&P 500, with a five-year cumulative return of 207.7% and a CAGR of 21.7%. Its globally diversified portfolio emphasizes strategic independence from China while aligning with Western industrial-policy tailwinds. With low correlation to major indices (0.15 vs. S&P 500).

Importantly, the U.S. The Department of War and other agencies, including the U.S Export-Import Bank (EXIM) (opens in a new tab), the latter providing financing for large projects that support US export goals, now back funding for domestic alternatives.  But more is needed now, and in the rare earth element supply chain sector, for now, China sets the pace.

Tactical Patience, Strategic Investment

China’s October export regime is not merely a trade tactic—it’s a declaration of structural leverage. The U.S. cannot respond solely through tariffs; it needs industrial, technological, and policy muscle, memorialized and institutionalized in a targeted, comprehensive, and enduring industrial policy. That means directing capital not only to rare-earth mining (upstream), but also to processing (midstream), magnet manufacturing (downstream), recycling, and allied diversification. The time for rhetorical resolve has passed—what’s needed now is proof of scale: targeted, intelligent, and relentless industrial execution.

In the upcoming Xi–Trump meeting (should it occur, given the charged state of affairs), Beijing will enter with real leverage at the rare earth tap. The U.S. must enter with more than rhetoric: a credible counter-build plan, allied coordination, and policy backstops. The future of U.S. defense, clean tech, robotics and drone automation, data centers, AI, and other high-end electronics, and competitive autonomy depends on whether America (and its network of allies) can match China’s control over rare-earth materials.

Disclaimer: This summary of the REEx U.S. & Allied Rare Earth Supply Chain ETF is provided for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security, investment product, or financial instrument. Past performance is not indicative of future results.

Editor’s Note: Data, forecasts, and policy assessments are based on publicly available information and REEx's proprietary analysis as of October 2025. For sourcing and continuous updates, visit www.wordpress-1542803-6000058.cloudwaysapps.com.

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