Highlights

• New Energy Policy study analyzes 30 years of data showing US-China geopolitical tensions cause non-linear effects on energy markets—temporarily boosting production but raising long-term prices and creating volatile consumption patterns.
• Research uses wavelet-based quantile econometrics to reveal how trade wars and strategic rivalry act as systemic shocks across different time horizons, with effects amplified during major crises like COVID-19 and Russia-Ukraine conflict.
• Energy price volatility from sustained US-China tensions reinforces China's rare earth processing dominance, as integrated state-backed capacity better absorbs geopolitical shocks than fragmented Western strategies.

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A new peer-reviewed investigation (opens in a new tab) in Energy Policy (February 2026) led by Chen Chen (opens in a new tab) of Fuzhou University of International Studies and Trade, China with collaborators Khadim Hussain, Kunming University of Science and Technology, China and Shakir Hussain University of Sargodha, Pakistan, provides one of the most granular looks yet at how U.S.–China geopolitical tensions (USCT) reshape the U.S. energy system.

Using nearly three decades of monthly data, the authors show that trade wars and strategic rivalry exert non-linear, time-dependent effects on U.S. energy production, consumption, and prices—effects that ultimately feed back into critical minerals demand and China’s processing dominance.

Chen Chen, Associate Professor, Fuzhou University of International Studies and Trade

In plain terms, rising U.S.–China tensions don’t push America’s energy system in a single direction—they shake it unevenly over time. Analyzing nearly 30 years of monthly data, the researchers show that trade wars and strategic rivalry can temporarily boost U.S. energy production, but over longer periods, they tend to raise energy prices and create unstable consumption patterns, especially during major crises like COVID-19 or the Russia–Ukraine war.

So Rare Earth Exchanges™ suggests, according to these authors’ work and assessment, geopolitical stress acts like a series of jolts: short-term disruptions followed by longer-term cost pressure. This matters beyond oil and gas because volatile energy prices and policy uncertainty shape investment in mining and manufacturing, including rare earths and other critical minerals.

The study suggests these conditions favor countries with integrated, state-backed processing capacity—reinforcing China’s advantage in rare earth processing—while leaving countries with fragmented energy and minerals strategies more exposed. The takeaway for policymakers and investors is simple: energy security, geopolitics, and critical minerals supply chains are tightly linked, and ignoring that connection increases vulnerability.

How the Study Works

Rather than simple averages, the authors deploy wavelet-based quantile econometrics—tools that examine how shocks behave across time horizons (short, medium, long) and market conditions (normal vs. extreme).

They combine four advanced techniques to capture causality and asymmetry, analyzing U.S. data from January 1997 to September 2024. This approach allows them to ask not just whether U.S.–China tensions matter, but when, how, and under what conditions they matter most.

Key Findings

• Energy production responds unevenly. U.S.–China tensions can boost short-term U.S. energy output (as domestic producers respond to risk and policy signals), but effects become mixed over longer horizons.
• Prices rise with prolonged tension. Medium- and long-term energy prices show a predominantly positive response to sustained U.S.–China rivalry, even when short-term prices dip.
• Consumption is volatile, not linear. Energy use shifts depending on the intensity of tensions and broader crises (trade war escalation, COVID-19, Russia–Ukraine conflict).
• Geopolitics multiplies risk. The authors frame USCT as part of a broader “polycrisis,” where trade, security, climate, and energy shocks amplify one another.

Why This Matters for Rare Earths and Critical Minerals

While the paper focuses on energy, the implications extend directly to rare earth elements (REEs). Energy price volatility and policy uncertainty shape investment cycles in mining, processing, and manufacturing. When U.S.–China tensions persist, the study suggests higher long-run energy prices and unstable demand signals—conditions that favor countries with integrated, state-supported processing capacity.

That reality reinforces China’s advantage. China’s dominance in rare earth processing and separation—not just mining—means it can better absorb energy price shocks and geopolitical risk. For Western economies, fragmented energy and minerals strategies remain a structural vulnerability.

Limitations and Contested Terrain

This is a highly technical econometric study, not a direct analysis of rare earth supply chains. It does not quantify mineral flows or processing capacity. Its conclusions depend on model assumptions and historical data, meaning future policy shifts or technological breakthroughs could alter outcomes. Still, the consistency across multiple methods strengthens confidence in the central message: geopolitics matters, but not in simple ways.

Bottom Line

U.S.–China tensions are no longer background noise—they are a systemic force shaping energy prices, production decisions, and downstream critical minerals demand. For rare earth investors and policymakers, the lesson is clear: energy security, geopolitical risk, and processing dominance are inseparable. Ignoring that linkage leaves supply chains exposed.

Citation: Chen, C., Hussain, K., & Hussain, S. (2026). From trade wars to energy markets: An examination of how US-China tensions reshape the US energy market using a wavelet quantile-on-quantile approach. Energy Policy, 209(A), 114937. https://doi.org/10.1016/j.enpol.2025.114937 (opens in a new tab)

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