The Rare Earth Crunch Has Begun

Why Rare Earths Are About to Explode (Again)

Amid all the Musk and Trump drama, here’s something you might’ve missed:

• Ford halted production of its Explorer SUV in Chicago for a week in May.

• Suzuki suspended production of the Swift—its popular subcompact car—on May 26.

• GM, Toyota, Volkswagen, Hyundai, and others warned that full factory shutdowns “could be needed."

• And across Europe, multiple supplier plants have already gone offline, according to CLEPA, the EU’s auto suppliers’ association.

What in the hell is going on?

A rare earth crunch.

As I wrote recently, the U.S. is almost entirely dependent on China for rare earths used in cars, electronics, and military systems, as China dominates global production and processing. Now that Beijing has tightened the screws on exports (more on this below), the U.S.—and frankly, much of the world—is starting to run low on them.

According to Gracelin Baskaran of the Center for Strategic and International Studies, U.S. companies have only about two or three months’ worth of supply left. After that, “industry simply could not manufacture.”

The Trade War Escalates

To say that U.S.-China relations are currently strained would be a gross understatement.

I probably don't need to tell you about the ongoing trade war between the two countries. It's been raging since President Trump's election back in 2016, when he slapped initial 25% tariffs on US$50 billion worth of Chinese goods. The fight continued under Biden, who expanded export controls on advanced semiconductors and chipmaking equipment in 2022 and 2023 (targeting China's AI and military sectors).

For quite a while, China seemed to roll with the punches. Then December 2023 happened.

China banned the export of technology used to produce rare earth magnets—vital for electric vehicles, wind turbines, and advanced military systems.

It all started going downhill from there.

In October 2024, China started requiring exporters to detail step-by-step how rare earth shipments are used in Western supply chains.

Just two months later, China dropped a bombshell—banning exports of gallium, germanium, and antimony to the U.S. While not rare earths per se, these are high-tech materials used in everything from semiconductors and fiber optics to microelectronics.

This was a clear escalation from China's side, and it happened before Trump even took office.

Back then I speculated that this was a warning shot showing China won't be holding back anymore. That this kind of tit-for-tat could unleash a much nastier version of a trade war.

Well, the first five months of Trump's second term proved just how right that call was.

We've seen tariffs hiked to as much as 145% on Chinese goods during Trump's "Liberation Day" campaign. China fired back with its own 125% tariffs on U.S. exports and restricted shipments of rare earths and critical minerals.

Finally, on April 4, something happened that I'd been predicting all through last year. China imposed export restrictions on seven of 17 rare earth elements (REEs) and permanent magnets. The move targeted heavy REEs like dysprosium and terbium, used in high-performance permanent magnets for military applications, advanced EV motors, and offshore wind turbines.

Now, it's true that a 90-day tariff truce was brokered last month. Both sides agreed to temporarily scale back duties—U.S. tariffs dropped from 145% to 30%, China's fell from 125% to 10%.

But it wasn't exactly a reset.

China kept its restrictions on rare earth exports firmly in place. And just days after the truce, Trump doubled down by going after Chinese tech giant Huawei. And more recently, he’s accused Beijing of violating the deal altogether.

The Opportunity

As I told you in a recent issue of Crisis Investing (where we also recommended a U.S.-based REE producer set to benefit from this whole situation), the last time China slashed global REE exports, it triggered one of the biggest rare earth price booms in history. Average prices across the group jumped more than 2,100% (click here for a peek at the chart).

It also sparked a full-blown mania in rare earth mining stocks. Companies involved in rare earth mining and processing saw their shares soar to record highs. Some miners that hadn’t produced a single ounce—some that barely had anything more than a PowerPoint deck—saw their stock prices multiply virtually overnight.

I believe we’re fast approaching a similar situation right now.

Now, it’s true that as I write this, the U.S. and China are in high-level trade talks in London. U.S. Commerce Secretary Howard Lutnick even says they are “going well.”

But I wouldn’t hold my breath for a breakthrough that suddenly fixes the rare earth crunch.

Here’s why…

The U.S. wants China to ease up on rare earths. China wants fewer restrictions on advanced chips. But both are strategic levers, not bargaining chips. For Washington, loosening semiconductor controls is a national security risk—something the Trump administration has made clear time and again. Meanwhile, Beijing sees rare earths as a geopolitical pressure valve.

And politically, neither side can afford to blink. With challenges mounting at home and abroad, Trump can’t risk looking weak heading into the thick of his second term—especially after campaigning on “economic nationalism.” Xi Jinping, for his part, needs to project strength and self-reliance as his own domestic pressures grow.

Even if they patch something together, it’ll likely be a half-measure—and it could easily fall apart the next time tensions flare over Taiwan, the South China Sea, or another export curb. The bottom line is these aren’t just trade partners ironing out logistics anymore. They’re rival superpowers locked in a long-term struggle for global domination.

Regards,

Lau Vegys