Beijing's stringent export controls on rare earth minerals and magnets aren't just a negotiating stance for upcoming U.S.-China talks. They're also about "world peace and regional stability," China's Commerce Ministry said on Saturday. Rare earth stocks MP Materials and USA Rare Earth soared early Monday as S&P 500 futures pointed to a relief rally after President Donald Trump posted Sunday, "Don't worry about China."
Trump made clear he's determined to strike a deal with "highly respected President Xi" and avoid imposing the 100% tariff that he threatened to apply starting Nov. 1. However, Beijing is making clear that a deal won't come cheaply, possibly going beyond technology to geopolitical concessions.
U.S.-China: Rare Earths For AI Chips
Some Wall Street strategists have predicted for a while that U.S.-China talks would lead to a trade: rare earths for AI chips. Getting rare earths without putting advanced chips on the table is "unrealistic," Christopher Wood, global head of equity strategy at Jefferies, wrote ahead of U.S.-China talks in June. Beijing, he said, sees the U.S. export controls "as the equivalent of a declaration of economic war against China, since it amounts to a deliberate effort to prevent the upgrading of the mainland economy."
In addition to banning rare earth exports for military uses, China's expanded export controls also set a high bar for semiconductor applications. Bloomberg reported that Dutch chip-equipment maker ASML expects shipment delays following the new controls. ASML's extreme ultraviolet lithography technology gives Taiwan Semiconductor, Samsung and Intel an advantage over Chinese chipmakers.
That supports the view that Beijing may be setting the stage for a deal in which the U.S. drops export controls on advanced chips and chip equipment in exchange for free-flowing rare earths.
China Wants AI Chips And 'Peace'?
Yet China's "world peace" comment to explain its explicit ban of all military-related exports of rare earths raises the possibility that Beijing is looking for more than just a deal over technology. Beijing also highlighted the "current turbulent global situation and frequent military conflicts."
Today's headlines show President Trump considering giving RTX's Tomahawk missiles to Ukraine as it seeks to strike back against Russia, China's strategic partner. Those missiles use navigation systems dependent on rare earth magnets.
One possibility is that China will demand assurances with regard to Russia and Taiwan. The Wall Street Journal reported last month that Xi is seeking an explicit assurance that from Trump that the U.S. opposes Taiwan's independence before agreeing to a summit.
However, one probably shouldn't rule out the possibility that China will stick to its ban on military-related exports of rare earths, which would have serious implications for U.S. military readiness as well as for defense stocks. According to the Center for Strategic and International Studies (CSIS), rare earths also are crucial for Lockheed Martin's F-35 fighter jet, Virginia- and Columbia-class submarines, Predator drones and more.
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U.S. Rare Earth Supply Chain
The U.S. is racing to build out a non-China rare earths supply chain, including a $400 million investment in MP Materials and a guaranteed floor price for its rare earth oxide. MP is months away from commercial magnet production at its first plant and now has financing for a second. The financing package also includes $150 million to process heavy rare earths, needed for military purposes, at its Mountain Pass, Calif., mining complex.
In addition, Germany's Vacuumschelze (VAC) is set to open a new magnet factory in South Carolina by the end of 2025, having receiving $200 million in government funding and tax credits, according to Energy News.
General Motors has deals with both MP Materials and VAC.
Noveon Magnetics became the first U.S. manufacturer to ship sintered rare earth magnets from its San Marcos, Texas, facility earlier this year. Sintered is the strongest and most advanced classification. Last week, Noveon announced a partnership with Australia's Lynas Rare Earths to provide a mine-to-magnet supply chain for the U.S. market.
However, "it will take time to ramp up these capabilities," Gracelin Baskaran, director of the Critical Minerals Security Program at CSIS, wrote on Oct. 9. "Until then, China retains a significant amount of leverage over supply chains crucial for national and economic security."
On Sept. 29, USA Rare Earth announced the $227 million acquisition of U.K.-based Less Common Metals, which prior to the merger received a grant from the U.S. Department of Defense to expand samarium production in the U.K. in support of U.S. industry needs. USA Rare Earth also has mining rights to a deposit of heavy rare-earth materials in Texas from which it has extracted gallium and heavy rare earth concentrates.
USA Rare Earth recently confirmed discussions with the White House over possible new financing.
MP Materials, USA Rare Earth Soar
MP Materials stock jumped 16% Monday, adding to Friday's 8.4% gain after Trump lashed out at China's export restrictions.
USA Rare Earth surged 27% and has more than doubled since breaking past a cup buy point on Oct. 2, according to MarketSurge.
Lynas Rare Earths climbed 9.4%.
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