Multi-Pronged Push: Rare Earth Break from China​【SMM Analysis】

SMM News: On the evening of September 16, Beijing time, after U.S. stocks opened, rare earth concept stocks bucked the trend and strengthened. USA Rare Earth's stock price surged over 15% at the opening, American Resources rose over 9%, and MP Materials gained over 3%. Although this round of gains was directly driven by market sentiment, it fundamentally reflects investors' strong expectations for the recent intensive rare earth industry support policies introduced by the Trump administration.

On September 18, the US Fed announced an interest rate cut of 25 basis points. While it mainly affects base metals and precious metals, rare earths, as strategic resources, have seen their financial attributes and geopolitical value highlighted in the capital markets. Looking back from August to September, the Trump administration continuously made moves around the autonomy of the rare earth supply chain, from domestic policy support to courting international partners, demonstrating a strategic move to multi-pronged layout and urgently seek alternatives to China.

I. Strong Domestic Policy Intervention: Funding Support, Price Guarantees, and Production Expansion
The Trump administration accelerated domestic rare earth capacity construction through direct funding injections, executive orders, and price guarantee mechanisms. On August 13, the US Department of Energy (DOE) announced a nearly $1 billion financing plan specifically supporting mining, processing, and technology manufacturing projects for critical minerals (including rare earths), aiming to build a "secure, predictable, and affordable" supply chain. In July, the Department of Defense had already invested $400 million in MP Materials, the only domestic rare earth enterprise, acquiring a 15% stake, and signed a long-term procurement agreement with a floor price of $110/kg (twice the market price at the time) to hedge against China's low-price advantage and incentivize domestic production.

Simultaneously, the government restarted domestic mining projects: on July 11, Ramaco Resources launched the first new rare earth mine in the US in 70 years in Wyoming, with a total expected investment of $500 million. If it enjoys the same price floor mechanism as MP Materials, the investment payback period could be shortened to three years. These measures, authorized under the Defense Production Act, streamline approvals and prioritize the use of federal land, aiming to quickly break through capacity bottlenecks.

II. Multilateral Progress in International Cooperation: Alliance System and Resource Diplomacy
To address domestic resource shortages, the Trump administration actively worked to establish a "de-sinicized" global rare earth supply chain alliance. Under the framework of the Quadrilateral Security Dialogue (Quad), the US reached a critical minerals initiative with Japan, Australia, and India, forming a resource-technology complementary system: Australia provided mining capabilities, Japan contributed refining and recycling technologies, India developed refining potential, and the US led in capital and defense industry demand. In September, the chairman of the Russian Rare Metal Association publicly expressed willingness to enter into a rare earth trade agreement with the US, exchanging rare earths for the lifting of US sanctions on high-tech products to Russia. If realized, this move could expand sources of heavy rare earth.

Meanwhile, the Indian government authorized state-owned and private companies to participate in rare earth negotiations with Myanmar, having established initial contact with local armed groups in Myanmar via online meetings in July, attempting to geopolitically bypass China-dominated supply chains. Additionally, Trump publicly supported Australia’s Lynas Rare Earths, promoting its establishment of plants in the US to address shortcomings in heavy rare earth separation.

III. Tariff Games and Exemption Strategies: Balancing Supply Chain Risks and Industrial Pressure
The Trump administration has displayed a dual stance in trade policy: on one hand, threatening to impose hefty tariffs on China (such as the threat of 200% tariffs in August), and on the other, granting exemptions for critical rare earth products. On September 9, the White House announced tariff exemptions for magnetic materials, aiming to ensure stable domestic supply of magnetic materials in the US and prevent disruptions in the new energy and defense industries due to supply chain interruptions. This move reflects the US's practical dilemma regarding its reliance on Chinese rare earths—despite attempts to pressure China through tariffs, 87% of US rare earth processing depends on Chinese supply, making it difficult to decouple from Chinese capacity in the short term. In April, the US had already exempted tariffs on Chinese graphite and rare earths due to concerns that high domestic costs and technological backwardness could halt industrial operations. This strategy of "simultaneous suppression and compromise" reveals the structural contradictions in the US's pursuit of rare earth self-sufficiency.

IV. Strategic Intent and Potential Challenges: The Road to Autonomy Remains Long

The core objective of the Trump administration's series of actions is to reduce supply chain risks during wartime or escalated trade conflicts by intervening with state capital to break China's low-price advantage, building a supply chain alliance with allies, and accelerating the release of domestic capacity. However, these measures face multiple challenges: first, technological barriers, with China controlling 85% of the world's rare earth smelting capacity and prohibiting the export of 18 key technologies, meaning the US would still require Chinese processing even if it obtains ore; second, cost disadvantages, as US rare earth separation costs are 30–40% higher than China's, necessitating long-term subsidies to sustain operations; third, time constraints, as rebuilding a complete industry chain would take 15 years and require over $200 billion in investment; and fourth, international regulatory constraints, such as opposition from the International Seabed Authority to Pacific seabed mining plans due to technological immaturity. Currently, China still controls 60% of global mineral production and 92% of processing capacity. Although the Trump administration's "multi-pronged approach" is vigorous, it is unlikely to disrupt China's dominant position in the short term.