October 16, 2025

Rare Earths and the Myth of Decoupling

The latest flare-up in U.S.–China trade tensions has once again placed rare earth elements (REEs) at the centre of debate. These 17 metals, vital for electric vehicles, wind turbines, smartphones and defence technologies, are mined across several continents but refined predominantly in China, which controls over 90% of global processing capacity.

That dominance is the legacy of decades of strategic policy. China invested heavily in refining and downstream manufacturing while other nations curtailed production on environmental and cost grounds. Yet, China’s apparent monopoly masks a more complex reality.

Recent analysis from Absolute Strategy Research highlights that U.S. imports from China are understated by as much as 50%, distorted by tariff avoidance and trans-shipment through third countries. In other words, supply chains remain deeply intertwined despite political rhetoric of “decoupling.” The U.S. still relies heavily on Chinese inputs, while China depends on U.S. technology, semiconductors and financial systems.

Although Beijing could theoretically restrict REE exports, its leverage is not absolute. The United States and its allies maintain control over critical downstream technologies, capital markets, and energy resources. Washington is also rebuilding its own supply chain resilience, reopening mines, funding refining projects in Texas and Australia, and developing substitutes such as rare-earth-free magnets.

The most likely outcome is not full decoupling but selective uncoupling, which sounds a lot like an upcoming book release from Gwyneth Paltrow, but in fact involves a gradual re-routing of sensitive supply chains alongside deeper cooperation in less strategic areas. For investors, the transition is unlikely to break global trade, but it may reprice geopolitical risk across sectors linked to clean energy, defence, and advanced manufacturing.