China’s rare earths may matter more than tariffs at Trump-Xi summit as AI race heats up

By Julia Santos · Founding Editor, DividendsTimes

Educational analysis, not personalized investment advice.

As President Trump and Chinese President Xi Jinping prepare for a high-stakes summit, the spotlight is shifting from tariff negotiations to something Washington may find harder to bargain over: China’s rare earths. According to TradingView, Beijing’s dominance in the critical minerals that power AI chips, electric vehicles and advanced weapons systems could prove to be a stronger card than any trade concession. For income investors with exposure to technology, defense and materials, the outcome of these talks carries direct portfolio implications.

Why China’s rare earths grip matters now

China controls roughly 60% of global rare earth mining and closer to 90% of the processing capacity that turns raw ore into the refined oxides and metals used in semiconductors, magnets and military hardware. That bottleneck has always been a concern, but the AI investment boom has made it urgent. Training clusters built on tens of thousands of GPUs depend on neodymium magnets, scandium alloys and a handful of other elements that have few substitutes and almost no non-Chinese refining at scale.

Beijing has already demonstrated a willingness to use this leverage. Export controls on gallium, germanium and several rare earth elements imposed in recent years remain in place, and analysts expect Xi to treat any rollback as a significant concession worth a steep price in return. For Washington, the calculus is uncomfortable: pushing too hard on tariffs or chip export bans could prompt Beijing to tighten the supply of the very materials American chipmakers need to stay ahead.

The scramble for alternative supply

The United States has moved to build domestic capacity, but progress is slow. MP Materials (MP), the only active rare earth mine in the country at Mountain Pass, California, has invested heavily in downstream processing. The company aims to produce separated rare earth oxides and eventually finished magnets on U.S. soil. Still, reaching meaningful scale will take years, and MP’s revenue remains modest compared with the Chinese giants that dominate the sector.

Other efforts include:

• Department of Defense grants to develop rare earth recycling and processing facilities across several states.
• Partnerships with allies such as Australia, Canada and Japan to diversify sourcing. Lynas Rare Earths, an Australian miner, is building a processing plant in Texas.
• Research into substitutes that could reduce dependence on the heaviest rare earths, though commercial viability remains distant.

None of these initiatives will close the gap before the current diplomatic window shuts. That gives Beijing considerable near-term leverage at the negotiating table.

Sectors in the crosshairs

Defense contractors such as Lockheed Martin (LMT), RTX Corporation (RTX) and Northrop Grumman (NOC) rely on rare earth magnets for precision-guided munitions, jet engines and radar systems. Any tightening of Chinese supply would raise input costs and could slow production timelines. These companies are also among the most consistent dividend payers in the industrials space, with LMT carrying a streak of more than two decades of annual payout increases.

In the technology sector, companies building out AI infrastructure, including Nvidia (NVDA) and its supply chain partners, face indirect exposure. While Nvidia itself does not buy rare earths in bulk, the server farms that house its GPUs depend on components manufactured with these materials. A supply disruption would ripple through data center buildouts and could temper the capital spending plans that have driven revenue growth across the semiconductor industry.

For income-focused portfolios, the defense names and select materials plays offer a way to stay positioned for this theme without speculating on diplomatic outcomes. Utilities and energy infrastructure companies with minimal rare earth exposure, meanwhile, could serve as ballast if tensions escalate.

What to watch

The summit’s communique language on export controls and critical minerals will matter more than any headline tariff number. Investors should track whether Beijing agrees to loosen rare earth restrictions in exchange for concessions on semiconductor equipment exports. Any deal, or breakdown, will move shares in MP Materials, defense primes and the broader AI supply chain. Watch also for executive orders related to the Defense Production Act, which could accelerate domestic processing mandates.

Frequently asked questions

How does China’s rare earths dominance affect MP Materials (MP) as an investment?

MP Materials is the primary U.S.-based rare earth producer and stands to benefit from any federal push to reduce dependence on Chinese supply. However, the company is still scaling its processing capabilities and does not yet produce finished magnets domestically. Geopolitical tension tends to boost investor interest in MP, but the stock remains tied to commodity pricing and the pace of government support. Income investors should note that MP does not currently pay a dividend, making it a growth-oriented play on the supply chain theme rather than a yield vehicle.

Could a rare earths supply disruption hurt dividend-paying defense stocks like LMT or RTX?

A prolonged disruption could raise manufacturing costs for defense contractors that rely on rare earth magnets in weapons systems and engines. In the near term, existing inventory and long-term Pentagon contracts would buffer earnings. Over a longer horizon, sustained supply constraints might compress margins. That said, defense spending trends remain supportive, and companies like Lockheed Martin (LMT) and RTX Corporation (RTX) have maintained their dividends through prior supply chain challenges, making a cut unlikely absent an extreme scenario.

What outcome from the Trump-Xi summit would be most positive for markets?

A framework agreement in which China eases rare earth export restrictions while the U.S. moderates chip equipment bans would likely be received well across technology, defense and materials sectors. It would reduce supply risk for AI infrastructure buildouts and lower input cost uncertainty for manufacturers. Conversely, a breakdown that leads to expanded Chinese export controls could pressure the same sectors and push investors toward defensive, domestically oriented income plays such as utilities and consumer staples.

Educational analysis, not personalized investment advice.