The administration's explicit focus on re-shoring manufacturing and preparing for potential geopolitical conflict provides a clear investment playbook. Capital should flow towards commodities and companies critical to the military-industrial complex, such as producers of copper, steel, and rare earth metals.

For 30 years, China identified rare earths as a strategic industry. By massively subsidizing its own companies and dumping product to crash prices, it methodically drove US and global competitors out of business, successfully creating a coercive dependency for the rest of the world.

The shift to a less adversarial China policy may be a strategic maneuver to avoid supply chain disruptions. The U.S. appears to be biding its time—likely for 5+ years—to wean itself off dependence on Chinese rare earth minerals, which are critical for both industry and defense manufacturing.

The current trade friction is part of a larger, long-term bipartisan U.S. strategy of "competitive confrontation." This involves not just tariffs but also significant domestic investment, like the CHIPS Act, to build resilient supply chains and reduce reliance on China for critical industries, a trend expected to persist across administrations.

China demonstrated its significant leverage over the U.S. by quickly pressuring the Trump administration through a partial embargo on rare earth metals. This showcased a powerful non-tariff weapon rooted in its control of critical mineral supply chains, which are also vital for defense applications.

While headlines focus on advanced chips, China’s real leverage comes from its strategic control over less glamorous but essential upstream inputs like rare earths and magnets. It has even banned the export of magnet-making technology, creating critical, hard-to-solve bottlenecks for Western manufacturing.

The deal with rare-earths miner MP Materials goes beyond simple subsidies. The government has agreed to purchase 100% of the magnet offtake and has also guaranteed a profit margin for the company. This structure effectively removes all market risk and discipline for private investors.

China is restricting exports of essential rare earth minerals and EV battery manufacturing equipment. This is a strategic move to protect its global dominance in these critical industries, leveraging the fact that other countries have outsourced environmentally harmful mining to them for decades.

Despite escalating rhetoric, the U.S. and China are unlikely to fully decouple their supply chains. Their relationship is maintained by a fragile equilibrium where the U.S. provides semiconductor chips in exchange for China's critical rare earth minerals, making a return to the status quo the most probable outcome.