+300% Surge? - Rare Earth Export Controls - Portfolio Position Update
Market Shockwaves and Game Theory With Strategic Implications From Tariff Chaos
Hi and welcome back for a Quant data driven analysis. [Full Disclaimer]
I've been tracking the wild tariff ride between the US and China, and honestly, the market's reaction is the most telling part of this story. The numbers themselves are almost comical at this point - we've got countries slapping triple-digit tariffs on each other like it's a poker game where everyone keeps raising the stakes.
China just jacked up tariffs to 125% after Trump went with 104%, which is basically shutting down trade completely. It's not even trade policy anymore - it's a trade embargo dressed up in policy clothes. The Chinese pretty much said "whatever" to any future increases, basically telling Trump that this numbers game is meaningless now. They're playing chicken, and nobody's swerving yet.
Looking at the patterns, it's fascinating - that first round of tariffs absolutely crushed the Dow with a 2,200 point nosedive. The second round? Markets flinched but recovered. Now with round three, markets barely blinked. It's like watching someone get punched repeatedly - eventually, they just stop feeling it. The markets have numbed themselves to the pain, which tells me they've already factored in this trade relationship being effectively dead.
Any how many are asking - Will US 10Y Treasury yield above 5% by June 30?
What Happens Next
The bond market's reaction is particularly telling. The 30-year yield has climbed to 4.91%, putting pressure on Trump's economic priorities. We're now at a critical juncture where three outcomes are possible:
Trump blinks first - The administration recognizes that market stability is crucial for reelection and softens its stance, perhaps framing it as a strategic pause for negotiations.
Fed intervenes - If bond market turmoil continues, the Fed might step in with rate cuts or other accommodative policy to stabilize markets.
Markets adapt - Supply chains reorganize, pricing in the new reality, and volatility subsides as businesses adjust to the new trade paradigm.
All bets are on. Literally!
If Trump impose large(er) tariffs in his first 6 months? Things will get complicated.
Looking at the trading patterns, I'm more inclined to start positioning for a rebound. The risk/reward profile has shifted as the market has largely digested the worst-case scenarios. Key indicators point to an asymmetric trading opportunity is emerging, though timing remains crucial.
So to the question:
Will Trump remove majority of reciprocal tariffs before 90 day deadline?
The answer most probably yes to those whos came to the negotiating table. But without some more mayhem. The market has temporally absorbed the shock but for how long?
So China just dropped a bombshell on global markets.
On April 4th, Beijing unveiled export controls on seven critical rare earth elements - samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. This wasn't some random move but a calculated counter-punch coming just one day after Trump slapped 145% tariffs on Chinese goods. The market reaction has been swift and brutal, with clear winners and losers emerging almost overnight.
I've been tracking this situation closely, and let me tell you - it's fascinating to watch how the market is splitting. Defense contractors and domestic rare earth miners are riding high while clean energy companies and automakers are getting absolutely hammered. Look, these elements might sound like something from a chemistry exam you'd rather forget, but they're actually pretty fascinating.
Funny thing about "rare earths" - they're not even rare! They're all over the crust of our planet. The real nightmare is getting them out of the ground and processing them. It's dirty work - we're talking toxic waste, massive water usage, and processing that'll make your head spin. Most countries took one look at the environmental headache and said "no thanks," but China jumped in with both feet.
These elements are the secret sauce in everything from your smartphone to electric vehicles, wind turbines, and those precision-guided weapons the Pentagon loves so much.
Global Rare Earth Production by Country (2023-2024)
These aren't just random metals - they're the building blocks of our high-tech world.
The seven elements China targeted are particularly crucial:
Dysprosium: Essential for high-performance magnets that maintain magnetic properties at high temperatures, critical for electric vehicle motors and wind turbines
Terbium: Used in precision-guided weapons, sonar systems, and fuel cells
Samarium: Key component in samarium-cobalt magnets used in aerospace and defense applications
Gadolinium: Used in nuclear reactors, MRI contrast agents, and microwave applications
Lutetium: One of the rarest REEs, used in catalysts and medical imaging
Scandium: Strengthens aluminum alloys for aerospace applications and fuel cells
Yttrium: Critical for thermal barrier coatings on jet engine components and precision lasers
China absolutely dominates this market. They control about 60% of global rare earth mining, but more importantly, they process around 90% of the world's supply. This didn't happen by accident. Beijing has spent decades strategically investing in this sector while the West largely ignored it as too dirty and low-margin. Now we're paying the price for that shortsightedness.
This isn't China's first rodeo with rare earth politics either. Back in 2010, they cut off rare earth exports to Japan during a territorial dispute. In 2023, they restricted gallium and germanium exports. This latest move employs a clever "dual-use" classification system that lets Beijing increase scrutiny on buyers connected to US military supply chains without explicitly violating WTO rules. It's a smart strategy that gives them plausible deniability while still applying maximum pressure.
Whether we see a US-China trade deal before June is yet to be seen!
Market Impact
When we look at market reactions since April 4th, the divergence is stark:
Defense stocks are up nearly 10% on average - companies like Boeing, Raytheon, and Lockheed Martin have seen gains of 13.2%, 8.2%, and 7.3% respectively. Why? These guys will likely get priority access to limited domestic supplies, plus they'll benefit from increased government spending to secure critical material supply chains.
Rare earth miners and processors like Energy Fuels (up 9.9%) and MP Materials (up 2%) are obvious winners too. MP Materials hit the jackpot with their Mountain Pass operation in California. They're literally the only game in town when it comes to integrated mining and processing in North America. I mean, talk about stumbling into the right business at the right moment! Meanwhile, those poor clean energy folks? They're getting absolutely hammered. Their stock charts look like they fell off a cliff. Not pretty.
Clean energy companies, on the other hand, are getting clobbered. Plug Power is down 8.2% and First Solar down 4.9%. Wind turbines and fuel cells are hugely dependent on rare earths, and some analysts predict dysprosium prices could surge 300% by Q3 if these restrictions continue. That's going to wreak havoc on manufacturing timelines and costs.
The auto sector is feeling the pain too. Ford is down 5% and GM down 4.6%. EV production is particularly vulnerable to these supply disruptions - word is Tesla's Berlin gigafactory had to halt production for 72 hours in April due to terbium shortages. Goldman Sachs thinks automakers might have to delay launching up to 2 million electric vehicles through 2026 because of magnet shortages and cost increases. That's a serious wrench in the EV transition.
Price Impact On Some Stocks & Vulnerabilities
Price volatility in the rare earth market has been intense. Dysprosium and terbium have seen the most dramatic price increases at roughly 300% and 250% respectively. Most Western manufacturers operate with just-in-time inventory systems, meaning they've got less than three months of stockpiles. That creates some serious procurement headaches.
The vulnerabilities are particularly pronounced in certain sectors: