China has expanded its export controls on rare earth minerals, a group of 17 elements essential for green technologies like electric vehicles and wind turbines. This move intensifies pressure on global supply chains and creates new risks for investors in clean energy Exchange-Traded Funds (ETFs).
The United States, heavily dependent on China for these materials, faces significant challenges due to limited domestic mining and a near-total lack of processing capabilities. As a result, the stability and growth of the U.S. renewable energy sector could be affected, prompting a shift in investment strategies toward globally diversified funds.
Key Takeaways
- China has tightened export controls on an additional five rare earth metals, adding to previous restrictions from earlier in the year.
- The U.S. relies on China for approximately 90% of its processed rare earth minerals, creating a significant supply chain vulnerability.
- Rare earths are critical for permanent magnets in EV motors and wind turbines, making the green energy sector particularly exposed to supply disruptions.
- Investment analysts suggest mitigating risk by focusing on clean energy ETFs with global exposure, particularly in Asia, which leads in renewable capacity growth.
The Foundation of Modern Green Technology
Rare earth elements are fundamental to the global transition toward clean energy. Minerals such as neodymium, dysprosium, and terbium are used to create powerful permanent magnets that are essential components in high-efficiency electric vehicle (EV) motors and large-scale wind turbines.
Beyond magnets, these elements are also used in advanced battery technologies and certain types of solar panels. The demand for these materials is directly tied to the growth of the renewable energy market.
High Mineral Intensity
According to a December 2024 report from the World Nuclear Association, an electric vehicle requires approximately six times more critical minerals by volume than a conventional gasoline-powered car. This high dependency makes the clean energy supply chain especially sensitive to mineral availability.
A disruption in the supply of these critical minerals presents a direct threat to the manufacturing and deployment of green technologies. This can lead to production delays, increased costs, and a potential slowdown in the pace of the energy transition.
China's Dominance and US Supply Chain Gaps
The global rare earth market is overwhelmingly dominated by China. A 2024 report from the Center for Strategic and International Studies highlighted that China processes around 90% of the world's rare earth metals. This gives Beijing significant leverage over the global supply.
In October 2025, the Chinese government announced it was expanding export controls to five additional rare earth metals. This followed a similar move in April 2025, which placed restrictions on seven other minerals. These actions have been widely interpreted as a strategic response to ongoing geopolitical tensions.
The US Processing Bottleneck
The United States faces a critical weakness in its domestic rare earth supply chain. While the country has its own deposits, including the Mountain Pass mine in California, it lacks the industrial capacity to process the raw materials. The output from Mountain Pass is currently sent overseas, primarily to China, for processing into usable metals and magnets. This reliance on a foreign competitor for a critical industrial step undermines U.S. efforts to build a secure domestic supply chain for its clean energy and defense industries.
This dependency means that even with domestic mining operations, the U.S. remains vulnerable to decisions made by foreign governments. The lack of domestic processing facilities is a major bottleneck that prevents the country from achieving self-sufficiency in this critical sector.
Market Impact and Investment Strategies
China's export restrictions are expected to create short-term instability in the renewable energy market. Manufacturers may face supply shortages and higher material costs, which could slow down project development and impact corporate profitability.
For investors in clean energy ETFs, this situation introduces a new layer of risk. Funds heavily concentrated in U.S.-based companies that rely on imported rare earths could face headwinds.
An effective strategy to navigate this uncertainty may involve diversifying investments into ETFs with broader global exposure. Companies with operations and supply chains spread across different regions, particularly Asia, may be better positioned to withstand disruptions focused on the U.S. market.
Data from the International Renewable Energy Agency supports this approach. A July 2025 report showed that Asia accounted for 71% of all new renewable energy capacity added globally in 2024. In contrast, North America contributed only 7.8%, highlighting where the most significant growth is currently taking place.
Clean Energy ETFs with Global Exposure
Several ETFs provide exposure to clean energy companies with significant international operations. These funds have shown resilience since the initial export controls were announced in April, suggesting that their diversified holdings may offer a buffer against U.S.-centric supply chain issues. Here are a few examples:
iShares Global Clean Energy ETF (ICLN)
As one of the largest clean energy ETFs, ICLN invests in companies across the globe involved in solar, wind, and other renewable sources. Its top holdings include First Solar (9.12%), Bloom Energy (8.66%), and Vestas Wind Systems (5.85%).
- Vestas Wind Systems (VWDRY) reported a development project pipeline of 26.6 GW in the second quarter of 2025, with the Asia-Pacific region making up the largest portion at 16 GW.
- The fund has gained 38.2% since April 1 and has an expense ratio of 39 basis points (bps).
Invesco WilderHill Clean Energy ETF (PBW)
PBW offers exposure to a diverse set of companies in the clean energy space. Its holdings include Navitas Semiconductor (2.38%) and Fluence Energy (2.35%).
- Navitas Semiconductor (NVTS) has extensive operations in Asia, with China accounting for 60% of its revenue in 2024.
- Fluence Energy (FLNC) maintains a strong presence in key Asia-Pacific markets like Australia, India, Japan, and Singapore.
- PBW has seen a significant gain of 92.5% since April 1, with an expense ratio of 64 bps.
Fidelity Clean Energy ETF (FRNW)
This fund focuses on companies producing or providing technology for renewable energy generation. Top holdings include Bloom Energy (4.69%), GE Vernova (4.28%), and First Solar (4.21%).
- GE Vernova (GEV) operates 29 manufacturing facilities throughout the Asia-Pacific region.
- First Solar (FSLR) has established manufacturing plants in India, Malaysia, and Vietnam, diversifying its production footprint.
- FRNW has increased by 54.7% since April 1 and charges a fee of 40 bps.
By investing in funds with holdings in companies that have strategically diversified their manufacturing and sales operations globally, investors may be better shielded from the direct impact of U.S.-China trade friction over rare earth minerals.
