What happened

Shares of MP Materials (MP -0.74%), a miner of rare earth elements, jumped 10.5% today at noon on the New York Stock Exchange after media reports surfaced regarding potential U.S. tariffs on imported rare earth magnets from China.

Simultaneously, the shares of Nikola Corporation (NKLA -0.40%), a company that wants to build long-haul trucks powered by batteries and fuel cells, and Canoo (GOEV -2.57%), an electric-vehicle (EV) start-up, also jumped up 4.5% and 28.6%, respectively. What's the connection?

Three colorful arrows racing straight up on a black background

Image source: Getty Images.

So what

As the Financial Times reports this morning, "[T]he Biden administration is considering an investigation into whether imports of rare earth magnets made largely in China pose a national security threat that could warrant the imposition of tariffs."

In this case, the Biden Administration isn't considering levying tariffs to punish anything "bad" that China has done, but rather, it's a policy choice. By raising the effective cost of importing rare earth metals, the effect would be to allow U.S. rare earth producers to charge higher prices themselves, reaping windfall profits -- and thus encouraging the growth of a domestic U.S. rare earth industry.

In so doing, the Administration would strengthen national security by making both U.S. companies -- and the U.S. military -- less dependent on imports of Chinese rare earth materials from abroad.

Now what

As a miner of these materials, MP would be an obvious beneficiary of higher tariffs on Chinese imports. But as companies that use rare earth metals in their products (specifically, rechargeable batteries), Nikola and Canoo would likely be expected to suffer from the prospect of higher input costs on their EVs.

And yet they aren't. Their stocks are going up, too.

As it turns out, the Financial Times says that part and parcel of the plan to raise tariffs on rare earth metal imports is a "10-year plan to develop a domestic supply chain for lithium batteries, which are critical for electric vehicles, and will immediately use $17bn in lending facilities to support that effort."

On the one hand, the Biden Administration may be taking away from EV companies by raising tariffs on the products they need -- but it's also giving, in the form of $17 billion in government subsidies. And that sounds like good news, not just for MP Materials, but also for Nikola and Canoo.