On today’s show Andrew and Bill begin with a series of escalatory policies from the U.S. and talk of a call between Xi Jinping and Donald Trump later this week. Topics include: The rare earth frustration on the American side, the PRC’s use of leverage, the potential downsides for the PRC as the rest of the world grapples with shortages, and the maddening failures of the West to prepare for exactly this scenario. At the end: An update on TikTok, the death of Xu Qiliang and continued mystery at the top of the PLA, a week of rumors swirling around Xi, and two notes on the EV sector.
I responded to this on my substack here and below: https://daviddunn3.substack.com/publish/post/165395648 I often hear China’s rare earth restriction policy described as a clever response to the U.S. policies restricting China from AI and semiconductors. I would respond that as with many other examples these policies only appear clever in a limited sense and actually harm China’s interests. China should be trying to get back into the global supply chain by making nice, rather than making trouble for the U.S. The US has much stronger relationships with the countries in the world that have the best technology (mostly OECD countries.) and can’t win at this contest. In my personal experience China is far more adept at projecting technical competence then actually developing it. China is at best 小聰明 （Xiao Chong Ming） which in Mandarin means being clever but only in a very limited sense to gain some short term advantage but undermining one’s actual position.
China’s has a dominance in not rare earths per se but rather rare earth processing. This is due largely to government subsidies but also due to the fact that most other countries don’t really want this industry? Why not? This is the way this works. In general, rare earth processing involves taking a large quantity of material (often rock) and from that extracting a tiny amount of ore. So you end up with a lot of waste material to get rid of or process. Often this involves very nasty processes which produce tremendous amounts of pollution. That pollution often ends up in the water system or gets into land that has some value for agriculture. If you think the rare earth issue is likely being handled well, you don’t know China very well. (I will discuss that at another time.) So what you have with rare earth processing is a fairly low margin, environmentally nasty industry that most countries (particularly countries with some form of democracy) don’t want.
China now wants to use its dominance of rare earth processing for leveraging. What it is doing is force other countries to find alternatives. Those alternatives include finding alternative materials that don’t require the rare earths that China monopolies and in other cases new sources are being found. Some years ago China embargoed Japan’s supply of rare earth and Japan made alternative arrangements. This time China’s customers are looking to Australia, Southeast Asia, Norway, Arkansas in the U.S. and sea bottoms as just a few of the alternatives recently in the news. They may not be quick, they may not all work out, they likely will be more expensive than sourcing from China but they will break China’s monopoly.
Contrast that with the supply of just semiconductor related products to China. That industry is many times more complicated than rare earths and China has no real alternative except developing a fully indigenous semiconductor industry, an unrealistic proposition.
China is being progressively removed from global supply while the U.S. continues to be indispensable. China would be smarter to be more cooperative and less confrontational.
I responded to this on my substack here and below: https://daviddunn3.substack.com/publish/post/165395648 I often hear China’s rare earth restriction policy described as a clever response to the U.S. policies restricting China from AI and semiconductors. I would respond that as with many other examples these policies only appear clever in a limited sense and actually harm China’s interests. China should be trying to get back into the global supply chain by making nice, rather than making trouble for the U.S. The US has much stronger relationships with the countries in the world that have the best technology (mostly OECD countries.) and can’t win at this contest. In my personal experience China is far more adept at projecting technical competence then actually developing it. China is at best 小聰明 （Xiao Chong Ming） which in Mandarin means being clever but only in a very limited sense to gain some short term advantage but undermining one’s actual position.
China’s has a dominance in not rare earths per se but rather rare earth processing. This is due largely to government subsidies but also due to the fact that most other countries don’t really want this industry? Why not? This is the way this works. In general, rare earth processing involves taking a large quantity of material (often rock) and from that extracting a tiny amount of ore. So you end up with a lot of waste material to get rid of or process. Often this involves very nasty processes which produce tremendous amounts of pollution. That pollution often ends up in the water system or gets into land that has some value for agriculture. If you think the rare earth issue is likely being handled well, you don’t know China very well. (I will discuss that at another time.) So what you have with rare earth processing is a fairly low margin, environmentally nasty industry that most countries (particularly countries with some form of democracy) don’t want.
China now wants to use its dominance of rare earth processing for leveraging. What it is doing is force other countries to find alternatives. Those alternatives include finding alternative materials that don’t require the rare earths that China monopolies and in other cases new sources are being found. Some years ago China embargoed Japan’s supply of rare earth and Japan made alternative arrangements. This time China’s customers are looking to Australia, Southeast Asia, Norway, Arkansas in the U.S. and sea bottoms as just a few of the alternatives recently in the news. They may not be quick, they may not all work out, they likely will be more expensive than sourcing from China but they will break China’s monopoly.
Contrast that with the supply of just semiconductor related products to China. That industry is many times more complicated than rare earths and China has no real alternative except developing a fully indigenous semiconductor industry, an unrealistic proposition.
China is being progressively removed from global supply while the U.S. continues to be indispensable. China would be smarter to be more cooperative and less confrontational.
Tiktok "deal" shows how corrupted the US is.
"Bare knuckles supply chain war"....very accurate. If anyone is going to TACO we know who. China can eat a lot of bitter melon.
EV cars in China will destroy the German and US cars. So no need to bend over for that.
Net net China is a full enemy and some time that has to come to a head. Bang bang.