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Energy, which has usually meant oil, has been a driver of geopolitics for the past 100 years or so. As the internal combustion engine touched every aspect of life, fuel was needed for cars and trucks, industrial machines, and farm equipment. The world’s militaries transitioned away from coal-fired power and grew dependent upon gasoline to power tanks, planes, and ships. As eloquently described in Daniel Yergin’s The Prize: The Epic Quest for Oil, Money & Power, the pursuit of oil impacted virtually every one of a country’s actions in both times of war and times of peace.
A similar dynamic is playing out with rare earths and critical minerals. It’s becoming increasingly clear that these commodities are the 21st century’s version of oil. They are vital inputs for technology and electronics, and essential to power data centers that fuel AI systems. It’s impossible to imagine a future that is not dependent upon critical minerals.
Before we go further, what are rare earth elements? The Reuters video below is a fabulous 3 minute primer and worth your time.
Regular readers of my work know that I’ve been concerned about a rapidly-escalating, even if not (yet) kinetic, US-China War. And for years, I’ve been concerned about America’s dependence upon China for critical minerals. In fact, in my January 2021 set of predictions (see link below), I explicitly stated I believed rare earth commodities would hit all time highs within five years.
One of my core beliefs that has run through all my work is that it’s critical (pardon the pun) to connect the dots across seemingly disparate sources of information. As part of my growing concern about America’s vulnerability with respect to critical minerals, I interviewed James Litinksy for my THINK FOR YOURSELF podcast and webinar series. James is the Chairman and CEO of MP Materials, America’s largest producer of rare earth commodities, and we spoke at length about the upcoming rare-earth conflict. The conversation, which took place almost 5 years ago, remains relevant and is worth your time. Link below.
VIDEO: Talking Rare Earths with MP Materials' James Litinsky | ||||||
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So where do we stand today?
To say that China is the Middle East of rare earths wouldn’t only be an understatement; it’s also cliché. Deng Xiaoping made the same point as far back as 1992, when he remarked that, “The Middle East has oil; China has rare earths.” China has more rare earths than any other nation on earth; Brazil, with less than half of China’s amount, is second.
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China is also the world’s leading producer of 15 of 27 rare earths, and its share of global production tops 60 percent in 12 of them. This includes a nearly 99 percent share of gallium and 95 percent share of magnesium, as well the vast majority of the world’s tungsten, bismuth, graphite and silicon.
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The flip side of Chinese dominance is US dependence. The U.S. imports 70 percent of its rare earths from China, including many that are crucial to national security. Malaysia, Japan, and Estonia also play a role.
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China has also showed a willingness to withhold exports for geopolitical leverage. In 2010, it halted mineral shipments to Japan over a dispute involving a Chinese fishing trawler colliding with a Japanese Coast Guard ship. Beijing also threatened to weaponize rare earths during 2019 trade tensions with the U.S, and has been doing exactly that during the trade war this year.
Is there any doubt that Chinese will use this stranglehold to choke off the U.S. supply of rare earths in any future conflict between the two powers? How might this threat temper the U.S. response to a Chinese invasion of Taiwan?
Three Gigantic Global (Imminent) Opportunities | ||||||
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The bifurcation of the world is creating two global ecosystems based on values. This is the new geopolitical battlefield, and rare earths will play a disproportionate role as to which ecosystem will end up on top by century’s end. The critical minerals race is on (and has been for a while), but it’s far from over.
And while the United States may be “behind” at this point, I would never bet against a system that prizes individual liberties, protects property rights, values intellectual capital, and ultimately abides by rule of law…especially against a system that runs roughshod over individuals and rights in pursuit of centrally determined objectives.
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VIKRAM MANSHARAMANI is an entrepreneur, consultant, scholar, neighbor, husband, father, volunteer, and professional generalist who thinks in multiple-dimensions and looks beyond the short-term. Self-taught to think around corners and connect original dots, he spends his time speaking with global leaders in business, government, academia, and journalism. He’s currently the Chairman and CEO of Goodwell Foods, a manufacturer of private label frozen pizza. LinkedIn has twice listed him as its #1 Top Voice in Money & Finance, and Worth profiled him as one of the 100 Most Powerful People in Global Finance. Vikram earned a PhD From MIT, has taught at Yale and Harvard, and is the author of three books, The Making of a Generalist: An Independent Thinker Finds Unconventional Success in an Uncertain World, Think for Yourself: Restoring Common Sense in an Age of Experts and Artificial Intelligence and Boombustology: Spotting Financial Bubbles Before They Burst. Vikram lives in Lincoln, New Hampshire with his wife and two children, where they can usually be found hiking or skiing.
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