China's Rare Earth Stranglehold: What Can the US Do about it? Geopolitical Trends

Hello everyone and welcome to Geopolitical Trends, where truth matters. As US-China trade war tensions reignite only a few weeks prior to a major political event, China's 4th Plenum and a new 5-year plan, I argue that Beijing will move forward in its plan knowing that these ongoing tensions could provide it a common cause for the Chinese people to rally behind as policymakers take steps to protect technological development and national security. One of the key aspects that China has is its domination of rare earth metals, a group of 17 metallic elements that are indispensable for manufacturing items such as electric vehicle motors, AI systems, missile guidance systems, and wind turbines, among others. Yes, that's accurate. China holds a dominant position in the rare earth elements industry, which has significant geopolitical and economic implications. A big thank you to today's show sponsor, Gold Mining Inc. Now, let me break it down for you. Production and processing: China controls roughly 70% of global rare earth production and an even higher share of refining and processing, often cited as between 80% and 90% of global capacity. This dominance comes from a combination of factors: abundant domestic reserves, particularly in the southern regions, historical investments in extraction and processing infrastructure, less regulations and red tapes, and low labor costs. China's dominance in both production and processing of rare earth and processing and refining capacity is the result of a long-term strategy involving government subsidies, industrial protection, and investments across the entire supply chain. This dominance makes other countries, such as the United States, heavily dependent on China for these critical materials, which are vital for technologies like electric vehicles, smartphones, and defense systems. Strategic importance. Rare earth elements are crucial for modern technologies, including semiconductors, smartphones, electric vehicles, motors, wind turbines, military applications, and various advanced manufacturing processes. This makes China's control over the supply chain a significant strategic asset. The dependency creates potential vulnerabilities for other nations, especially the United States and its allies. Geopolitical tensions. While I agree that China has occasionally used its rare earth dominance as leverage in trade disputes, it is because Beijing had to, since the US, for example, suddenly decided to restrict and ban the export of microchips. And those who argue, for example, how China in 2010 restricted exports during territorial disputes with Japan, highlighting how supply can be weaponized. This, in my opinion, is no different than what the United States did. Recent developments: The US and its allies have been working to reduce dependency through efforts like developing rare earth mines like those in the US, Australia, and Myanmar, improving recycling technologies, and finding substitutes for certain elements. However, building independent capacity is time-consuming, expensive, and faces environmental challenges. So, these alternatives remain significantly more expensive and less developed than China's established supply chains. China in the 21st century. China in the 21st century has undergone a remarkable transformation, becoming a major global power across economic, political, and military dimensions. I was in Beijing recently during the Victory Day Parade, and I saw the major military hardware China developed. I may do a separate video on this topic. For now, suffice it to focus on the following: Economic rise. China's economy has grown dramatically since 2000, making it the world's second-largest economy after the US. It transitioned from being primarily manufacturing-based to becoming a more diversified economy with major tech companies, financial services, and increasing innovation. However, growth rates have slowed from the double-digit expansion of the 2000s through the 2010s to more modest single-digit growth in recent years, reflecting maturation of the economy and structural challenges. Technological development. China has invested heavily in technology and now competes globally in areas like e-commerce, artificial intelligence, 5G telecommunications, which by the way China is already working on 6G, and electric vehicles. Companies like Alibaba, Tencent, Huawei, and others have become world-class competitors. The government has pursued strategic initiatives like Made in China 2025 to move up the value chain into advanced manufacturing and innovation. Of note, China has been actively working on 6G technology since at least 2019, with a government and private sector initiative initiatives focused on research, satellite launches, and developing experimental networks and chips. Recent developments include the launch of the world's first 6G test satellite, the creation of an experimental 6G field test network, and the unveiling of an all-frequency 6G chip with speeds over 100 GB/s is a very high-speed network data transfer rate, equivalent to 100 billion bits per second, or approximately 12.5 GB/s. While 6G is still in the early stages of development and commercialization is not expected until around 2030, China's efforts to position it as a leading force in the field. Geopolitical Influence. China has become increasingly visible—some say assertive—in foreign policy. China pursued the Belt and Road Initiative, known as BRI, massive infrastructure investments across Asia, Africa, and beyond to expand influence and secure economic ties and access to natural resources. It's also been more active in resolving regional disputes. For example, China successfully brokered an agreement between Iran and Saudi Arabia in 2023 to restore diplomatic relations after 7 years of severed ties. The normalization deal was a diplomatic victory for China. But the situation remained complex, with both underlying tensions and new diplomatic initiatives emerging since the agreement. Domestic governance. Under President Xi Jinping's leadership from 2012 onward, the government has centralized power, centralized economy that is working on behalf of all Chinese. I was there and I saw. Yet many who have never stepped foot in China continue to argue that Beijing is cracking down on dissent, strengthened surveillance systems, etc. Military modernization: China has significantly expanded and modernized its military capabilities, becoming a credible near-peer competitor to the United States in the Indo-Pacific region, with particular focus on naval and cyber capabilities. So, the question becomes, what will the US do? That's a big question. The US response to China's rise has been and will likely continue to be multifaceted, though the specific approach depends on which administration is in power and how regional tensions evolve. Current Trajectory Post-2024. Donald Trump's return to the presidency in January 2025 and his approach to China emphasizes confrontation. Through tariffs, trade restrictions, and a more transactional foreign policy. This contrasts with previous administrations' varied strategies of engagement, competition, and selective confrontation. Broad strategic responses. Regardless of administration, the US has been pursuing several overlapping and failed strategies: strengthening alliances with allies in Asia—Japan, South Korea, Australia,— and maybe India— competing technologically and economically, though on a limited basis, maintaining military presence and capability in the Indo-Pacific, restricting Chinese access to advanced semiconductors and technology— but China is developing its own— and of course attempting to decouple critical supply chain from Chinese dependence. All these policies have not yielded the desired results. As a result, China is in a much stronger position. Key areas of competition: The US is investing in domestic semiconductor manufacturing, renewable energy, and infrastructure to reduce reliance on the Chinese supply chain. I will believe it when I see it. There is also significant focus on emerging technologies like AI, quantum computing, and advanced manufacturing, where both countries are competing intensely. Speaking of AI, as the competition between the United States and China intensified in the field of artificial intelligence, the race is shifting from the civilian sector to the security and military arena, as both countries— China and the United States— realize that the superiority in artificial intelligence means gaining a decisive strategic advantage in future wars. Uncertainty factors. How the US handles China depends on several unpredictable elements: economic conditions, specific incidents or crises, shifts in alliance structures, and political changes in the US. Taiwan, however, remains a critical flashpoint, Any military action there will likely trigger major US intervention. How will it end? That's a difficult question, and it's difficult to predict with confidence, as trade wars between major powers can evolve in many directions depending on economic conditions, political decisions, and unforeseen events. However, I am going to share with you some plausible scenarios. 1. Negotiated Settlements. One possibility is that both sides eventually reach a deal. Tariffs are reduced or removed in exchange for concessions on market access or strategic sectors. This happened to some degree after Trump's first term, Phase One deal in 2020. Though underlying tensions remained. Future negotiations could follow a similar pattern. 2. Prolonged competition. The trade conflict could become the new normal, with tariffs, restrictions, and tit-for-tat measures continuing indefinitely as both countries accept higher costs as the price of strategic competition. This creates inefficiencies and higher prices for consumers, but doesn't necessarily escalate into something more severe. 3. Economic decoupling. Rather than resolving, the US and China could gradually separate their economies. Different supply chains, separate technology standards, reduced trade flows. This would be costly for both, but might be what each side pursues strategically. It's a slow process, not a sudden rupture. And the fourth, escalation. In a more negative scenario, trade tensions could escalate into a broader conflict—financial sanctions, investment restrictions, or even military confrontation over issues like Taiwan. This is the most destabilizing outcome. Mutual adjustments. Both economies might adapt and find a new equilibria. China developing more domestic consumption and less export dependence, the US, on the other hand, reshoring more manufacturing, with trade eventually stabilizing at a lower level than before. The outcome likely depends heavily on which approach the current US administration and future Chinese leadership choose to prioritize. 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As always, make sure you review GoldMining's public filings for important information regarding it and its projects, including its most recent Annual Information Form and technical reports referenced in them. These are all available at www.cedarplus.ca. As always, there are always risks in investments, and there are no guarantees And please do your own research. As always, remember, geopolitics impacts your daily life in more ways than one.