Obvezno branje za razumevanje dogajanja na tehnološkem bojnem polju med Kitajsko in ZDA. Spodaj je uvod in nato ameriški pristop, v drugem delu pa sledi še kitajski pristop.

A lot of people may be surprised that the biggest market mover for the past few months is not Nvidia, the darling of the race for AI supremacy. The honor goes to a once obscure Nevada-based mining company called MP Materials. While Nvidia stock rose from $136 to $174 year to date, MP Materials went from $16 to $60.

The reason for the meteoric rise is simple – MP Materials is the sole US producer of rare earth, minerals critical to modern high tech production from EV, drone, robotics, wind turbine, semiconductor, to military weaponry.

While its production is miniscule compared to Chinese rare earth miners and its refining capabilities are quite limited, MP Materials has just attracted $400 million investment from Pentagon, which is now its largest shareholder.

The unprecedented US government investment in a private mining company is in reaction to China’s flexing its rare earth dominance in the face of the tariff and tech wars Trump and Biden have waged against Beijing.

US industries, especially the military industrial complex, are running scared that their reliance on Chinese rare earth to power high tech production and military applications are increasingly under stress in the intensifying geopolitical and geoeconomic contests between the two countries.

Ever since Trump launched the tech war against Huawei in his first term and Biden upped the stakes further by cutting off advanced semiconductors, Beijing has gradually tightened its stranglehold on rare earth in retaliation.

As the old saying goes, what is good for the goose is good for the gander, the US weaponization of the semiconductor supply chain has been met with counterattacks.

The fight over critical technologies and critical minerals will define China US relationship and is the foreplay before a hot war breaks out.

I have written a few pieces on both rare earth and China’s chip plans (https://huabinoliver.substack.com/p/rare-earth-and-reindustrialization). It is interesting to contrast the different approaches taken by the two superpowers to counter the other party’s move.

China and the US have taken different approaches to resolve their respective bottlenecks, reflecting how the two vastly divergent economic and political systems tackle technological challenges.

The US approach is focused on financial incentives and legislative greenlights, major levers in a highly financialized economic/political system.

Such financial and regulatory maneuvers are supplemented with extortions over Greenland and Ukraine, standard pirate tactics long practiced by western colonizers – if you don’t have something, just steal it from people who have it.

The US approach

Trump regime’s solutions to the rare earth bottleneck are multifaceted –

1. pause the tariff war to gain temporary relief from China for non-military applications (military end use is off the table, hence the panic in Pentagon)

2. boost domestic producers to replace Chinese supply, exemplified by the Pentagon investment in MP Materials

3. accelerate permitting process through legislations, for example using the Defense Production Act and Executive Order 14241 to expedite rare earth mines

4. acquire access to mining rights in vassal states such as Australia or through outright land grabs, the idea behind invading Greenland and the Ukraine mineral deal

On the surface, the US plan seems to have covered many actionable areas. If you ever need evidence that a large part of the US economy is based on military Keynesianism, using DoD to fund dual-use mineral development is exhibit A.

However, the holes in the US plans are easy to spot. First, where will the rare earth production technologies come from, even if (a big if) it can secure enough mines?

As discussed in my earlier essays, rare earth is hardly rare and the real challenge lies in the extraction, separation, refining, and processing technologies involved in the production of rare earth metals and permanent magnets (the so called “mine to magnet” supply chain).

China’s monopoly in the sector (70% global mining and 90% processing & refinement) is the result of decades long investment in technology and human capital development along the entire supply chain.

Beijing has long realized the importance of rare earth to modern industry and has heavily invested and developed, since 1980s, the requisite chemical solutions, specialized machinery, environmental solutions, refining technologies, and related engineering talents to achieve dominance in the industry.

According to Stanford Magnets, a mining trade journal, “At present, the United States does not have enough R&D capabilities to manufacture rare earth permanent magnets. For example, the United States does not have the ability to produce high-temperature and corrosion-resistant samarium-cobalt rare earth permanent magnets, which can be used to make permanent magnets for precision-guided missiles, smart bombs, radars, and military aircraft. However, China has this technology. (Note that Lockheed Martin is the largest user of samarium-based permanent magnets in the US – author).

At present, China’s rare earth processing capacity is nine times the total rare earth processing capacity of other regions in the world combined. This means that it will take at least a few years to build a processing plant that can match China’s rare earth production capacity.”

The US simply cannot replicate these core competencies in the short term by throwing money at the problem. Just the human capital problem alone will take years to overcome, if at all – for instance, no US university offers a rare earth mining major while dozens in China do.

For the US to catch up technically will take years, if not decades.

The second problem for the US is that even assuming the US can catch up technically, US and western rare earth miners are unlikely to be able to compete with Chinese producers for scale and cost.

Chinese producers dwarf western rare earth miners like MP Materials or Australia-based Lynas (the only two non-Chinese producers) in production scales today, at an order of 300 to 1 for the critical neodymium magnets (NdFeB magnets) for example.

According to MP Materials, NdFeB magnets are “the world’s most powerful and efficient permanent magnets — essential components in vehicles, drones, robotics, electronics, aerospace and defense systems.”

However, according to trade journal The Northern Miner, MP Materials expects to produce 1,000 tonnes of NdFeB magnets annually when it is fully scaled up with current processing capabilities by 2027. By contrast, China produced an estimated 300,000 tonnes of NdFeB magnets in 2024, up from 280,000 tonnes in 2023.

As the largest industrial nation, China is the world’s largest end user of refined rare earth products. China consumes over 80% of the rare earth products it produces.

Essentially China dominates both supply and demand of rare earth minerals for the foreseeable future, therefore deciding the economics of the industry such as pricing and profitability.

Western producers simply don’t have a viable economic model to support market-based competition against Chinese suppliers.

Rare earth minerals are critical to military productions, but the quantity needed is in fact quite small, compared with non-defense uses such as auto or green tech.

How long will US taxpayers subsidize for-profit private businesses like MP Materials if its only customer is Pentagon with its niche demand? Will Pentagon continue to bankroll a private business when it needs only a small fraction of the total production?

In fact, US dependency on Chinese critical mineral inputs for Washington’s war machine is not limited to rare earth and magnets. According to the Hague Center for Strategic Studies, another bottleneck mineral for the US military industrial complex is high purity graphite.

According to the Hague Center, “the US military could not function without graphite and the US currently does not produce any graphite from domestic mines. Meanwhile, China is by far the world’s biggest graphite producer at about 80% of global production. It also controls almost all graphite processing and is the dominant player in every stage of the supply chain”.

Graphite is also used widely in steelmaking, lithium-ion batteries, refractories, automobile, aerospace, electronics, and nuclear power industries.

While graphite is not a topic of much discussion at present, supply of graphite is already under strain in 2025 as new graphite mines fail to keep up with surging demand from global automakers.

Conceivably, graphite could be a future supply chain bottleneck Beijing can press in further confrontations with the US.

In short, there is no short-term or inexpensive fix to the US rare earth problems. The financial and regulatory maneuvers may deliver a partial solution but hardly enough to meet the growing demand for rare earth and other critical minerals such as graphite, where China has built a full supply chain dominance.

On the other hand, China’s approach to chip self-sufficiency is based on market economics and focused on developing the foundational capabilities for a breakthrough.

China’s approach reflects leadership’s strong engineering culture and its state/private mixed industrial economic/political system.

Vir: Hua Bin