In case you’ve ever watched or performed water polo, you already know that matches contain two drastically totally different battles.
Above the floor, there’s fluid movement and easy passing.
However beneath the floor, there’s grabbing and kicking and fixed positioning for management.
That’s additionally occurring with the worldwide race to succeed in synthetic superintelligence (ASI) first.
As a result of ASI received’t be achieved by algorithms alone — that’s simply the battle happening above the floor.
You additionally want infrastructure, together with superior knowledge facilities, high-efficiency chips and lots of specialised {hardware}.
And you’ll’t construct any of this with no small group of minerals with names most individuals have by no means heard of… and even pronounce.
Neodymium… dysprosium… terbium… samarium.
They’re referred to as uncommon earth parts. And so they’re turning into a giant drawback for the U.S.
As a result of we would at the moment lead the race to ASI, however China dominates almost each step of the uncommon earth provide chain.
That’s the battle unfolding below the floor right now…
A chilly conflict being waged over the uncommon earth parts that energy AI.
The Chinese language Choke Level
With out uncommon earth parts, trendy AI {hardware} would grind to a halt.
They’re what enable high-efficiency motors to spin. They make superior sensors work.
And maybe most significantly, they’re what goes into the everlasting magnets utilized in the whole lot from missile steering methods to the cooling followers in AI accelerator racks.
Over 70% of world uncommon earth mining occurs in China.
However China’s actual leverage is in processing, the place the nation controls as a lot as 90% of world refining capability.
Distribution of uncommon earths manufacturing worldwide as of 2024, by nation
Supply: statista.com
It’s a strategic vulnerability for the U.S. — and we’re not innocent for the predicament we discover ourselves in right now.
In any case, China didn’t change into dominant in uncommon earths by chance.
This has been a 30-year technique…
One which concerned large subsidies, tightly managed home demand and environmental sacrifices few democracies would settle for.
In response to the Info Know-how and Innovation Basis, thanks largely to its vertical integration of business provide chains, China now leads in 7 out of 10 superior industries globally.
China’s world market shares in superior industries
Supply: Info Know-how and Innovation Basis
Which suggests China’s uncommon earth benefit impacts far more than AI.
It offers them a bonus in creating robotics.
Quantum computing.
Superior protection methods.
All of the issues that may outline financial and navy energy within the twenty first century.
And China is utilizing this benefit as a geopolitical bargaining chip.
Like when Beijing imposed new licensing restrictions on uncommon earth exports in response to Trump’s proposed tariffs.
Particularly, China blocked shipments of heavy uncommon earths like samarium, which is important for missile steering methods and the radar models inside fighter jets just like the F‑35.
Every F‑35 accommodates about 920 kilos of uncommon earth supplies.
With out them, constructing or repairing these jets turns into much more tough.
Again in June, President Trump’s commerce workforce tried to get forward of those restrictions by negotiating a restricted truce with China over vital tech exports.
The U.S. agreed to ease sure export restrictions on superior chip design software program and choose petrochemicals like ethane throughout these negotiations.
In return, China dedicated to resuming some uncommon earth exports…
However just for civilian use, and solely below six-month licenses.
That left America’s protection and AI industries dangerously uncovered.
Whereas industrial magnet customers have been in a position to supply restricted portions, many have been compelled to pay a premium of as much as 30% for non-Chinese language provide.
And military-grade supplies, particularly the high-purity samarium magnets utilized in precision weapons methods, remained off-limits.
So what’s the U.S. doing about it?
In any case, we’ve got deposits in locations like Mountain Go, California and Spherical High, Texas.
However even when we mined them utterly, it nonetheless wouldn’t cowl our wants.
And refining them? That’s one other story completely.
MP Supplies, the US’ largest home producer, nonetheless sends its output to China for remaining processing.
That’s like drilling for oil in Texas, then transport it abroad to be refined into gasoline.
The Pentagon is attempting to repair this. It’s funding magnet manufacturing crops in Oklahoma and pushing for uncommon earth refineries in Louisiana and Nebraska.
Congress has additionally proposed tax credit to spice up home magnet manufacturing.
However most of those initiatives received’t come on-line till 2026 or later.
By then, China may have even tighter management over the market. It’s already investing closely in its personal AI infrastructure, together with a $50 billion growth of its “Massive Fund” to bolster its home semiconductor ecosystem.
And that’s one other aspect of this tech chilly conflict that the mainstream media has ignored.
You hear in regards to the U.S. attempting to uncouple from Chinese language supplies.
However you hardly ever hear about the truth that China can also be actively working to switch the previous few items of Western expertise it nonetheless depends on.
China desires to personal the whole lot from mining and refining to chip design and AI coaching. That manner it may well function with whole independence from U.S. or European suppliers.
It’s the logical subsequent transfer on this tech chilly conflict. And it’s why provide chains now matter as a lot as semiconductors.
Right here’s My Take
Final week was one other reminder of how fragile our place is on this high-stakes world provide chain.
On July 3, the Trump administration agreed to raise U.S. restrictions on chip-design software program and ethane exports, largely as a consequence of China’s uncommon earths embargo.
In return, Beijing promised to increase six-month export licenses for civilian supplies.
However military-grade parts like samarium? They’re nonetheless off the desk.
It reveals you that with regards to uncommon earth minerals, China has all of the leverage.
Certain, the U.S. leads in foundational AI analysis. We’ve higher chips, stronger alliances and our authorities is clearly conscious of the dangers we face right here.
But when we wish to win the race to ASI, we’ve got to construct an industrial base that matches our ambition.
In any other case, we would crack the ASI algorithm, however China will personal the machines that run it.
Regards,
Ian KingChief Strategist, Banyan Hill Publishing
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