Academy SITREP – Geopolitics of Rare Earth Elements
- This SITREP is a follow-up to our 2021 report (Rare Earths – A National Security and Environmental Threat) and our semiconductor-focused piece from earlier this year (World War v3.1).
- Last week, China said that it would impose export restrictions on gallium and germanium products used in computer chips and other components.
- This move was likely in retaliation for U.S. curbs on sales of technologies to China and it raised the concern that at some point in the future, China could limit exports on other rare earths that it produces.
- China recently accounted for 70% of global mine production of rare earths and at least 85% of the world's capacity to process rare earths into a form that can be used in manufacturing.
- As a result, according to a DoD spokesperson, “the Department of Defense has begun taking steps using Defense Production Act Title III authorities to increase domestic mining and processing of critical materials for the microelectronics and space supply chain, including gallium and germanium.”
- As Academy’s Head of Macro Strategy Peter Tchir stated in his most recent T-Report (The Battle for Rare Earths and Critical Minerals Heats Up), China figured out several years ago that rare earths and critical minerals (both their extraction and their processing) would shape the future of global trade and relationships. If the past few decades were shaped by petroleum products, the future will be shaped by these rare earths and critical minerals.
“The recent actions by China to potentially restrict U.S. access to germanium and gallium are just the latest developments in the escalating U.S./China tech war. Gallium is used in the U.S. military’s technically unmatched advanced electronically scanned arrays (AESA). Under the Trump administration, China finally “woke up the U.S. sleeping giant” with its IP theft, forced tech transfer, state subsidies, and unfair trade practices. The Biden administration is tightening export controls that choke China off from highly advanced chips used in artificial intelligence and supercomputing as well as in modern weapons systems.
Secretary Yellen may have said that the U.S. has no intent to decouple the two economies, but the U.S. is on a path to decouple from China in key areas by keeping high-end tech off of the trade table. Recent U.S. restrictions on advanced chips and equipment, a potential new regulatory system, China’s new Counterespionage, Anti-Monopoly, and National Security laws, and crackdowns on consulting and due diligence firms have let the “tech-war genie” out of the bottle.
China’s intent to dominate the globe in AI and semiconductors by oversupplying and killing off competition began years ago with its “Made in China 2025” strategy. At the same time, they were executing their plan to control the world’s rare earths and critical minerals used in the growing tech sector and in military sensors/weapons. China’s control of these rare minerals gives Beijing the power to disrupt U.S. semiconductor manufacturing, AI development, and the defense industry (especially considering its battery powered energy transition). Restricting the minerals needed in semiconductors and AI should bring back memories of the 1973 Arab oil embargo. Xi is now actively advancing this agenda on his own terms.” – General Robert Walsh
“The competition for and access to rare earth elements can most simply be defined by the relationship between the U.S. and China. China is the largest supplier of rare earths, but it is struggling with an increased domestic demand for these minerals which will over time reduce China’s dominance in the market. Other suppliers are necessary. If nothing else, this inevitable shift should shape Washington’s policy toward Beijing. Until the U.S. can address this need, (economically) the U.S. “needs China more than China needs the U.S.” Rare earths are integral to the market. Tech advances, military modernization, climate mandates, and commercial EV manufacturing (just to name a few areas) create competition. The purpose of Washington’s need to have predictable access to rare earths is clear. The questions that remain unanswered are where the rare earths will come from and how will they get to the industrial base. While the pandemic accelerated the false narrative of “the death of globalization,” it did highlight its vulnerabilities.” – General Spider Marks
“The competition with China continues to heat up in Africa (with Japan, Australia, the EU, and the U.S.) as Africa potentially has the largest mineral reserves in the world. Rare earths have now become critical for economic security, so I expect to see more investment in Africa as countries work to decrease their dependence on China as the dominant global supplier.” – General K.K. Chinn
“China will continue to try to achieve an increased position of strength and leverage. Just as they have used chips and “Made by China,” they will try to leverage precious metals and rare earths. I do not see this as a change, just a continuation of their aggressive posturing to gain world influence/dominance.” – General Mastin Robeson
“As we addressed on our latest ESG report, another area of diplomatic & military action is in deep sea mining. While nascent, the global energy transition has accelerated the need for rare earth minerals. Ocean floor mining has not been a viable economic option due to a combination of technology, cost, and regulatory issues. Norway’s announcement that it is submitting plans to develop an extraction area located throughout the Greenland and Norwegian Sea could inspire accelerated interest in other parts of the world and drive diplomatic & military tensions. Two likely examples of this would be the Arctic and East China Sea.” – Mike Rodriguez, Academy Head of ESG