If you happen to’ve ever watched or performed water polo, you recognize that matches contain two drastically completely 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 gained’t be achieved by algorithms alone — that’s simply the battle occurring above the floor.
You additionally want infrastructure, together with superior information facilities, high-efficiency chips and plenty of specialised {hardware}.
And you may’t construct any of this and not using a 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 changing into an enormous downside for the U.S.
As a result of we’d presently 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 at present…
A chilly struggle 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 permit high-efficiency motors to spin. They make superior sensors work.
And maybe most significantly, they’re what goes into the everlasting magnets utilized in all the pieces from missile steerage techniques to the cooling followers in AI accelerator racks.
Over 70% of worldwide 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 worldwide 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 at present.
In any case, China didn’t turn into dominant in uncommon earths by chance.
This has been a 30-year technique…
One which concerned huge subsidies, tightly managed home demand and environmental sacrifices few democracies would settle for.
In line with the Data Expertise and Innovation Basis, thanks largely to its vertical integration of commercial provide chains, China now leads in 7 out of 10 superior industries globally.
China’s world market shares in superior industries
Supply: Data Expertise and Innovation Basis
Which implies China’s uncommon earth benefit impacts rather more than AI.
It provides them a bonus in creating robotics.
Quantum computing.
Superior protection techniques.
All of the issues that can outline financial and army 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 steerage techniques and the radar items inside fighter jets just like the F‑35.
Every F‑35 incorporates about 920 kilos of uncommon earth supplies.
With out them, constructing or repairing these jets turns into much more troublesome.
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 business magnet customers have been capable of supply restricted portions, many have been pressured 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 techniques, remained off-limits.
So what’s the U.S. doing about it?
In any case, we’ve got deposits in locations like Mountain Cross, California and Spherical Prime, 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, america’ largest home producer, nonetheless sends its output to China for closing processing.
That’s like drilling for oil in Texas, then transport it abroad to be refined into gasoline.
The Pentagon is making an attempt to repair this. It’s funding magnet manufacturing vegetation 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 gained’t come on-line till 2026 or later.
By then, China might have even tighter management over the market. It’s already investing closely in its personal AI infrastructure, together with a $50 billion enlargement of its “Massive Fund” to bolster its home semiconductor ecosystem.
And that’s one other factor of this tech chilly struggle that the mainstream media has neglected.
You hear concerning the U.S. making an attempt to uncouple from Chinese language supplies.
However you not often hear about the truth that China can be actively working to exchange the previous couple of items of Western know-how it nonetheless depends on.
China desires to personal all the pieces from mining and refining to chip design and AI coaching. That means it could function with whole independence from U.S. or European suppliers.
It’s the logical subsequent transfer on this tech chilly struggle. 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 exhibits you that in terms of uncommon earth minerals, China has all of the leverage.
Certain, the U.S. leads in foundational AI analysis. We’ve got higher chips, stronger alliances and our authorities is clearly conscious of the dangers we face right here.
But when we need to win the race to ASI, we’ve got to construct an industrial base that matches our ambition.
In any other case, we’d crack the ASI algorithm, however China will personal the machines that run it.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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