For those who’ve ever watched or performed water polo, you recognize that matches contain two drastically totally different battles.
Above the floor, there may be 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 information facilities, high-efficiency chips and lots 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 components. And so they’re turning into an enormous downside for the U.S.
As a result of we’d 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 underneath the floor at the moment…
A chilly warfare being waged over the uncommon earth components that energy AI.
The Chinese language Choke Level
With out uncommon earth components, 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 every little thing from missile steering programs 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 at the moment.
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 Data 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 international market shares in superior industries
Supply: Data Know-how and Innovation Basis
Which implies China’s uncommon earth benefit impacts rather more than AI.
It offers them a bonus in creating robotics.
Quantum computing.
Superior protection programs.
All of the issues that may 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 crucial for missile steering programs and the radar models inside fighter jets just like the F‑35.
Every F‑35 comprises 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 staff tried to get forward of those restrictions by negotiating a restricted truce with China over important 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 underneath six-month licenses.
That left America’s protection and AI industries dangerously uncovered.
Whereas industrial magnet customers had been in a position to supply restricted portions, many had 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 programs, remained off-limits.
So what’s the U.S. doing about it?
In any case, we’ve deposits in locations like Mountain Go, 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 totally.
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 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 might 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 “Huge Fund” to bolster its home semiconductor ecosystem.
And that’s one other factor of this tech chilly warfare that the mainstream media has missed.
You hear concerning the U.S. attempting to uncouple from Chinese language supplies.
However you not often hear about the truth that China can be actively working to interchange the previous couple of items of Western know-how it nonetheless depends on.
China needs to personal every little thing from mining and refining to chip design and AI coaching. That approach it may possibly function with complete independence from U.S. or European suppliers.
It’s the logical subsequent transfer on this tech chilly warfare. 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 international provide chain.
On July 3, the Trump administration agreed to raise U.S. restrictions on chip-design software program and ethane exports, largely attributable to China’s uncommon earths embargo.
In return, Beijing promised to increase six-month export licenses for civilian supplies.
However military-grade components 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 have now 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 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 KingChief Strategist, Banyan Hill Publishing
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