Guest Post by Nick Giambruno via International Man
“We’re going to war in the South China Sea… There’s no doubt about that.”
Steve Bannon – previously one of President Trump’s closest political advisers – said these words shortly after Trump became president. He was referring to military conflict between China and the US… one that would likely be the biggest war since WWII.
While these words might seem like hyperbole to many, they touch on something important… arguably the biggest story for the next generation.
Watching the mainstream media circus covering Trump and China gives the impression that once the two sides reach a trade agreement, it will be back to business as usual. But that view completely misses the Big Picture…
The trade war between the US and China was always just a sideshow of a much bigger issue: Who will be the world’s dominant power?
It will be China, or it will be the US.
It can’t be both.
Could the US ever accept being No. 2? We won’t have to wait long to find out.
That’s because China is on the path to having double the US’ GDP by 2030.
The situation will soon reach a tipping point.
The US finds itself in the same position that previous established powers did as they were challenged by rising powers. Many of these countries found it preferable to strike while the rising power was still relatively weak, as they had a greater chance of prevailing than if they waited.
This dynamic is called “Thucydides’ Trap.” It’s named after the Athenian historian Thucydides, who observed this dynamic in Ancient Greece.
Graham Allison, a professor at Harvard, has studied 16 cases of Thucydides’ Trap throughout history. In 12 of them – 75% of the time – the result was war.
War between the US and China is not inevitable. But if history is any guide, there’s an excellent chance – say, 75% – that Steve Bannon will be proven correct soon.
One thing I’m sure of is that the mainstream financial media are wrong about the trade war. Even if some sort of deal is worked out, it will do nothing to resolve the larger problem of Thucydides’ Trap.
China’s rise is a Big Idea… arguably the Biggest Idea of our time.
Lee Kuan Yew, the former leader of Singapore, put it like this:
The size of China’s displacement of the world balance is such that the world must find a new balance.
It is not possible to pretend that this is just another big player. This is the biggest player in the history of the world.
Rising tension between the US and China is a trend you can bet on, regardless of what happens in the trade war. I think it’s a near-certainty. And it presents an opportunity for savvy investors.
You see, China has an ace up its sleeve… and as tensions between the US and China escalate, it will be forced to play this card. That will send this one industry soaring, potentially 10-to-1 overnight.
And it all has to do with a special group of metals no one’s talking about…
Rare Earth Elements
A consequence of the China-US rivalry is the near-certainty rare earth elements (REEs) will come into play.
REEs are 17 elements mostly clumped together at the end of the periodic table with atomic numbers 21, 39, and 57 to 71.
For example, erbium amplifies light and is used in fiber optic cables.
Gadolinium is used in X-rays and MRI machines.
Neodymium is used in cell phones and laptops.
Europium is used in lasers and fluorescent lights.
Most people have never heard of these obscure elements, but they are absolutely essential to modern life.
They’re used to make crucial components for advanced electronics like iPhones, electric cars, flat-screen TVs, computers, and sophisticated military equipment – like guidance systems, drones, anti-missile systems, radars, and fighter jets.
The screen you are reading this on relies on REEs.
There is no substitute for REEs in advanced electronics. The US military and US consumers are wholly dependent on them.
And China has a virtual monopoly in the space. It produces around 90% of global REE supplies. It also produces nearly all of the world’s more valuable heavy rare earths.
Separating REEs from ore is toxic, expensive, and dangerous to the workers. China has fewer environmental regulations and therefore disregards environmental and labor safety concerns in a way that other countries cannot. This lets it produce REEs at a much lower cost than its competitors.
Further, Beijing subsidizes the industry. It’s unknown exactly how much China subsidizes its REE industry (as it’s notoriously opaque), but it’s clear the Chinese government considers the industry a national priority… and will pour as much money into it as needed.
In short, lack of environmental and employee regulations… along with a big subsidy… are how China achieved dominance in the REE business. As Chinese leader Deng Xiaoping once said, “The Middle East has oil. China has rare earths.”
That’s why, as we can see in the graphic below, there is only one operable dedicated REE mine in the entire world outside of China. Other non-Chinese mines are years away from production. In other words, there is no alternative to China in the short term.
How to Profit From “Thucydides’ Trap”
Even a whiff of the possibility that China could restrict REE supplies would send prices soaring.
We know this because it’s happened before… and it triggered one of the most spectacular booms in recent memory.
Back in 2010, a Chinese fishing vessel was sailing in disputed waters when it collided with Japanese coast guard patrol boats. The collision happened in waters claimed by both Japan and China.
The Japanese arrested the Chinese captain. China demanded his release, but Japan refused.
This sparked a major diplomatic dispute between the two countries. In retaliation, China abruptly cut off all REE exports to Japan. It also cut global exports by 40%.
The average price of REEs skyrocketed by over 20 times.
Over the next couple of months, companies in the industry went up many times higher.
This one incident caused a veritable mania in REE stocks that lasted for nearly a year.
That scuffle between China and Japan showed that China is ready to use its REE monopoly as a weapon to get what it wants…
And we know what happens when China uses it.
Fast-forward to today…
As tensions between the US and China escalate, it’s only a matter of time before the REE card gets played again. And this time, I expect it to be even more dramatic than the previous boom.
Recent events suggest it could be imminent.
If you’ve been anywhere near a radio… computer… or television since the summer of 2016, when then-presidential candidate Donald Trump first laid out his plans to battle China’s “unfair” trade policies, you know the basics of the trade war.
It’s the most urgent aspect of the US-China confrontation right now.
As you may have seen in the news, the trade war is spiraling out of control as each side escalates the conflict.
With the context of the trade war and Thucydides’ Trap in mind, China has stated loud and clear that it won’t hesitate to play the REE card.
Threats to restrict REE supplies have been plastered across Chinese media recently.
Further underlining the message, in May President Xi made an unusual visit to a state-supported complex in Ganzhou, which is known as the “Kingdom of Rare Earth” for its rich REE deposits.
It’s not every day that China’s No. 1 shows up at a dirty mine in the middle of nowhere. The timing of the trip was no accident. It was meant to send a message to the US.
As tensions rise, China will inevitably play the REE card and act to restrict supplies, just as it has done in the past. That will send REE prices – and the shares of REE companies – to the moon.
Given recent and unprecedented developments, that could happen imminently. The time to get positioned for big profits is now.
The best way to get exposure to rising REE prices is to invest in shares of REE-related companies.
Bottom line, China-US tensions are destined to get worse as the trade war and Thucydides’ Trap play out.
REEs are going to come into play during this confrontation, and that is going to be bullish for REE prices… and the companies involved.
Editor’s Note: The rivalry between the US and China is getting intense. The battle for who will be the world’s top power is playing out right before our eyes.
It could all lead to a complete economic collapse, unlike we’ve seen before. That’s why we’re sharing our field guide to Surviving and Thriving During an Economic Collapse. Click here to download your free PDF copy now.
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The reason for the current situation is US law. It is impossible to mine rare earth minerals in the US because the law made it so.
Change the law and RE mining will commence. Along the way, Thorium will be a by product and if there’s any common sense left in the US, it will be used in LFTR reactors (aka MRS) to displace that evil ‘fossil fuels’ that’s currently keeping us all alive.
The bulk of the US population is completely ignorant concerning Thorium reactors and how they could supply ALL the power the US needs for the next 100 years just by using what’s currently buried in barrels inside shipping containers in the Nevada desert.
Proof please.
YouTube – Search for James Kennedy
While you’re at it, get an education on Thorium as a safe nuclear fuel in a completely different reactor design – look up Kirk Sorensen
Donkey – he is full of shit. They can mine rare earths, but China was cheaper.
A huge portion of cost of anything in the united States is the vast amount of regulation an industry has to comply with. Nuke Reactors are no exception. Hell the u.S. has virtually regulated new oil refineries out of existence. Since TMI only 2 reactors have been approved for operation in the united States. Both of those reactors are in GA and they got approved to go online 2016.
Lastly, you can’t import electricity from China! LOL!
Bottom line, get the government out of regulating everything, right down to the underwear you can buy (/scar) and watch the cost of doing business go down to market norms.
While the Chinese may overlook the atrocities committed by Mao they have never forgotten the atrocities inflicted by the Japanese on the Chinese people during WWII. They would like nothing more than to destroy Japan. As to the United States w/ a population of 335 million, the Chinese would happily sacrifice that same number of Chinese citizens being that many less mouths to feed. It would come as no surprise to me if American hubris destroys us all.
China has the U.S. by the balls. The federal government is not a business. It doesn’t produce anything of value to sell. It makes money to operate two ways. It levies taxes (most of which it returns to the wealthiest few through tax breaks) and by selling treasury bonds. A full 29 percent of the debt on those bonds is held by foreign entities. Who holds most of that paper? Why, it’s China, at a whopping $1.18 trillion. All they need to do is call in that debt and there’s not enough gold in Fort Knox to cover it. Game over.
Duck – they cannot call in that debt. And it sure as hell is not backed by gold. That shows your extreme ignorance. Seriously, get a fucking clue. But they can flood the market by dumping it.
Llpoh,
T bonds are backed by the U.S. Government. And what does the government consider to be a fungible asset? My comment was somewhat metaphorical, pointing out that we have an interest in a cooperative rather than a confrontational approach to China.
What prompts you to be so abrasive and hateful in your response? You curse at and demean me as though I’d personally insulted you. Do you treat people that way in person?
Because you were a moron. Grow a pair and stop being such a pussy. You said that treasuries are backed by gold and that China can call in the debt. Both those are incorrect. If you want to make the point you made in your second comment, then do that. But around here if you say something so blatantly ridiculous as you did, you will find you get kicked in the nuts more often that not.
I was gentle with you. You are just too new to realize it. I didn’t really curse you, and you demeaned yourself with that stupidity. I hate it when people try to put forth narratives with fake facts. Want to build a narrative? Use actual facts to support it.
Again you insult me. You’re right that I’m new to this, but I’m old enough to remember when public discourse included some level of kindness and respect for one another. I had hopes for the Internet that it would become a platform for the respectful exchange of ideas. It has assumed the clownish, toxic character of professional wrestling.
I guess I could have said, “gee, Mr Duck, but please look up your facts on T-Bills, I think maybe you are a little bit off on that, but we really do appreciate you posting, it was so nice to hear from you!” Nah.
We do not give ribbons for being a dumbass, no trophy for finishing last, and I could not give a shit about your feewings, either. If you are going to post around here, you need to toughen the fuck up. Or you will be plucked, Mr Duck, for sure and certain.
BTW – how the hell did you find this site? Not like it is advertised on Sesame Street. Do you not look around a site a bit before you start posting, or do you just jump right in with stupid comments every time, and hope to find like minded dullards? This is not that site.
I found this site through a referral from an article elsewhere. I’ll just move on and leave you all to your smug gracelessness.
Duckman,
You might not think so at the moment, but Llpoh is giving you some good advice.
I am a relative newcomer here myself. I had read TBP on a frequent, but not daily basis for years before deciding to make it a daily read.
I spent the next six months reading both the articles and the comments daily just to get a flavor of it all before making my first comment.
Even at that, I fucked up a few times and got my ass chewed for my mistakes. This place takes no prisoners.
TBP is very different from any other site on the Internet. Admin gives us free and unrestrained access to express ourselves, but that also comes with a warning. If you decide to jump into the fray here, you had damned well better know what you are talking about, have a thick skin, and be able to defend yourself.
I have been a regular for about three years now and have not only survived, but admin has even given me posting rights for my own articles. I wrote one in September about this place being like a big family that might be of some help to you. You can find it here.
I hope you will stick around, but understand the what and where of this place. It’s different, but it is oh so worth it.
doG I love this place!
Thanks for the advice, but I’d sooner attend a cockfight for entertainment.
Steve – the strong, like you survive, and add benefit and contribute.
The ducks get plucked and run away.
Glad you stayed, and very nice comment.
Too bad you don’t all live in the same clearing. You could sit in a circle and check one another’s coat for ticks.
That’s the spirit. Now you’re getting it.
Stick around. This place takes some getting used to, but it’s worth it.
Best to ignore the abusers in my opinion. They hope to get a rise out of you. Just say what you want with in reason and when someone bashes you or what you have to say, well just ignore the f out of it! Some people just hate being ignored! LOL!
None – no one really abused Pluckaduck. He was an idiot, then came out all butthurt by the colorful descriptive language.
Good advice there, None Ya. Lee Pooh had a point about a less than steller comment I made. He’s just a bore. I’m not thin skinned and I’m not an idiot. I just prefer a respectful approach. I even wait until I get off the elevator to fart. There’s interesting reading here. I’ll be more careful.
Glad you are staying. Really. We need new blood. Just don’t be surprised when you get snapped at. Try it, you may find you like it. This is the Wild West, and you do not need to worry about hurting anyone’s feewings around here. It really is quite refreshing. But the debates can be brutal, and fools are not suffered.
Welcome.
I have previously said that if China wants to bend the US over, rare earths was the way to do it. And so it still is. The US has lost a year or so by not starting up rare earth production, unless it is happening and I missed it.
Back about 4-5 years ago, Casey Research had a list of young, up-and-coming people to keep your eye on, if mining company investments were of interest.
One such was a guy named Amir Adnani, if not mistaken.
He is (or was) a principal in Uranium Exploration Company, I believe based in Texas.
The stock price has moved sideways since 2015. Between $0.88 and $ 1.61 / share.
The attraction of uranium was supposedly the scarcity, and the allure of nuclear power plant construction as a solution for clean power, not withstanding Fukashima, and Merkel’s gang closing down all the reactor plants in Germany.
Not sure what that all means, in relation to this post / comments, but food for thought.
If China has the Rare Earth market cornered, as reported by Casey’s team when I read it, and backed up by your comment here, Loop, I’m a bit curious why UEC stock prices haven’t climbed in value, but not curious enough to do a deep dive / dig into it, for current status. Hmmm.