Last week, the vassal governor of Australia Anthony Albanese went to the imperial court in Washington and paid tribute to King Trump in the form of a “landmark deal” for joint mining of Australian rare earth deposits. The goal is to break China’s stranglehold on these critical minerals.

Trump, in his indefinite stupidity, immediately declared that “in about a year, we will have so much critical mineral and rare earths that you won’t know what to do with them”.

Achieving Escalation Dominance – How China Alone Can Resist US Economic and Tech Blackmail
What’s good for the goose is good for the gander

HUA BIN

In Trump’s peanut-sized brain, “deal making” seems conflated with “engineering”. The mere fact of announcing a deal somehow automatically translates into factories, workers, and products.

The real world doesn’t quite work that way.

I don’t know who serves as King Trump’s court advisor on technical matters but anyone who can read the decidedly non-technical Wall Street Journal or Washington Post is able to tell you that having access to some rare earth deposits does not equate to overcoming Beijing’s rare earth export restrictions.

After all, you cannot use rare earth ore to make precision-guided missiles.

Trump’s delusional optimism is akin to some bureaucrat in Beijing announcing China has overcome US semiconductor ban because China has the world’s largest production of silicon (which it does).

Rare earth deposits are not the same as rare earth alloys and magnets – just like silicon is not the same as silicon chip.

Sophisticated processing and refinement are needed to turn raw minerals into usable industrial products – “the vitamins for high tech”.

The US and its vassals control many critical technologies that turn silicon into silicon chips, such as chip design software, chip making machinery, and foundries.

Similarly, China controls the critical technologies involved in the mining, extraction, separation, chemical leaching, refining, alloying and magnet production in the rare earth supply chain.

Rare earth processing and refining are also exceptionally hazardous to the environment as a result of radioactive byproducts and chemical waste. China is the only country that possesses the waste management technologies for the cleanup.

The industry is very capital and energy intensive that requires large upfront investment in purpose-built machinery, special chemical solvents, separation and processing facilities, massive electricity consumption, and highly specialized engineering skills, which are all controlled by Beijing.

China alone has the ability to process and refine all 17 rare earth elements, especially the 11 medium and heavy rare earth elements such as terbium, dysprosium, and yttrium. Heavy rare earth alloys and magnets are critical to advanced military systems such as jet propulsion, radar, laser, sensor, drones, and directed energy weapons.

China’s global market share for heavy rare earth elements (HRRE) is between 98% to 100%. It also happens to possess the largest HRRE deposits, most of which is located in Jiangxi Province.

China’s export control of rare earth products is complete from raw materials to alloys and magnets. It also covers processing technologies, machinery and equipment, and technical talents. For example, Chinese nationals are now banned from working for overseas rare earth projects.

And the export control is extra-territorial. Beijing is requiring any products containing Chinese rare earth or using related IPs, made anywhere in the world, must obtain approval from Beijing if they are exported to any military or semiconductor end users. Military end use requests are denied by default.

Beijing’s sweeping rare earth export control is based on the US playbook used to deny China access to semiconductor technologies.

The US Foreign Direct Product Rule (FDPR) was used to block global suppliers using any American technology such as ASML and TSMC from selling semiconductor or equipment to China.

US nationals were also prohibited from working for Chinese chip design and chip making firms. Numerous executives and technical experts with US passport or green cards were forced to exit from Huawei, SMIC, and YMTC back in 2022.

The chip ban is designed to kneecap China’s technological progress and Beijing has now reciprocated with its own chokehold to block the military and semiconductor advancement of the US and its vassals.

Let’s go back to the rare earth deal Trump announced with Albanese. The pact involves a $8 billion joint investment in Australian rare earth mining and production.

However, without technical know-how and talent pool, the best to hope for is some limited production capacity for light rare earth products 3 to 5 years down the road, if not longer.

In one year, Trump still needs to go on his knees begging for rare earth alloys and magnets from President Xi.

The Pentagon has already funded a domestic rare earth production project with MP Materials, a rare earth mining company that used to ship its ore to China for processing since it didn’t have the technologies.

Other projects include Lynas Mining, another Australian rare earth miner and famous for being the only non-Chinese producer that operates a vertically integrated supply chain.

However, all the non-Chinese rare earth production projects, by their own production plan, cannot produce more than 5% of current Chinse production in the next 5 years. And this is assuming all goes according to plan and tens of billions are invested.

Interestingly, unlike the global semiconductor market with its hundreds of billions of dollars in annual sales, the rare earth market is actually miniscule in dollar value – estimates by mining research firms put the total global market at $4 to 5 billion in 2024.

Considering China consumes 60% its rare earth production, total dollar demand outside of China is less than $2 billion a year. Rare earth export represents less than 0.01 percent of China’s $3.5 trillion annual export.

Even the Pentagon, which is heavily reliant on rare earth for its advanced weapon systems, spends less than 0.1% of its annual procurement on rare earth products.

This gives China a huge advantage over any potential competitors. The economic cost and benefit analysis just doesn’t make sense for commercial firms to engage in large scale investment to recreate the wheel.

Take the US-Australia joint project of $8 billion investment for example. Let’s be generous and assume everything goes by plan and the joint venture can capture 10% global market share in 5 years’ time.

That 10% share still represents less than $1 billion revenue by 2030, as forecast for demand growth between now and 2030 ranges only between 8 to 12% per annum.

And let’s assume the joint venture enjoys a 50% net profit margin (far above the dominant Chinese producers), which translates to less than $0.5 billion in net earnings.

How many profit-driven commercial firms are willing to invest $8 billion today for an earning potential of $500 million in 5 years’ time? And this is assuming all goes according to plan with no technical glitches, budget overrun, and with guaranteed profit margin. We haven’t even added the billions needed for environmental cleanup.

In contrast, China imported $400+ billion dollars’ worth of semiconductor chips annually in the early 2020s. The US export ban basically gave the world’s largest chip market to Chinese domestic producers on a silver platter.

Although hundreds of billions of dollars would be required for Beijing to invest in semiconductor technologies, the return is equally enormous.

The asymmetrical risk and return of rare earth investment vs. the symmetrical risk/return of semiconductors means that China is much more incentivized to break its semiconductor chokehold than the west with rare earth.

This is escalation dominance. China can match whatever moves the US comes up with and raise the stakes further.

Many people call Trump TACO. But to be fair to Trump, the only country able to make him TACO is China.

When Trump put EU and India to the squeeze, they voiced their displeasure and made empty gestures but both capitulated and bent the knee. EU swallowed the unequal trade deal and India pledged not to buy Russian oil to get reprieve from the 50% tariff.

Trump is not a particularly acute leader, but he does know how to coerce and twist the arms of those in weak positions. And he gets his way most of the time.

The only exception is China. Beijing doesn’t just produce angry sound bites. It has punched back at the bully. Trump TACOs to China because Xi is stronger and Trump bows to strength.

Beijing has reciprocated every hostile US trade and tech salvos –

• It has put out an “Unreliable List” against US “Entity List”
• It has imposed export control on rare earth in retaliation of chip ban
• It’s imposing export controls in lithium ion batteries and graphite anode in retaliation of US threats on jet engines and computer software
• It has imposed port fee on US-operated and owned ships, fully reciprocal to US measures against Chinese shippers and ship-building industry
• It has stopped buying US farm and energy products from soybean, corn, beef to crude oil and LNG in retaliation of US tariffs
• It has launched anti-trust investigations against Qualcomm and Nvidia in response to the Section 301 investigations against Chinese firms
• It is also dumping US Treasury as the US threatens financial warfare

China is doing all this from a position of strength. China’s economy grew 5.2% in the first three quarters of 2025; its total exports grew 8% despite a 27% decline in export to the US; China’s stock market went up by 34% year to date, double that of the US.

US trade now accounts for less than 10% of China’s export. And there are few things Beijing needs from Washington.

China will generate over a trillion dollar in trade surplus this year. It has the world’s largest foreign reserve at over $3.3 trillion and has the largest gold holdings. The US has $38 trillion in debt.

There are many economic levers Beijing has not even used in the trade war so far –

• Its 60-80% global share in key starting materials (KSM) in drug industry
• Its 40-60% share in active pharmaceutical ingredients (API)
• Its 80% dominance in global generic drugs and over 90% dominance in anti-biotics
• Its leading share in a wide range of critical minerals from graphite, cobalt, aluminum, copper, lithium, to artificial diamonds
• Its leading position in numerous industries and product categories

China’s strengths are built on its role in the global supply chain for critical products modern life relies on.

Trump and his lackeys believe the US can dictate terms to the world because the Americans consumer the most.

But in a world where the nation with the stuff goes to war with the nation with the paper money, guess who will win?

People downstream live at the mercy of people upstream. It is a simple and intuitive truism that somehow exceeds Trump’s cognitive grasp.

When historians look back at the trade and tech war between the US and China, they’ll be reminded of the pathetic case of Tonya Harding, an American ice skater who tried to win by hiring someone to break the legs of her competitor.

In the end, she was banned from professional skating for life and stripped of her gold medal.

Her fellow compatriots are again trying to pull the same nasty trick on their perceived nation state rival. The result will be the same blowback. All they will have to show for it will be a black eye and a bleeding nose.

https://www.unz.com/bhua/achieving-escalation-dominance-how-china-alone-can-resist-us-economic-and-tech-blackmail/

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