# China Found Something Better Than Oil Maxinomics · 2026-09-11 This episode explains how China built a 94% monopoly on magnet rare earths—99% on samarium—deliberately rather than by geology, tracing the 1995 sale of General Motors' Magnequench division to firms tied to Deng Xiaoping's son-in-laws. It covers how the 1983 neodymium magnet from GM and Hitachi Metals shrank motors in AirPods, EVs, and Tomahawk missiles, and how the Mountain Pass mine shut down after thorium spills made US refining unviable. It lays out China's four-step playbook: cheap state loans, export caps that quadrupled world prices, extracting know-how from foreign firms, then flooding markets to kill new mines. It ends with the April 4, 2025 samarium export ban and the Pentagon's countermove—take-or-pay deals guaranteeing $110 per kilogram for 10 years while Mountain Pass reopens with a Texas processing facility. ## Questions this episode answers ### How did China build its rare earth monopoly? Speaker 1 describes a four-step pattern: cheap state bank loans and free land to build at home, then export limits that split prices between cheap domestic and quadrupled foreign rates, then waiting while foreign firms hand over drawings and recipes to Chinese plants, then reopening the door at prices that kill new competitors. [14:26](https://maxinomics.podhood.com/5cf887e2-fc1d-442c-9b2c-c9bcde1a3b87?t=866000) ### Why is samarium so important to the US military? Speaker 1 explains samarium-cobalt magnets cut the heat problem by 95%, keeping missile fin magnets strong under the heat generated when electricity holds a Tomahawk's fins in position. China holds a 99% monopoly on samarium, which takes about a third more steps and costs 12 times more to refine than neodymium. [20:18](https://maxinomics.podhood.com/5cf887e2-fc1d-442c-9b2c-c9bcde1a3b87?t=1218000) ### What happened when GM sold Magnequench in 1995? Speaker 1 says Sexton bought Magnequench, a critical military magnet supplier, after GM hit financial trouble. Documents are scarce and the purchase appears rushed, but two Chinese companies owned 62% of Sexton, and their owners were both son-in-laws of Deng Xiaoping. [6:51](https://maxinomics.podhood.com/5cf887e2-fc1d-442c-9b2c-c9bcde1a3b87?t=411000) ### Why did the Mountain Pass mine shut down? Speaker 1 says refining rare earths was a dirty business: over 12 years the waste pipeline ruptured more than 60 times, spilling almost a million gallons of toxic water carrying radioactive thorium across 14 miles of desert, bringing lawsuits, fines, and bad press that effectively ended US rare earth processing. [11:05](https://maxinomics.podhood.com/5cf887e2-fc1d-442c-9b2c-c9bcde1a3b87?t=665000) ## Key moments - **[0:00] Why magnets matter** - [0:00] A battery, copper coil and magnet make the world's simplest motor — and explain why rare earths matter - [0:55] China controls 94% of magnet rare earths, and every US missile needs at least 12 of them to steer - **[1:10] How motors work** - **[2:07] Neodymium changes everything** - [2:17] How a permanent magnet plus an electrified copper coil creates rotation — the entire modern electric world in one interaction - [3:37] From samarium-cobalt radar magnets to GM and Hitachi Metals' 1983 neodymium magnet, three times cheaper and more powerful - **[4:16] Deposits everywhere** - [5:11] Neodymium magnets halved GM starter motors and shrank everything from hard drives to EVs — 96 cents of every rare earth dollar flows into magnets - **[6:50] Selling Magnequench** - [7:01] Rare earths aren't rare: Mountain Pass in California is one of the richest deposits ever found, two hours from Las Vegas - **[8:31] Separation problem** - [10:38] GM sold Magnequench, a critical US military magnet supplier, to Chinese companies 62% owned by Deng Xiaoping's sons-in-law in 1995 - **[11:24] Dirty business** - **[13:10] China's playbook** - [13:42] Separating rare earths is like sorting identical twins: hundreds of chemical passes nudge neighboring elements apart bit by bit - **[16:45] Missiles and samarium** - [17:37] Mountain Pass spilled nearly a million gallons of thorium-laced water from 60 pipeline ruptures, ending US rare earth processing - [19:30] China's Baotou mine has the same toxic thorium waste as Mountain Pass, but lawsuits there are a feature, not a bug - **[21:30] Crossing the line** - [21:30] China's four-step monopoly playbook: cheap state loans, export caps, waiting out competitors, then flooding the market at ruinous prices - [23:40] Foreign companies handed magnet recipes to Chinese plants to survive export caps — paying to give away their own know-how - **[24:07] Breaking free** ## Speakers - **Phil Andrews** (host) ## Mentioned China Northern Rare Earth Group (company), China Rare Earth Group (company), General Motors (company), Hitachi Metals (company), Magnequench (company), Sexton (company), AirPods (product), Mountain Pass (product), Tomahawk (product), iPhone (product) ## Transcript ### Why magnets matter **Phil Andrews** [0:01] A simple coil of copper wire, one battery, one magnet. This is the world's simplest motor. It will spin until this battery runs out, quietly, smoothly, while generating very little heat. What's widely misunderstood is that this is why rare earth minerals are so critical: they are how we create magnets. Take a hunk of metal, melt it down, add one of the magnet rare earth metals to it, let it cool, and you've performed something close to magic: you've transformed it into a permanent magnet. Irreplaceable, because there's nothing on Earth that generates as much force as magnets yet weighs so little. AirPods have 6 magnets, iPhone 40 laptops at least a dozen. The reason electric cars work is because there's 12 pounds of it in the motor. There are at least 12 rare earth magnets in every missile the U.S. military uses. That's how they steer. So if you wanted to hurt a country, to put their businesses in a bad spot, hurt their military, then these are the rare earth minerals to make sure they can't get their hands on. Something only one country can do. Because one country controls 94% of all magnet rare earths. When people say China has a monopoly on rare earths, this is what they're talking about, and what the world is now scrambling to overcome. This video is sponsored by Zocdoc. More on them later. A magnet already has a field around it, an invisible bubble of push and pull. A plain copper wire does not. But send electricity through that wire, and for as long as the current is flowing, the wire grows a field of its own. ### How motors work **Phil Andrews** [1:23] It becomes a temporary magnet. The fancy word for this is electromagnetism. Now you have two magnets in one tiny arena. One is permanent, one only lives while the battery is connected. And magnets that share a space do what magnets always do: they try to force the other to move. That forced movement, in a simple setup like this, where they're held in place but allowed to spin, that movement is rotation. That rotation is a motor. Crank the current, the copper wire becomes a stronger temporary magnet. Faster shove. Park a second magnet across from the first, and the coil becomes trapped in a tug-of-war. Which is pretty fun to play with and can change the objective from spin to point in a specific direction. The entire modern electric world is this interaction, shrunk and repeated a thousand times. Electricity creates a field, the field fights a real magnet, something useful moves. They were heavy, not particularly strong, had problems with high temperatures, but got the job done. When we first figured out how to make magnets, virtually every magnet was made out of iron or aluminum. ### Neodymium changes everything **Phil Andrews** [2:17] This type of magnet actually helped win World War II. They were the foundation of the radar system that allowed Allied planes to see German U-boats. So fittingly, it was two Air Force engineers who put cobalt and samarium together 25 years after the war, the world's first rare earth magnet was born. It was lighter, stronger, and critically handled extreme temperatures very well. But it started out expensive and then got more expensive as the Congo fell into a huge civil war. This is the place where 95% of cobalt came from. Still, the majority of it comes from there. Prices rose, and they rose a lot, up 400% in less than a year. So again, quite naturally, trying to escape these high prices, wanting more magnets, desperately wanting them to be cheaper. Five years later, two companies who really saw the promise of magnets in everyday life, General Motors and the company that would become Hitachi Metals, get on stage at a conference and reveal the neodymium iron boron magnet. Now, this part of General Motors that invented a version of these magnets, as you'll see shortly, this is not the end of their story. They will go on to become central in the "how did China manage to build a monopoly around this stuff?" question. Anyway, these new magnets were smaller, much cheaper, three times cheaper, more powerful. This was the magnet that would change the world. GM used it immediately to cut the size of the starter motor in all of its cars in half. Everything that would have been better with a magnet, or impossible without one, started getting one. Power windows, power locks, windshield wipers, cordless tools that didn't feel like boat anchors, hard drives that could finally fit serious storage into a laptop, your phone, speakers, refrigerators. The motors that make electric cars a reality instead of theoretical. Try to escape rare earth magnets and you pay for it in size, weight, efficiency, or price. It's not a nice-to-have. This is the material that let us shrink the electric world. That is why, for every dollar that flows through the rare earth industry, 96 cents of it ends up in magnets, almost all of it flowing into China, a country that was making exactly zero magnets back when the neodymium magnet was invented in 1983. Did China do this intentionally? They did, move by move, pulling the entire industry into their control. But how they managed to do this over the course of two decades is only one half of a very interesting story. The other half: did you know rare earths aren't actually rare? ### Deposits everywhere **Phil Andrews** [4:21] China did not build its monopoly because it's the only one that has these rare earths. China built its monopoly by doing the thing no one else wanted to: separating them from the dirt and rocks they're found in. Every circle on this map is a rare earth deposit, a place where we know that mixed in with the dirt and rocks in the ground, there are also a bunch of rare earths. The bigger the circle, the more rare earths would come up with each scoop of earth. You have a surplus of what are called light rare earths, neodymium, praseodymium, in many places. The heavier rare earths, dysprosium, samarium, the ones the U.S. military is interested in, those are a bit harder to find. Looking at this, we can see that when people say rare earths aren't rare, they're telling the truth. And this is perhaps the most famous of all the rare earth mines: Mountain Pass. Found in southern California, about two hours from Las Vegas, one of the best rare earth mines that has ever existed. Discovered because the U.S. military needed uranium, which it has, but not nearly as abundant as its rare earths. If you've only heard about one rare earth mine in the United States, it's almost certainly this one. In and out of the news every decade for the past 50 years, an incredible, ongoing saga. Go to any other rare earth mine in the world, none of them will give you as much in rare earths per bucket pulled out of the ground as Mountain Pass. Take one scoop out of this mine and you'll find 90% is just ordinary rock. The rest is rare earths: cerium, lanthanum, neodymium, praseodymium. But there is almost nothing in one scoop that is useful except the neodymium and the praseodymium. The other rare earths come up in every rare earth mine. They have their uses but are almost given away for free. The neodymium, though. This is a neodymium magnet. About one and a half inches across has about 12 pounds of pull. This is pure neodymium. It would take this much neodymium to make this magnet. That one scoop we just looked at, about 200 pounds of earth, can make just nine of these. But if we split it down even further to something a bit more common, something like AirPods, this whole product is magnets. First you have the clasp and the back charger. Probably don't truly need magnets for those two things. They're nice to have. But the actual earbuds inside each one, there are two magnets. The one up here is what makes the sound you hear. No magnet, no sound. That scoop that made nine of those other magnets could make about 250 sets of AirPods. Most rare earth mines won't get half of what Mountain Pass gets. Remember the division inside of General Motors that co-invented the neodymium magnet back in 1983? Well, this mine, Mountain Pass, was the mine that was supplying them with rare earths when they did it. And they were still the ones supplying them with rare earths when the division was spun out of GM and sold to a pair of Chinese companies in 1995. ### Selling Magnequench **Phil Andrews** [6:51] For two years, a company called Sexton had tried to convince GM to sell to them all the patents, the knowledge, the tooling, processes, factories. For two years, GM had the luxury of declining the offer. Until the market turned. GM got into financial issues, finally announcing they would sell off some non-core businesses. Sexton showed up and bought the company, called Magnequench. What's not entirely clear today is if anyone at the time knew who was behind Sexton. These kinds of purchases, a foreign country buying a company, it goes through federal review. They check the stuff out. Some countries couldn't come in and just buy Boeing even if they offered an outrageous amount of money. It's just too important of a company. So the question remains unresolved. Documents are scarce, the purchase appears to have been rushed through. This wasright at the time the free trade era was kicking in. It's fishy because Magnequench was a critical supplier of magnets to dozens of companies in the U.S. military. So whoever signed off on it, did they know that two Chinese companies owned 62% of Sexton and that the owners of those two companies were both son-in-laws of Deng Xiaoping? Deng Xiaoping was the ruler of China for 12 years. He came two years after Mao. And during a tour of China, he said, "Saudi Arabia has oil, China has rare earths," and laid out a big plan to become dominant in rare earth minerals. China did have rare earths, quite a lot of them, including a legendary mine in Mongolia and what would become two key mines in South China that provide the less common yet critical rare earths militaries around the world rely on. But what they did not have was the process technology, the patents, the know-how, all the incredibly important pieces that are downstream of pulling rare earths out of the ground. Deposits on home soil, ability to make magnets now in hand. The last piece was figuring out how to do what Mountain Pass was coming under extreme pressure for, what Mountain Pass would end up being shut down for. You can think of the periodic table like kids at a school lined up by height and grade. ### Separation problem **Phil Andrews** [8:37] An element's spot depends on how it's built, how its electrons are arranged. Elements sittingright next to each other are almost identical builds. Same size, same behavior, same way of grabbing onto other atoms, same number of hands, same strength of grip. So in any chemical test, the rare earth elements grab the same things, and nothing separates them. If you're sorting a crowd into two rooms, let's say, separating a toddler from a pro basketball player, that's easy. You could do it in the dark. That would be like pulling apart elements from different parts of the table, like iron and gold. But rare earths that sit next to each other are like separating identical twins in matching clothes. Same height, same face, same voice. Every test you run, do they float, do they stick, do they dissolve? It gives basically the same answer for both. So you can't sort them in one clean move. No, no, no. You run them through dozens of tests, hundreds of times, and each pass nudges them apart by just a little bit. Twin A drifts slightlyright, Twin B slightly left, and you repeat until they're finally in their separate rooms. Hard to separate but clump together, hard to separate but clump together. A blessing because in the process of how the earth forms and changes, similar elements will cling to similar things. Pulled into molten rock, deep in the earth, pushed up through a crack, clumped together as deposits once it cools. A curse, because once you find them, it's very hard to separate them. Among the metals we actually mine and sell, rare earths are the hardest family to separate from one another. They take the most steps, they take the most chemicals, the most time, and what you're separating them from. The things around on the table, look at the things they're near. So back in Mountain Pass, ore would be pulled out of the big open pit, scoop by scoop, trucked up a road to a cluster of buildings where it was crushed and ground into a fine sand, then moved to a different set of buildings where all those tests would be run. Dropped into hot baths of different chemicals, bath after bath after bath, the stuff they didn't want separating a little bit from what they did want, eventually leaving behind a concentrate rich in rare earths. Now, what do you do with all the stuff that was left over from all this testing? Some of it can be recycled, some is consumed in the process, but the water, the water that was left over from the process was pushed down an eight-inch pipeline for 14 miles where it spilled out into the desert, left to evaporate in the sun. Doesn't sound great, but this was all above board. The county, state, everyone signed off on it. The water was purified in settlement tanks. It was expected to be salty. Hot desert ground, nobody around for miles, not a big deal. Except the salty water wasn't just salty. Over 12 years, the pipeline had ruptured more than 60 times, caked up on the inside by the radioactive thorium that wasn't being purified out of the water leaving the plant, spilling almost a million gallons of toxic water at various places along those 14 miles. This had the exact effect you would expect it to. Lawsuits, fines, bad press. It became clear to everyone that refining rare earths at that point, it was a dirty business. This was effectively the end of rare earth processing in the United States. But the world still needed these things. So remember that legendary mine in Mongolia I briefly mentioned earlier? ### Dirty business **Phil Andrews** [11:34] This thing kicked into high gear, a massive rare earth mine. This is it, on the edge of the Mongolian desert, ore is pulled out of the open pit, brought to the processor, separated, and then the waste is dumped in a giant open pool on the edge of town. This pit is a mile wide and a mile long, and it just sits there. It has the exact same problems as the Mountain Pass mine. Same thorium, same toxicity, the rules in China are simply different because rare earths are a top priority of the Chinese government. The rules that most of the rest of the world plays by do not apply. Controlled by the Chinese government, it's not possible to sue the company that runs any part of the process. In the U.S., if this happened, well, before it happened, really, a dozen organizations would sue at the local, state, maybe even federal level to get it to stop. But in China, the inability to sue around things the government has marked as critical is a feature. It's not a bug. If a case were to be brought, it wouldn't get accepted by the court. It's not that the case would lose, it wouldn't even be heard. Even simple protesting would carry risk. This river of rare earth minerals flowing from the mine itself into the town for processing and then out of the town by train to the electronics center of the world around the Pearl River Delta, this is considered critical. That alone makes it almost impossible for another country to compete against because it's much more expensive to deal with the waste in a clean way. That expense trickling down from the company and into the price they need to sell to not lose money. But that is just the tip of the iceberg. China is so good at this game. Not just rare earths, but aluminum, solar, steel, ships. The pattern you're about to hear that they've used to take control of entire industries has been, good or bad,right or wrong, incredibly, devastatingly effective. ### China's playbook **Phil Andrews** [13:12] Hold that thought. I was in need of a dentist. Not someday, actually. And instead of bouncing around for an hour first, I opened Zocdoc, the sponsor of this video, and treated it like a speedrun. How fast can I go from "I need a dentist" to "appointment booked"? But I want you to feel the before, because the before is why people, like me, put this off. Old way. Dentist near me. Ten blue links. Open three, first site looks like 2009, and the request appointment button just emails the office. Second, wants an account before I can see a single open slot. Third, has nice photos and zero mention of whether they take my insurance. Back to Google. Reviews. Half a star war in the comments. Carrier name, plan name, another tab, another form. Call during lunch. Sit on hold. Get told they'll call me back. A simple job turns into a scavenger hunt across five websites and my own patience. Zocdoc collapses that into one place. Same phone, same insurance, local dentist to take my plan, real patient reviews, and actual appointment openings I can see and book. Compare a few, pick one, done. That was the whole game. Search, compare, book. Not a multi-hour research project. If you've been delaying because finding the dentist felt worse than the cleaning, start at zocdoc.com. Local, in-network, real openings, booked in one spot. Thank you to Zocdoc for sponsoring this video and for saving me time. Now let's get back to it. Step one, build the whole thing at home. If you want to build a rare earth mine or plant in China, the State Bank will lend you the money. Cheap, dark cheap, far below what a normal bank in the West will. Land is easy too because there is no private land. The party owns it. So you don't start a company the way someone in Texas or Australia starts a company. You start with a backer that does not need the project to make money next quarter. We'll give you cheap loans and can hand you the land you want. Those early companies, they sell to everyone who will buy. China, America, Europe, whoever. Volume is the point. More buyers means bigger minds, bigger plants, more people who know how to run them. But once that machine is big enough, step two, shut the door. China puts a hard limit on how much rare earth material can leave the country. Sometimes it's a weight cap, sometimes it's a tax so high that shipping it out stops making sense. That's what hit in late 2010. Almost overnight, the outside world could only get a thin slice of what it used to buy. Outside China, prices roughly quadrupled. Inside China, the same stuff stayed cheap. So now you have two prices for the same rare earths. Expensive if you're abroad, cheap if you're local. Step three, wait. This is the one that actually wins the game. If you build motors, phones, cars, or magnets outside China, your materials just got expensive. Your competitor inside China is still buying cheap. They can undercut you, they win the order. And once Chinese factories are winning these orders, they start asking for better magnets, weirder shapes, tighter specs. The plants that separate and finish the material have to learn how to make that stuff. They get good. Foreign companies still need these finished parts. They just can't pull the half-finished metal out of China the way they used to. So they hire a Chinese plant to make the magnet. They hand over the drawings, the quantities, the exact recipe. All the hard-won know-how that used to live inside a company in Detroit or Tokyo walks into a factory in China. They didn't buy the secrets. The foreign company actually paid to hand them over. Think about an iPhone. Roughly $9 of raw materials. The finished phone sells for something like 120 times that. The money is not in the rock. The money is in the finished thing. China closes the door to force its economy to climb up the value from rock, metal, magnet to the product people actually buy. Step four, open the door again. Lawsuits and trade fights against these kinds of moves China makes, they always come, and they always take three to five years, and China usually loses. They don't need to win the court case. ### Missiles and samarium **Phil Andrews** [16:51] The key part is the time it takes. Three to five years. China can set a watch by it. By the time those years pass, much has changed. A lot of foreign competitors are bleeding by the end, smothered by high prices and new cheap competition. Meanwhile, Chinese plants have absorbed a huge amount of skills, know-how, and data. But the high prices also did something China does not want long-term. They tempted new mines and refiners to open in Canada, Australia, the U.S. So when the door swings wide open, supply pours onto the world at prices so low, the new guys can't dig rock for less than China's selling finished material. Company after company goes under. Inside China, what started as dozens or hundreds of companies, they all get folded and merged into a couple of giant state-run champions. For rare earths, that's China Northern Rare Earth Group and China Rare Earth Group. So China ends up with two giant state champions on rare earths, which sounds like the end of the story. It is not. We are at the part where the story gets smaller and stranger, because the piece of this monopoly that actually keeps people in the military up at night is not rare earths as a category. It is a thin slice of the category. A metal that does not show up in the big shiny rare earth headline the way neodymium does. A metal tied to a particular kind of dirty ground in southern China, sticky red clay country. A much different thing from digging ore out of the ground in the north. Before I give you the name, no. Picture the job it has to do. A cruise missile leaves a ship, it drops low, it flies for hundreds of miles, maybe thousands of miles, reading the terrain, twitching its fins a degree at a time so it can put itself through a window or into a bunker without a pilot on board. Those little twitches are magnets fighting electricity in a tiny motor at the base of each fin. And those magnets only keep their strength in these real-world conditions: heat, stress, time. If the recipe used to make them includes this one hard-to-get ingredient. Overnight, and for the second day, the American ships launched their Tomahawk cruise missiles. **Phil Andrews** [18:41] 100 of these were fired in the first 24 hours of the Gulf War, striking command centers, air defenses, and power stations all across Iraq, well before any soldiers were on the ground, hitting the most heavily defended targets in Iraq without risking anyone. That night is the reason the Tomahawk became the missile you see on the news. Most information about them is classified, but we know for sure that to steer itself to the target, each one needs at least 12 magnets. You will find themright at the base of each fin, positioned inside a coil of copper. Anytime the computer on board says we need to adjust course, electricity flows into the wire around the magnets. The rod they're connected to turns and then holds its position. The rod isn't mechanically locked into place. It's kept in that position by keeping electricity flowing through the wire. Energy can't be created and it can't be destroyed. It can only be converted or transferred. This, according to the first law of thermodynamics. So the electricity flowing in to hold that fin in its new position, since it isn't moving anything, it generates heat. A lot of it. If there's one thing that magnets don't like, it is heat. As a magnet gets hotter, it loses power. Get too hot and it can permanently destroy the magnetic pole. So just like this motor, we can get the same effect with less powerful but heavier magnets. These are ceramic magnets. They have no rare earths in them. So for three times the weight and three times the size, we get the same amount of power as these neodymium magnets. You could fight heat the same way. Okay, loses about 50% power after flying for an hour. We'll just double the size of the magnet. But in something so intricate as a Tomahawk missile, where would you put it? And even if you did decide to do that, you'd have to do all sorts of new testing, certification. The process alone would be a major hassle to end up with a worse missile. And this is just one type of missile the U.S. military uses. It would be better instead if there was some magic ingredient that made them heat-resistant. Something like samarium. Sure enough, that's what the U.S. military uses for magnets, cutting that temperature problem by 95%. And sure enough, that is the rare earth China has not a 94% monopoly on, but a 99% monopoly on. Taking about a third more steps, costing 12 times more to refine than neodymium and found in fewer places in the ground. When China fully banned exports of samarium in response to tariffs being put up, they knew exactly how it was being used. And I quote, "This reflects China's consistent stance on upholding world peace and regional stability." You would not ban this stuff and then mention peace if it wasn't a military thing. To which a lot of people around the world answered. This is unacceptable. I think it's time for a Manhattan project-like effort to end our rare earth dependency on China. Yet the United States remains dangerously dependent on foreign countries, including China, for this critical mineral. This is not a theoretical risk. It is a clear and present danger to our national security. **Phil Andrews** [21:22] The thing is, a lot of people knew this already. It just wasn't your mom or the bartender guy from work that you grab a beer with sometimes. For at least two decades in the halls of the Pentagon, subcommittees in Congress, people would say, "This is a problem. ### Crossing the line **Phil Andrews** [21:33] China is doing this so they can cut us off in the future." It's not that people thought the people making these claims were wrong or didn't know what they were talking about. It just wasn't clear that China ever would. So for years, it could only ever hang around as one of those suspicions. What if that could happen? Like that one friend. We have way less oil than they tell us. This year, maybe two, three at tops. The wells are going dry. It's going full Mad Max. The story instead, it really wasn't even a story. It was just an observation of what appeared to be the game on the field. China got the pollution and the manufacturing businesses that went with it. The West got clean industry, and accepting that trade-off meant losing some manufacturing and becoming dependent for a critical material. It was plausible. Felt like a clean trade. Both parties win some, both parties lose some. Everyone aware that, yes, China could deliver some pain if they wanted to. But the first rule of being a monopoly is you do not talk about being a monopoly. You do not publicly admit you are a monopoly, in words or in actions. De Beers, monopoly. Luxottica, the company that makes 95% of all glasses, sun, and regular, monopoly. ASML, the company that makes the machines that make semiconductors, monopoly. Bloomberg Terminal, all monopolies. Which, okay, everyone is not overjoyed about, but we're all relatively fine with because none of these companies have ever crossed the line. The line that signals the game has shifted from, "We're just trying to make some extra money with the control we have over this thing," to, "We're trying to force you to do something with the control we have." The line China crossed on April 4th, 2025. Yes, actually, all those people in the Pentagon and the subcommittees and the people who made YouTube videos 10 years ago saying, "This is why we were doing it," who you didn't listen to, they wereright. We do have monopoly on rare earths. We know you need them, and now you can't have them unless you do this thing we want you to do. That feels very different than the mildly annoyed feeling from knowing you're paying $200 for Ray-Bans that cost $7 to make. For two reasons. One, using it to force people to act in a certain way that makes people feel trapped. Crossing the line makes the customer feel like they were kidnapped and is now a hostage, especially if it's something required for the world to work. It just doesn't sit well. You get this kind of reaction. China's sweeping export controls this year were a significant wake-up call. They disrupted supply chains, triggered factory shutdowns in the United States. It wasn't just a handful of years ago that policymakers recognized that we have a problem. Our dependency on China for critical minerals. **Phil Andrews** [23:50] But more importantly, number two, the people who said it was a deliberate strategy to exert control in the world are now proven correct. The people who didn't listen to them before start listening intently. And the happy story of a clean trade between two countries, it evaporates. The retelling of which is replaced by cold analysis of every other situation where the pattern showed up. Solar, cars, aluminum, every motive that was assumed is now questioned, even if it came from being provoked. The U.S. started cutting China off from the best semiconductorsright about 2016 and really clamped down in 2019, upped it again in 2020, and then big tariffs in 2025. ### Breaking free **Phil Andrews** [24:23] So yes, the U.S. did provoke China with this stuff. No question about that. But the whole period of the U.S. chips industry before this started, theright word would be organic. Hundreds of firms competing, the government not intervening to prevent foreign firms from winning, no government backstop. Intel was crushed over the last two decades, and the U.S. chip industry as a whole was holled out by Japan and Taiwan in the '90s and 2000s. The U.S. government didn't intervene. It didn't build it up on purpose so then it could take it away. That is why, to many observers, the rare earth situation from China feels different. That it feels like this whole time the Chinese government was executing a plan drawn up on a whiteboard to control a critical industry so that once under their control, they could take it away if they wanted to. That it was definitely not organic. It was planned control. Of all the trade moves between the U.S. and China over the past decade, the rare earths one was the most extreme. Because publicly revealing your monopoly has zero long-term upside. It's usually reserved for when war is breaking out because you want to play the card as a last resort only when it really matters. Otherwise, you will encourage everyone to immediately start solving the problem, which is exactly what the world is doingright now. Japan, Australia, and particularly the U.S. have made the moves required to break the monopoly. The Pentagon has made deals with companies guaranteeing they'll pay $110 per kilogram of rare earths, well above the market price. That way, China can't flood the market and wash out U.S. companies again. Things like this have happened in the U.S. before. The aluminum industry around World War II being one. The U.S. needed a lot of aluminum for planes. This was the start of the plane era, and that capacity just wasn't there yet. But this one for rare earths, it's a little different. Not only are they guaranteeing the price, they're also guaranteeing an amount they'll buy, an arrangement called take-or-pay. But if the market price is over $110, the government gets 30% of the difference between $110 and the higher price for whatever else they sell to whoever else. So there's upside in this deal that is guaranteed for 10 years. This is all happening largely, and of course it is, by extending the saga of Mountain Pass, which is what this deal is aimed at. The mine is back online. Not only mining, but now processing and refining rare earths and building an advanced processing facility in Texas. These are the moves that you would need to make to get the industry rolling again. Will it work? We'll see. It's an uncommon arrangement in the U.S., but it's not unprecedented. Oh, and one last thing. If you look downright over here, there's a subscribe button. That button is the portal to not just our library videos, but to us being able to make more videos. Bigger videos, events, all sorts of stuff. The more subscribers the channel has, the more projects I can greenlight. And there's, hey, a giant list I would love to give the thumbs up to. If you choose to subscribe, truly, thank you. It really is a big help. Even if you didn't and you just watched, thank you for watching. And that's it, ladies and gentlemen. I will see you in the next video. See you. --- This library is powered by PodHood (https://podhood.com), the podcast website platform.