Super Powers

Super Powers battle over rare earth minerals and magnets

 

President Trump described his recent meeting with Chinese Premier Xi Jinping as ‘amazing’, and markets have welcomed an apparent easing of the tensions between the two super powers and largest economies in the world.

China has said it will suspend its latest rare-earth export controls for a minimum of one year, but the controls announced in April appear to still be in place. While this sounds encouraging, it doesn’t change the fact that strategically China still controls the bulk of the world’s supply of rare earth minerals and is aware that the US and its allies are trying to break its monopoly. Therefore, it appears highly unlikely that China will fully relinquish its control over exports in the near future.

While China has agreed to delay the implementation of further controls on rare earths, its own domestic demand for these is likely to remain high due to the growth of drones, EV’s and wind turbines. China’s production of rare earth minerals might also be restricted in future for environmental and mining licensing reasons. Concerns remain that Chinese producers could deliberately starve western companies of these vital commodities. China is also reported to be introducing a ’validated end-user’ tracking system to block supplies to the US military (see below).  Trump has recently signed deals with both Australia and Japan to develop rare earth deposits, but this will take time.

Into the mix must be added Putin. Both Russia and China have been working to break the dominance of the US dollar and undermine America’s influence.

Putin would no doubt also welcome any attempt by China to restrict the export of rare earth minerals and magnets, where China dominates the global marketplace. This would have a direct impact on the supply of drones used by NATO and specifically those manufactured in Ukraine that have formed an integral part of the conflict. As a result of its advances in drone technology, Ukraine has become a global leader in drone manufacturing and now produces an estimated four million drones a year – more than all NATO members combined. It has even outlined plans to become a leading exporter of unmanned remote systems.

Both the US and China are working hard to break the others advantage whether it be in AI chips or rare earth minerals. Despite Trump’s bluster, for the time being, China still has a stranglehold on rare earth minerals which gives it an edge in future trade negotiations. Ominously, AI chipmaker NVIDIA’s CEO Jensen Huang has warned that ‘China is going to win the AI race’ thanks to its lower energy costs and looser regulations.

What have we been watching? 

About time! The record-long US government shutdown came to an end last week after 43 days with President Trump signing the funding legislation that was passed in a 222-209 vote. US equities responded positively to the news with the Dow Jones index hitting a fresh high. US airlines were amongst the main movers up having suffered considerable disruption from the shutdown. However, market enthusiasm waned towards the end of last week as concerns re-surfaced over US AI valuations and worries mounted that the Federal Reserve (Fed) may hold off on further interest rate cuts.

Furthermore, while the package passed by Congress includes full-year funding for agriculture and veteran affairs, most government agencies are only being funded until the end of January 2026. This suggests we could be on the verge of another US government shutdown in just over 10 weeks’ time!

A thawing of US/China trade tensions saw Beijing suspend its previously announced ban on the export of gallium, germanium and antimony to the US for just over a year. However, US media reports suggest China is looking to implement a ‘validated end-user’ system that would track rare earth mineral shipments and exclude companies with ties to the US military. Meanwhile, US Treasury Secretary Scott Bessent said that the US will announce tariff relief for certain commodities like coffee and bananas. The US also suggested that it was close to trade deals with Switzerland and India. However, relations between China and Japan have soured following comments from the latter’s new PM who suggested it would take military action if China attacked Taiwan. China warned its citizens not to travel to Japan. China has consistently ranked among the top sources of tourists visiting Japan.

 

In the UK, Budget uncertainty continues to overshadow business activity to which must now be added political speculation with rumours of challenges to the leadership of PM Keir Starmer. The UK economy saw slower than expected growth of 0.1% in the three months ended September. Both services and construction were weaker while manufacturing reflected the cyberattack on Jaguar Land Rover that hit UK car production. To add to the government’s woes, the jobless rate hit 5% making it the highest level since early 2021. Then, at the end of last week, Sterling and gilts were hard hit following the PM and Chancellor’s U-turn on income tax rises with the fiscal hole to be financed instead by a ‘smorgasbord’ approach with a number of smaller taxes.

 

In the US, besides the end of the government shutdown, investors continue to ponder the path of interest rate cuts. Further hawkish comments from some members of the Federal Reserve (Fed) saw the chances of a December rate cut drop to 59%. The outlook might remain hazy in the wake of the shutdown disruption as the Whitehouse suggested that the inflation and jobs data for October were likely to be skipped altogether! 

 

Japan’s economy shrunk at an annualised rate of -1.8% in the third quarter as US tariffs sent the country’s exports lower, albeit the data was not as bad as had been feared.

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Brent oil continued to drift, edging below $63 amid growing supply gut concerns as OPEC acknowledged that the oil market has moved into surplus sooner than expected.  

Finally, talking of the battle between the US and China to control the world’s natural resources. According to the China Africa Research Institute, the US has overtaken China to become the largest investor in Africa, having invested $7.3bn in 2023 compared to $4bn by China. Africa is rich in critical minerals such as lithium, rare earths, cobalt and tungsten which are essential components in EVs, AI datacentres and weapon systems.

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