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China's evolving ecosystem facilitated the phenomenal success that Steve Jobs achieved by locating the production of his visionary iPhone in China. In other words, China's successful production of Jobs' vision was a 'proof of concept' for Deng's vision. China's ecosystem would ensure that the iPhone's success would be a prototype for future success, not a never-to-be-repeated one-off.
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Introduction | Context | DARPA | China vs Obama | Steve Job's Vision |
Introduction | Context | DARPA | China vs Obama | Steve Job's Vision |
Ecosystem | China vs Trump-1 | China vs Biden | China vs Trump-2 | Chins vs The World
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Introduction | 1. Apple | 2. U.S. Inaction | 3. Dominance
Introduction | 1. Apple | 2. U.S. Inaction | 3. Dominance
Introduction
- The first section of this note describes how China leveraged its rare earth supply chain to host the development of the most powerful high tech supply chain developed to date: Apple's production of iPhone's in China.
- The second section discusses why the U.S. still does not have a reliable rare earth supply chain. Spoiler alert: it's our own fault, not China's.
- The third section reviews China's position of unchallenged dominance of the global market for rare earths by 2015, a dominance that protected it from punitive tariffs and sanctions that might have otherwise been imposed by other nations, e.g., the U.S. It concludes by presenting credible estimates of the minuscule market value of these crucial materials.
Note: The editor no longer uses Gemini as his research assistant; he uses Claude (Opus 4.6 Extended). If Gemini can't find links to support its assertions, it makes up BS links; whereas Claude quickly admits that its search effort has failed … and Claude is much smarter than Gemini (all models available to Pro subscribers).
1) Why did Apple decide to produce its revolutionary iPhones in China
"In 1999, none of Apple's products were made in mainland China; by 2009, virtually all were", Greg Rosalsky, NPR Planet Money, 6/17/25 ... Search for "2009" with a browser
Oddly enough, the NPR article makes no mention of rare earths. Many U.S. companies moved their manufacturing to Asia in search of lower wages in the early 2000s. Could Apple have located its offshore productions in India, Bangladesh, Pakistan, or Vietnam? Given China's global dominance in the refining of rare earths by that time, the question becomes: What kinds of rare earths did iPhones contain before 2016, if any?
The following source will confirm that the original iPhones already contained such a wide variety of rare earths that iPhones could not have been manufactured in any other Asian country but China.
Oddly enough, the NPR article makes no mention of rare earths. Many U.S. companies moved their manufacturing to Asia in search of lower wages in the early 2000s. Could Apple have located its offshore productions in India, Bangladesh, Pakistan, or Vietnam? Given China's global dominance in the refining of rare earths by that time, the question becomes: What kinds of rare earths did iPhones contain before 2016, if any?
The following source will confirm that the original iPhones already contained such a wide variety of rare earths that iPhones could not have been manufactured in any other Asian country but China.
The Rare Metals of the iPhone, David S. Abraham
Yale University Press (4/19/17)
"These metals are the reason that devices are getting smaller and more powerful. For Jobs, the “magic” in his glass is due to a dash of the rare metal indium, which serves as the invisible link, a transparent conductor between the phone and your finger. A dusting of europium and terbium provides brilliant red and green hues on the screen, specks of tantalum regulate power within the phone, and lithium stores the power that makes the phone mobile. Rare metals are also crucial to manufacturing the iPhone’s components: cerium buffs the glass smooth to the molecular level"
"... While they are only used in small amounts, [rare earths] are essential. Without yeast there’s no pizza, and without rare metals there’s no high-tech world ... rare metals don’t make the products we buy; they make the products we buy smaller, faster, and more powerful. They made Jobs’s iPhone thinner, more functional, and more mobile."
2) Why the U.S. has not yet built a reliable rare earth supply chain
The National Defense Authorization Act for Fiscal Year 2010,
Section 843, directed the GAO (Government Accountability Office) to submit a report on rare earth
materials in the DOD supply chain to the Committees on Armed Services
of the Senate and House of Representatives by April 1, 2010 ➡ Rare Earth Materials in the Defense Supply Chain (pdf)
The GAO's most important findings were presented in a "Summary" section. Many of these findings coincide with findings discussed in previous sections of this blog note; the most important findings not previously discussed in this note are quoted verbatim in the following bullets. (Bold and italics were added by the editor of this blog.)
"The United States previously performed all stages of the rare earth material supply chain, but now most rare earth materials processing is performed in China, giving it a dominant position that could affect worldwide supply and prices"
“Based on industry estimates, rebuilding a U.S. rare earth supply chain may take up to 15 years and is dependent on several factors, including securing capital investments in processing infrastructure, developing new technologies, and acquiring patents, which are currently held by international companies."
"We found examples of components in defense systems that use
Chinese sources for rare earth materials and are provided by lower tier subcontractors."
"DOD has not yet identified national security risks or taken
departmentwide action to address rare earth material dependency, but expects to consider these issues in its ongoing study expected to be completed by the end of September 2010."
The promised DoD report was not released until March 2012. Access to this report is restricted, but a security clearance is not required. The editor of this blog does not have access nor do most of the blog's readers. Fortunately, the report and a related interview were summarized by the nonpartisan Congressional Research Service ➡ Department of Defense Report Responding to Section 843. Here is a verbatim quote of this summary of the report and a related interview:
"DOD released a seven-page report in March 2012. The report stated that ‘Seven of the 17 rare earth elements were found to meet the criteria established in Section 843.’ They are dysprosium, erbium, europium, gadolinium, neodymium, praseodymium, and yttrium. DOD's assessment of the forecast for a domestic supply for key rare earths concluded: "by 2012 U.S. production (for seven rare earths used in military applications) could satisfy the level of consumption required to meet defense procurement needs, with the exception of yttrium."
"In an April 2012 interview with Bloomberg News, the DOD head of industrial policy confirmed that DOD uses less than 5% of rare earths used in the United States, and that DOD was closely monitoring the rare earth materials market for any projected shortfalls or failures to meet mission requirements. Brett Lambert, Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, suggested that if material shortages were projected, DOD would seek congressional approval to stockpile materials. Other measures could include the use of contingency contracting to meet DOD requirements."
The DoD's report is remarkable for at least three reasons:
- It's 18 months late -- expected Sept 2010, delivered March 2012.
- It's only seven pages long.
- It's wrong.
Let's review some events in the timelines presented in the previous installment of the "WTO 2015" and "Unintended Consequences" sections of those notes.
- Mountain Pass revival "Rare Earth Production Rises At Molycorp’s Mountain Pass Mine", Sentinel, 2/1/15
Molycorp was the only world class rare earth refinery in the U.S. in 2010 so it must have been the refinery that DoD alluded to in its projection that DoD's rare earth requirements could be satisfied by a U.S. company by 2012. In February, 2015, Molycorp was still presenting a rosy view of its future to the world, a view that was based on its assumption that China would persist in charging high prices for its rare earths. - China complied with the WTO's decisions: (1) it lifted its export quotas, and (2) it removed its export tariffs, i.e., it made large reductions in its prices, 5/20/25
- Molycorp filed for Chapter 11 bankruptcy", Fortune, 6/25/15
Molycorp filed for bankruptcy just one month after China agreed to greatly reduce the export prices of its rare earths, a/k/a, China removed the export tariffs that had hitherto greatly inflated its export prices. It did so because the WTO ordered it to do so. Had it greatly reduced its prices 'voluntarily', it would have violated the WTO's GATT rules against 'dumping' ... 😎
- DoD conceded that it might not be able to receive enough Yttrium from U.S. refineries. Molycorp's mining site in Mountain Pass, CA, contained mostly light rare earth elements, so Molycorp had never developed proven procedures for refining heavy REEs that conformed to California's rigorous environmental protection regulations. Yttrium is a heavy REE, but so are Dysprosium and Europium. So three ores, not one, would have to be shipped to China to be refined.
- DoD said the rare earth problem was insignificant because it consumed less than 5 percent of the rare earths used in the U.S. ... but ... but ... but all 100 percent of its 5 percent came from China, so DoD was absolutely, totally, unavoidably dependent on a Chinese supply chain that it can not control.
A follow-up 2016 GAO report noted that three policy level components of DoD had used different methods to identify which rare earths were critical, for a combined total of 15 out of the 17 rare earths.
- GAO chastised DoD by stressing the need for a single comprehensive methodology. GAO's point was that DoD still did not have a credible list of critical rare earths, so it could not identify appropriate stockpile strategies nor strategies for developing more reliable supply chains ➡ RARE EARTH MATERIALS -- Developing a Comprehensive Approach Could HelpDOD Better ManageNational Security Risks in the SupplyChain
Does the reader doubt that DoD's muddled blather clouded outgoing President Obama's judgments and would cloud incoming President Trump's judgments about how they should respond to China's challenges?
3) China's insurmountable dominance of the world's rare earths
a) Consolidation
As reported in the "Unintended Consequences" section of our previous installment, by 2015 China's leadership had consolidated its control over the global rare earth market by (1) demolishing the mining infrastructure of its illegal smugglers who had been producing as much as 40 percent of China's rare earth exports and reorganizing its criminal smuggling operations into state controlled cartels that employed non-toxic mining tech, and by (2) Driving mining and refining operations in other countries into bankruptcy via ultra low pricing, as ordered by the WTO — which is precisely what China had wanted the WTO to do. Had China greatly reduced its prices 'voluntarily', it would have violated the WTO's GATT rules against 'dumping'.
As reported in the "Unintended Consequences" section of our previous installment, by 2015 China's leadership had consolidated its control over the global rare earth market by (1) demolishing the mining infrastructure of its illegal smugglers who had been producing as much as 40 percent of China's rare earth exports and reorganizing its criminal smuggling operations into state controlled cartels that employed non-toxic mining tech, and by (2) Driving mining and refining operations in other countries into bankruptcy via ultra low pricing, as ordered by the WTO — which is precisely what China had wanted the WTO to do. Had China greatly reduced its prices 'voluntarily', it would have violated the WTO's GATT rules against 'dumping'.
b) China's Rare Earths as defensive deterrents
North Korea was a poor country before it developed missiles armed with nuclear warheads; and now that it has them, it is still a poor country. Nevertheless, its nukes have protected North Korea from invasions, as unfortunately happened to Libya and to Ukraine after these countries hadbvoluntarily given up their nukes.
North Korea was a poor country before it developed missiles armed with nuclear warheads; and now that it has them, it is still a poor country. Nevertheless, its nukes have protected North Korea from invasions, as unfortunately happened to Libya and to Ukraine after these countries hadbvoluntarily given up their nukes.
So too, China's rare earth monopoly protects it from harmful tariffs and sanctions that might otherwise be imposed by other advanced nations, e.g., the U.S. or by alliances of advanced nations, e.g., the European Union, via the WTO.
Yes, China could severely disrupt the high tech trillion dollar civilian and military sectors of other modern economies were it to halt sales of its critical rare earth ores, oxides, metals, alloys to them; it might even drive those economies into a recession. But if it did so, its investments from those economies into all of its products would plummet, as would its income from all of all of its exports to customers in those economies.
Paradoxically, the next section of this note will show that China's direct income from sales of its basic rare earth element (REE) materials -- its ores, oxides, metals, and alloys -- is surprisingly small.
Nevertheless, a subsequent section will provide evidence that, when embedded in the extensive high tech ecosystem that China has been developing for over three decades, its rare earths will generate income comparable to the annual incomes that Middle Eastern countries derive from oil, as per Deng Xiaoping's 1992 strategic vision.
- "A quest for global dominance: China’s appetite for rare earths", David Uren, Australian Strategic Policy Institute (ASPI), 10/31/2019
c) Small global market value for China's basic REE products
The total value of basic rare earth global annual sales is surprisingly small. Precise estimates of the current size of the global markets are not required to make this point, just their orders of magnitude.
The total value of basic rare earth global annual sales is surprisingly small. Precise estimates of the current size of the global markets are not required to make this point, just their orders of magnitude.
- REE ores are refined into oxides; oxides are refined into metals; and metals are combined into alloys.
- If a customer wants to buy oxides, the customer pays for the ores that China provides, plus the costs of refining those ores into oxides. But if a customer supplies ores purchased elsewhere, the customer only pays for the cost of refining that much ore into oxides.
- If a customer wants to buy metals, the customer pays for the quantity of oxides required to produce the quantity of metals the customer wants to buy, plus the costs of refining those oxides into metals.
- Similar comments for alloys.
Recent estimates of the combined market value of all of China's basic REEs will be provided from two reputable sources. Both sources estimate that the global market for basic REE materials is less than $4 billion. Each source also notes that is not just the biggest producer of basic REE materials; it is also the biggest purchaser these materials.
"China Rare Earth Elements Market Size & Outlook, 2025-2030", Grand View Research, January 2026
-- China's market revenue = $2.8 billion
-- "In terms of revenue, China accounted for 70.8% of the global rare earth elements market in 2024"
... Implies total global market = $2.8 / .718 = $3.95 billion“Critical Dependence on Rare-Earth Minerals”, GQG Partners, November 2025
— "Global annual sales totaling less than $4B"
China has positioned its dominant rare earth supply chain at the center of the high tech supply chains for an ever widening array of products, Apple's iPhone being the prototype.
By adding basic REE materials to the composition of these products, China produces versions that are lighter, smaller, and more powerful than previous versions that don't contain rare earths.
China's versions therefore have competitive advantages over previous versions, advantages that attract huge foreign investments in their development and generate even more substantial income for China (and its investors) when China exports its new versions to customers in foreign markets. We note that China produces new products at different levels.
- The lowest level includes products that might be called 'advanced REE' materials, derived from its basic REE materials, powerful magnets being the important example.
- At a higher level it produces components made from basic and advanced REEs that perform specific functions, like motors.
- At the next level it combines components into subassemblies, like powertrains consisting of motors plus inverters plus gearboxes plus thermal managers plus battery managers, all integrated into a single unit.
- At the highest level it combines subassemblies into complete products for end users, products with Chinese or foreign brand names, like iPhones, Teslas, BYDs, or Huawei smartphones. This is how China leverages its share of the $4 billion market for basic REE materials into exports of trillion dollar products.
Question: How has China been able to implement this strategy?
Answer: Through interactions among the most important components of its unique rare earth high tech ecosystem, components that are still unmatched in any other country in the world. This ecosystem will be discussed in the next installment of our report. Needless to say, the uniqueness of China's ecosystem will prevail until other countries, e.g., the U.S. develop their own reliable supply chains of basic REEs that are independent of China's.
The GAO report, discussed in the second section of this installment (above), estimated that it would take the U.S. fifteen years to develop a reliable supply chain. But the question still remains: Fifteen years from when?
- Rare Earth Materials in the Defense Supply Chain (pdf), GAO, 2010
Warning -- China's complex ecosystem has two distinct components:
- The first ecosystem converts basic REEs into advanced REE materials, e.g., magnets, mostly for use by the second component.
- The second ecosystem uses these advanced REE materials to make the components, e.g. motors … subassemblies, e.g. powertrains … and final products, e.g. iPhones and Huaweis (a/k/a ‘cPhones’), Teslas and BYDs (a/k/a ‘cTeslas’) … that China exports to other countries. (Note: Huawei sold more smartphones globally than Apple last year, and BYD sold more EVs than Tesla)
Our forthcoming installment that discusses President Biden's contributions will note that under his direction DARPA took less than two years to develop non-toxic, cost-effective technologies for producing basic REEs. Unfortunately, DARPA has not yet been tasked with developing new technologies for converting basic REEs into advanced materials. The pessimistic GAO estimate is therefore 'reduced' to at least 13 years from 'sometime' after the end of the Biden administration in 2024 ... 😕
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