China vs.The World -- DRAF5
Last update: Saturday 5/9/26 11:59pm
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Introduction | 1. Trump-1 | 2. China Mute & Outraged |
3. Biden | 4. Trump-2 + Truce
Introduction
In 1992, Deng Xiaoping, the 'father of modern China', inspired his country to greatly enhance its economic power by leveraging its abundant rare earth resources. High levels of leverage would be required because the total global sales of processed rare earth elements (REEs) was less than $10 billion annually. But Deng realized that high leverage could be achieved by exploiting the signature properties of REEs.
When materials are “seasoned” with tiny amounts of REEs, they become lighter, smaller, and more powerful. With the benefit of 20-20 hindsight, we can now see that Deng's strategy was stunningly simple.
Develop a monopoly on rare earth processing. This was possible because processing REEs severely pollutes the surrounding environment — a price that China was willing to pay, a price that other countries were not willing to pay. ("China Has Paid a High Price for Its Dominance in Rare Earths", Keith Bradsher, NY Times, 7/5/25", NY Times, 7/5/25)
Develop a monopoly on rare earth processing. This was possible because processing REEs severely pollutes the surrounding environment — a price that China was willing to pay, a price that other countries were not willing to pay. ("China Has Paid a High Price for Its Dominance in Rare Earths", Keith Bradsher, NY Times, 7/5/25", NY Times, 7/5/25)
- Entice manufacturers from all over the world to build better products in China, using as much REEs as needed.
- Establish rare earth research centers at Chinese universities that improve REE technologies and train Chinese engineers how to deploy these improved technologies to build Chinese versions of foreign products that were better and cheaper. (Our forthcoming installment will provide a detailed description of this university/manufacturing ecosystem.)
- Sell superior, cheaper Chinese products back to the world and reap hundred billion dollar annual sales from its inevitable domination of these markets.
b) Huawei's Overreach
In the early 2000s, Apple’s new iPhone became the prototype for a foreign producer moving its manufacturing to China to exploit the magical powers of REEs. Steve Jobs, Apple’s CEO, was a designer genius who recognized that REE “seasoning” would endow his revolutionary new iPhone with the “Apple magic” that he wanted to achieve. See our previous installment Why Apple produced its revolutionary iPnones in China for a detailed description of this kind of project.
By 2018, China’s leaders had positioned Huawei’s smartphone running Google’s Android OS as the prototype Chinese cPhone that was poised to dominate the world’s markets for smartphones, pushing Apple's iPhone into second or third place. Ironically, Huawei’s impending success was clobbered by China’s recent success in another foreign activity: espionage.
Actually, there was a double irony in operation here. Deng's paradigm specified that China would merely produce better versions of existing foreign products. However, the new 5G telecommunications protocol was coming online. Of course, Huawei would produce cPhones that would make the best use of the greater speed and other advantages of 5G.
Actually, there was a double irony in operation here. Deng's paradigm specified that China would merely produce better versions of existing foreign products. However, the new 5G telecommunications protocol was coming online. Of course, Huawei would produce cPhones that would make the best use of the greater speed and other advantages of 5G.
But Huawei overreached. Huawei decided to also produce cheap, effective relay towers and other gear required to implement 5G before anyone else did … using chips made in the U.S. and in other countries.
Had Huawei stuck with better cPhones, nobody would have cared, especially the leadership of the U.S. military and the U.S. intelligence community. But leaders did care about the relay towers. They cared mightily about the relay towers.
c) Huawei's Provocation
Before we discuss President Trump's ban of Huawei, let's place it context.
- In 2015, China hacked over 20 million personnel files that included sensitive security clearance information from the U.S. Office of Personnel Management (OPM), according to Wikipedia, and the Washington Post, 6/12/15.
The personnel files for the current leadership of the Department of Defense (DoD/DoW) and the U.S. intelligence community would have been included. This would make them especially concerned about any new Chinese technology that might extract sensitive information via other channels, e.g., G5 cellphone relay towers. - On the other hand, in 2012 the DoD was oblivious to the potential threats it faced from China because of its total reliance on Chinese RREs to "season" the metals and alloys in its communications gear, drones, missiles, tanks, etc. See our previous installment Why the U.S. has not yet built a reliable rare earth supply chain.
- Nevertheless, Huawei did not sneak into the world's G5 infrastructure. Its homepage declares, "Between 2009 and 2013, Huawei invested more than US$600 million into 5G technology research. Following this, in 2017 and 2018 Huawei invested almost US$1.4 billion into 5G product development ... By July, 2019 cooperate with 50 5G commercial contracts and 150,000 base station shipments"
Here is the event in 2018 that triggered President Trump's crackdown on Huawei, as reported by the NY Times, 11/30/18 -- "Marriott Hacking Exposes Data of Up to 500 Million Guests .. The hotel chain asked guests checking in for a treasure trove of personal information: credit cards, addresses and sometimes passport numbers ... The assault started as far back as 2014 ..."
A subsequent NY Times, 12/11/18, article identified the trigger -- "But two of the government officials said that it has added urgency to the administration’s crackdown, given that Marriott is the top hotel provider for American government and military personnel."
President Trump imposed tariffs during his first years in officebut they had no impact worth remembering. However his restrictions on Huawei provoked loud howls and threats from the Chinese government that will be discussed in Section 4
The "Covered List" is another black list. However it is a compilation of suppliers on the DoC "entity list" plus suppliers listed in each year's National Defense Authorization Act -- the annual authorization for DoD/DoW, plus nuclear weapons in DoE, Department of State, DHS -- plus other agencies.
a) National Emergency
On May 15, 2019, President Trump issued an executive order that declared a national emergency with regards to the threats posed by foreign adversaries to our Information inand Communications Technology and Services Supply Chain (ICTS). Neither China nor Huawei are named in this executive order, but it provided a framework for the specific restrictions that quickly followed.
b) Entity List
- In May, 2019, the U.S. Department of Commerce put Huawei on an "entity list". NY Times, This is a black list that requires firms on the list to get special permission to buy American components and technology, permissions that they are unlikely to receive, although exceptions were made ... sometimes.
- In August, 2019, NY Times, the Trump administration released a rule that restricted federal agencies from doing business with Huawei, a member' of the entity list
The "Covered List" is another black list. However it is a compilation of suppliers on the DoC "entity list" plus suppliers listed in each year's National Defense Authorization Act -- the annual authorization for DoD/DoW, plus nuclear weapons in DoE, Department of State, DHS -- plus other agencies.
This law prohibited the use of federal funds for purchases from suppliers on the "Covered List". It also funded payment for small enterprises to rip out equipment and software from prohibited suppliers and replace with equipment and services from safe suppliers. According to Wikipedia, President Trump signed this bill on March 12, 2020.
d) Extraterritoriality
"Commerce Department Further Restricts Huawei Access to U.S. Technology and Adds Another 38 Affiliates to the Entity List", Department of Commerce, August 11, 2020
- "This amendment further restricts Huawei from obtaining foreign made chips developed or produced from U.S. software or technology to the same degree as comparable U.S. chips.
Our discussions throughout all of the sections of our installments have been straight-forward examinations of events that were highly visible in the U.S. tech press and often in the general media.
But now we have to pull a rabbit out of our hat because this section will discuss an event that was a wake-up call for China. Nevertheless, it barely appeared in U.S. media, even though its importance was just a couple of notches below Deng Xiaoping's proclamation of his rare earth vision in 1992.
China's outrage about Huawei was real because Huawei in March 2020 was America’s second Chinese victim. ZTE in March 2016 and April 2018 was the first. ZTE was China’s wake-up call, not Huawei
a) ZTE
Founded in 1985, the ZTE Corporation "is a Chinese partially state-owned technology company that specializes in telecommunication", according to Wikipedia.
ZTE's Crimes and Fines
b) China's initial muted shock in 2018
The editor of this blog tasked Claude, Anthropic's chatbot, to find instances of Chinese leaders explicitly citing America's denying access to its technology and software to ZTE for whatever reason as an undeniable demonstration of America's unreliability as a supplier of technology and software to China. China needed to develop its own technology and software. Here's what Claude found:
- According to CSIS, November 2018, Dr. Tan Tieniu, then the deputy secretary general of the Chinese Academy of Sciences, gave a speech before many of China’s most senior leadership at the 13th National People’s Congress Standing Committee. In the speech, he argued:
-- "The U.S. ban on ZTE fully demonstrates the importance of independent, controllable ‘core-, high-, and foundational’ technologies. In order to avoid repeating this disaster, China should learn its lesson about importing core electronic components, high-end general-purpose chips, and foundational software." - According to CGTN America, April 2018, at a ZTE press conference, the Chinese Foreign Ministry said the U.S. move is actually trade protectionism in disguise:
-- "This exposes its hegemonic attitude that the U.S. should be the only nation in procession of such technologies, rather than other countries,” Hua Chunying, Chinese Foreign Ministry’s spokespersion said. - According to Asia Times, May 2018, Tencent Holdings chairman Pony Ma Huateng peaking at the Future Forum X Shenzhen Summit, said that China had achieved a leading position in some science and technology applications, but had to build a more solid foundation so it could achieve a position of strength in sectors like information sciences, physics, materials and life sciences.
As a case in point, Ma noted that China led the world in mobile payments, but lacked the technology that underpinned these systems. The United States embargo on selling chips to ZTE was a wake-up call, because one could not compete without chips and an operating system, no matter how advanced the payments set-up might be. - According to WITA, June 2019, "Analysts and policy makers have used the blockade of ZTE as clear evidence of Washington’s intentions and China’s vulnerabilities. In April 2018, the United States announced a seven-year ban on American firms from selling parts and software to ZTE after the company violated an agreement that was reached when it was caught illegally shipping U.S. goods to Iran. Even though the ban was eventually overturned after the company paid a US$1 billion fine, the ban threatened ZTE’s survival and clearly demonstrated China’s dependence on U.S. technology, especially semiconductors. "
China's initial reaction to the demolition of ZTE was muted because this wake-up call was depressing. Developing its own technology and software would take at least a decade.
CNN reported that President Trump agreed to remove ZTE from the Denial List in May 2018 because President Xi told him that otherwise 70,000 jobs in China would be lost if ZTE went out of business.
CNN reported that President Trump agreed to remove ZTE from the Denial List in May 2018 because President Xi told him that otherwise 70,000 jobs in China would be lost if ZTE went out of business.
c) China's outraged reaction to Trump placing Huawei on the Entity List in May 2019.
China quickly responded with a hostile 'warning ' in the People's Daily, a quasi-official English language publication, that it could stop selling rare earths to the U.S and thereby deprive the U.S. of all rare earths. ... "United States, don't underestimate China's ability to strike back", People's Daily Online (English Edition), 5/31/19. Here are a few excerpts.
- "China does not want a trade-war, but it is not afraid of one and will fight one if necessary.
... "It is obvious to all that Washington has adopted increasingly attacking tactics against China by not only raising tariffs on Chinese products, but also sabotaging the global supply chain and blocking the supply chain of technologies and products which threatens the survival of Chinese enterprises."
... "Many foreign media outlets have turned their eyes to rare earths. Some analysts believe that China's dominant position in the rare earth market has given Beijing a way to strike back."
..." Washington has completely overestimated its ability to manipulate the global supply chain and lacks self-knowledge. The US is doomed to be met with a slap in the face after it wakes up and stops dreaming."
... "We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!"
China published this response in an English language publication so that Trump himself could read and understand its message. The last time China used the phrase "Don’t say we didn’t warn you!" was noted by the Global Tines, another English language Chinese quasi-official publication, as the first paragraph of its report about high level Chinese policy symposium in 2022:
- "'Don't say we didn't warn you!' - a phrase that was used by the People's Daily in 1962 before China was forced to fight the border war with India and ahead of the 1979 China-Vietnam War, was frequently mentioned during a forum held Friday by a high-level Chinese think tank, as analysts warned that open military options and comprehensive countermeasures ranging from the economy to diplomacy from China await if US House Speaker Nancy Pelosi gambles with a visit to the Taiwan island during her Asia tour."
The financial penalties and restrictions imposed on ZTE by the U.S. Commerce Department's BIS agency in 2016 and 2018 had been the wake-up call. It did not need another "reminder" in 2019 of America's power to disrupt Deng Xioaping's strategy for China's long-term economic development.
The editor of this blog found two powerful ironies in play here:
- First, given President Trump's famous disdain/contempt for his predecessor Barack Obama, he was probably unaware of the BIS investigation of ZTE that began during President Obama's administration in 2014, the investigation that led to the catastrophic fines and penalties that the BIS professional staff imposed on ZTE in 2017 and 2018. And even if President Trump was briefed on the matter, he probably dismissed the BIS actions as inconsequential compared to his own fines and penalties.
- Second, China does not want to impose serious harm on the economies of the affluent U.S and its affluent allies in Europe and Asia. Deng Xiaoping's strategy was to attract billion dollar investments from wealthy foreign investors in China's manufacturing infrastructure, and provide them with substantial returns on their investments; then use China's superior understanding of the most effective ways to season materials with rare earths to produce superior products at lower prices for the affluent populations of its customer countries and thereby earn hundreds of billions of dollars every year from their purchases -- just like Middle Eastern countries earned from selling their oil resources.
China would only inflict severe damage on the economies of affluent countries, especially the U.S., in a desperate act of self-preservation, an action that would cause substantial losses for everyone, including China.
So China knew that it had to develop its own technology and software. But as noted previously, that would take at least ten years to achieve.
China desperately needed a more powerful strategy. Fortunately for China, in October, 2022, President Biden imposed far more powerful world-wide extraterritorial export controls on its advanced technology and software . Imitation being the sincerest form of flattery, China “flattered” President Biden by imposing world-wide extraterritorial export controls on its processed REEs.
President Trump had at least as much open contempt for President Biden as he had for President Obama, so he probably failed to recognize that President Biden's extraterritorial export controls were an order of magnitude more powerful than the controls he imposed on Huawei.
President Biden focused on advanced semiconductors. He greatly expanded the membership of the Entity List beyond Huawei and its affiliates. His focus on advanced chips was narrower, but his worldwide extraterritorial scope was much wider because it included all of the products at the end of any supply chain in any country that contained American semiconductor technology or software at any point in the supply chain.
a) Additional Export Controls (October 2022)
This was the "Big Bang" of Biden’s policy.
- President Biden declared a national emergency. The BIS then established new Foreign Direct Product (FDP) rules, claiming U.S. jurisdiction over any advanced chip made in any country.with American tools or software
- It also required "U.S. Persons" to obtain licenses to work for employers on the Entity List to prevent engineers and other U.S. employees from transferring their extensive tacit knowledge about U.S, software and technology to employers on the Entity List.
-- For the purposes of this regulation, "U.S. Persons" usually meant U.S. citizens or permanent U.S. residents (green card holders)
Given their extensive scope, these worldwide extraterritorial regulations contained substantial unanticipated loopholes. Therefore the Biden administration was challenged to identify and close these loopholes with additional regulations whenever they appeared, like an endless game of whack-a-mole.
Of course, China will face similar challenges to its 2025 extraterritorial export controls of processed REE's that will be discussed in Section 5. Perhaps the biggest challenges to the U.S. and Chinese efforts to leverage their respective chokepoints -- tools & software vs processed REEs -- is where their world-wide extraterritorial scopes collide, e.g., the Netherland's ASML and Taiwan's TSMC.
b) Whack-a-mole ... One example among many instances
- Outbound Investment Screening - EO 14105 (August 2023)
This executive order declared a national emergency that made it necessary to prohibit U.S. investment in firms in "countries of concern" that are working on "semiconductors and microelectronics, quantum information technologies, and artificial intelligence capabilities" ... China is not mentioned by name. - The reader is referred to a CSIS publication that provides a comprehensive review of all of the updates the Biden administration added to the BIS export controls to counter the technical and legal evasions of the Biden administration's extraterritorial controls that emerged.
-- "Where the Chips Fall: U.S. Export Controls Under the Biden Administration from 2022 to 2024", CSIS, 12/12/24
c) Tariffs
President Biden either retained or greatly increased President Trump's tariffs on China, but his retentions and increases are not worth discussing because they had no substantial impact.
d) China's response to Biden
The editor of this blog has noticed numerous ironies in his analysis of China’s decades long-term strategy for pursuing Deng Xiaoping’s vision. But his tiny mind was boggled by the undeniable supremacy of the irony that the American president whose worldwide extraterritorial export controls were designed to be China's ultimate damnation inspired its timely resurrection.
Bargaining is a short-term solution. China still needs independent technology and software for the long-term security of its processed REE advantages. So what has China been doing to achieve independence since its ZTE wake-up call in 2016? Its comprehensive five year plans have impressive scope, but the editor's instinct to "follow the money" quickly led him to the so-called "Big Fund" whose official name is "Integrated Circuit Industry Investment Fund (ICF)." Here is Wikipedia's description:
Now here are the funding details, again from Wikipedia:
China quietly adjusted to President Biden’s tariffs and became the creative primary target for his ongoing whack-a-mole operations.
— Worldwide Extraterritoriality ...
The editor of this blog has noticed numerous ironies in his analysis of China’s decades long-term strategy for pursuing Deng Xiaoping’s vision. But his tiny mind was boggled by the undeniable supremacy of the irony that the American president whose worldwide extraterritorial export controls were designed to be China's ultimate damnation inspired its timely resurrection.
What China needed asap was a substantial modification to Deng's strategy that would enable it to bargain with the U.S., a strategy that would enable China to say, "If you strike us over here, we will strike you over there."
President Biden’s worldwide extraterritorial export controls for U.S. advanced technology and software inspired China to develop its own worldwide extraterritorial export controls for its processed REEs.
— Independent technology and software ...
- "The fund aims to help China reach its national goal of achieving self-sufficiency in the semiconductor industry (as part of the Made in China 2025 plan) by investing in domestic semiconductor companies. It has played a significant role with regards to the semiconductor industry in China by funding companies such as SMIC, Hua Hong Semiconductor, and YMTC.
The fund has three phases respectively, with Big Fund I (2014 to 2019), Big Fund II (2019 to 2024), and Big Fund III (2024 to 2039)".
Phase I (2014 - 2019)
- "... According to a statement on the website of the Ministry of Industry and Information Technology (MIIT), it was set up to "invest in chip manufacturing, boost industrial production, and promote mergers and acquisitions ... The near-term goal was growing annual revenue of domestic semiconductor companies from 2015 to 2020 and to become a global leader in all segments of the semiconductor supply chain by 2030 ... According to MIIT, the fund raised US$21.8 billion in its first financing round in 2014."
- Phase II (2019 - 2024)
In 2019, ICF raised US$29.08 billion for its second phase. 75% of which went into wafer fabrication projects, according to CSC Financial. The investment approach was more conservative than the first phase, mainly focuses on the layout of the integrated circuit industry chain, focusing on chip manufacturing and equipment and materials, chip design, packaging and testing and other industry chain links, and supports the backbone of leading enterprises in the industry to grow bigger and stronger - Phase III (2024 - 2029)
"On 24 May 2024, the National Integrated Circuit Industry Investment Fund III Co., Ltd. was established with a registered capital of 344 billion yuan (US$47.5 billion), larger than the first two phases. Phase III is expected to continue the semiconductor industry chain "neck" link investment, including large-scale manufacturing and equipment, materials and other links, in addition to the HBM industry and other key areas of artificial intelligence semiconductor is also expected to obtain the Big Fund III investment."
The editor was surprised by these funding figures -- $21.8 billion, $29.08 billion, $47.5 billion -- figures that would be inadequate for annual funding, and grossly inadequate for five year periods.
- For example, Phase 3’s $47.5 billion for five years is a little more than $9 billion per year. These funds are expected to produce breakthroughs for at least five areas, including artificial intelligence. So each area would receive less than $2 billion per year. America’s big tech firms are currently investing more than that much per month improving their generative AI infrastructures. China has no chance of catching up with the U.S. with such small annual investments.
But what about Deep Seek’s breakthrough models? They are widely used by American companies because American companies have found them to be as good as American models
. - Yes, any American company can run China’s breakthrough models because America’s Big Tech companies run the Chinese models on clouds of expensive American data centers. China has not built these expensive clouds yet, so most Chinese companies can’t run China’s breakthrough models yet.
- Of course the biggest and wealthiest Chinese companies don’t need clouds; they can run deep Seek’s models in their own private data centers. But what chips will the models be running on? Independence requires them to be running on Chinese chips. American data centers run models on 5nm chips and are moving down to 3nm, even 2nm chips. China’s chips are still three or generations older at 15nm, much slower and require lots more energy, not competitive.
-- Chinese DARPA ...
If money were the only obstacle impeding China's making the "great leap forward" that is essential for catching up to its Western adversaries, its strategy would be straight-forward ➡ Allocate a lot more money, at least ten times as much per year. Unfortunately for China, money is not the primary chokepoint. The primary obstacle seems to be pervasive risk aversion:
Indeed, in recent years China has blocked the sale of Nvidia chips designed for sale in China and mandated that Chinese firms purchase local chips in order to support local development efforts. In other words, China is forcing its wealthy tech firms to bear the financial costs of incremental improvements by local developers. Perhaps this is why its Big Fund allocations are so small. This strategy may work in China, but definitely not in the U.S.
If money were the only obstacle impeding China's making the "great leap forward" that is essential for catching up to its Western adversaries, its strategy would be straight-forward ➡ Allocate a lot more money, at least ten times as much per year. Unfortunately for China, money is not the primary chokepoint. The primary obstacle seems to be pervasive risk aversion:
- Government officials all over the world are averse to making the substantial the investments required by most breakthrough technologies because such developments incur high failure rates ... that critics will denounce as "wasted" government funds. So they prefer to make small investments that guarantee incremental improvements.
Corrupt officials who "invest" government funds, then skim off some of the returns prefer low risk incremental projects with guaranteed rates of return, no matter how small. Whatever they skim provides infinite returns because it wasn't their personal funds they invested. - Corporate managers, like corporate managers anywhere, won't make investments of any kind unless they can be sure their investments will yield substantial returns within three to five years. They will tend to make relatively small investments that guarantee incremental improvements, whereas breakthrough technologies typically require substantial upfront investments and have high risks of failure.
- University researchers should be a primary source of long-term game-changing innovations, as has been the case in the U.S. But for reasons the editor does fully understand, this has not been true for China, which is one reason why China has depended on breakthrough tech innovations, e.g., semiconductors, developed by other countries. Another failure is especially noteworthy.
When Den Xiaoping asked China's universities to identify resources that China had in abundance compared to the rest of the world that could be monetized to yield huge annual revenue comparable to the annual revenue that Middle Eastern countries derived from their oil resources, their response was rare earths.
Since then, a fundamental component of China's formidable rare earth ecosystem has included universities that receive substantial financial support to conduct rare earth research and to train engineers in the application of this research in China's production facilities. Indeed, China has acquired thousands of patents from the research conducted by its universities.
It didn't take long for the editor to learn that the most significant breakthrough related to rare earths was the production of powerful permanent magnets by "seasoning" iron or cobalt with rare earths.
Question: When did the Chinese universities develop these processes?
Answer: They didn't. These processes were developed independently by Japanese and American inventors. Interested readers are referred to a report in Magnetics, 2013
In other words, China's university researchers amassed thousands of incremental patented improvements, that taken together accumulated a formidable competitive advantage over other countries, but no single improvement was a game changer.
- Here's the good news for China. In March 2018, Science reported that President Xi created a Chinese DARPA. This should leave no doubt in anyone's mind that he believed the penalties and fines that BIS imposed on ZTE in 2017 and 2018 to be China's wakeup call. China had to develop its own advanced chips as soon as possible.
- Now here's the bad news for China. Eight years later in 2026, China's DARPA has failed. China still lags far behind the U.S. in advanced semiconductors. The DARPA strategy of pushing developer teams to identify the true boundaries of their hypotheses by pushing beyond predicted points of failure is not consistent with broader Chinese cultural habits. "Move fast and break things" may work in the U.S., but not in China.
Indeed, in recent years China has blocked the sale of Nvidia chips designed for sale in China and mandated that Chinese firms purchase local chips in order to support local development efforts. In other words, China is forcing its wealthy tech firms to bear the financial costs of incremental improvements by local developers. Perhaps this is why its Big Fund allocations are so small. This strategy may work in China, but definitely not in the U.S.
- "Chinese regulators block ByteDance from using Nvidia chips, The Information reports", Reuters, 11/25/25
- "China blocks Nvidia H200 AI chips that US government cleared for export", The Guardian, 1/17/26
-- A New Détente ...
Pictured above are Zhou Enlai, the first Premier of the People's Republic of China (PRC), enjoying a tasty Chinese take-out with Henry Kissinger, U.S Secretary of State, who was on his first secret trip to the PRC in 1971 to prepare for President Nixon's historic meeting with Chairman Mao Zedong in 1972, wherein the U.S. and China would begin the process of normalizing their relationship.
Although Secretary Kissinger participated in the process that normalized the relationship of the U.S. with the PRC, détente was his term for the extensive talks, accords, treaties, and agreements between 1969 and 1979 that ended the hitherto apocalyptic nuclear arms race between the U.S. and the Soviet Union. The world became a much safer place for everyone for a long time thereafter. Wikipedia provides a concise overview of the context and achievements of Kissinger's Détente.
The editor of this blog suggests that we are living in a comparably dangerous world once again. We seem to be involved in a another kind of arms race with China and its Russian and North Korean allies, a race that might suddenly explode into the same nuclear nightmare that Kissinger's détente diffused because all of the participants in this race have nukes.
Whose fault is this? That's probably a foolish question because we are where we are, regardless of who is to blame.
- But it is easy to perceive the comical absurdity of China’s assumption that it could invest a few tens of billions into rare earth research, then using information technology that we and our allies invested hundreds of billions, perhaps trillions, to develop, to use our own tech to snuff us out of every market for every possible high tech product on the planet.
- On the other hand, our own comedy becomes a political farce when we seriously contemplate confining China -- a highly educated country that has far more highly educated engineers in every engineering sector than we have --into a mid-level tech ghetto, by playing endless rounds of whack-a-mole with penalties and fines, an apartheid of the minds. Nonsense. This was our own strategic overreach.
Our farce transformed into full blown satire when we hired huge numbers of Chinese expats to work on the frontiers of our own endeavors to soar into ever higher technological realms. Of course they will never go home again, right? Of course they will never take encyclopedias of hands-on made-in-America tacit knowledge in their heads when they return.
We are now swimming in the dangerous waters of trade warfare in which we all could drown. We bellowed our extraterritorial restrictions which China returned in kind. If we send our massive fleets within firing range of their shores to intimidate them, will they protect their populations by evacuating their port cities??? ... defensive actions that will also shut down all of their supply chains for all the products they make for us, products that we need for our daily lives, products we we can no longer make for ourselves and no one else can replace?
Like or not, we need a new Détente … but after our elections in 2028. It doesn’t matter who wins those elections because by then both parties will recognize that everybody will lose a continuing trade war with China.
- The GOP might say, "We have gone far enough; now its time to consolidate our gains by stabilizing our relationship with China."
- The Democrats might counter, "We went too far; now it's time to develop a mutually respectful stable relationship with China."
4. Trump-2 + Truce
Of particular relevance to these notes was what he called "Liberation Day", April 2, 2025. On that day, he announced his intention to impose tariffs on just about every country in the world, as reported by the The New York Times, April, 2025.
But his tariffs raised constitutional concerns. Eventually, the Supreme Court affirmed the traditional interpretation of the constitution. Tariffs were a form of taxation that could only be initiated by Congress, as reported by Bloomberg, February, 2026.
However, a few days before Liberation Day, some Republican advocates for U.S. support for Ukraine introduced a bill that will be the starting point for the most serious foreign policy challenge that President Trump has faced in his first and second terms.
a) Russia Sanctions Bill
On April 1, 2025, S.1241 - Sanctioning Russia Act of 2025 was introduced to the U.S. Senate. Sections 17 (a) and (b) specify proposed tariffs of concern to China because China buys most of its gas and oil from Russia.
- "SEC. 17. Duties on countries that purchase Russian-origin oil, uranium, and petroleum products.
(a) In general.—Not later than 15 days after making a covered determination, and every 90 days thereafter, the President shall, notwithstanding any other provision of law, increase the rate of duty for all goods or services imported into the United States from a country described in subsection (b) to a rate of not less than the equivalent of 500 percent ad valorem.
(b) Countries described.—A country is described in this subsection if the country knowingly sells, supplies, transfers, or purchases oil, uranium, natural gas, petroleum products, or petrochemical products that originated in the Russian Federation.”
b) Mega-tariffs on China
“Trump Floats New Tariffs on China, India to Squeeze Russia“, as reported in Bloomberg, September 9, 2025. Here are the first two paragraphs:
“Trump Floats New Tariffs on China, India to Squeeze Russia“, as reported in Bloomberg, September 9, 2025. Here are the first two paragraphs:
- "President Donald Trump told European officials he’s willing to impose sweeping new tariffs on India and China to push President Vladimir Putin to the negotiating table with Ukraine — but only if EU nations do so as well.
President Donald Trump told European officials he’s willing to impose sweeping new tariffs on India and China to push President Vladimir Putin to the negotiating table with Ukraine — but only if EU nations do so as well."
Nevertheless, President Trump’s proposal sent an unmistakable signal to President Xi that President Trump would consider imposing massive tariffs on China.
Here's the lengthy headline from Global Times on October 9, 2025:
- "China imposes new export control measures on rare-earth items to foreign entities"
Here are some quotes that describe key features of the new controls:
- "China's Ministry of Commerce (MOFCOM) announced on Thursday that it will impose control measures on the export of rare-earth items to foreign entities. The move aims to safeguard national security and interests ... "
- "Under the new measures, foreign organizations and individuals need to gain licenses from the MOFCOM before exporting certain items, including rare earth permanent magnet and rare earth target materials manufactured overseas that contain, integrate, or are mixed with rare earth metals or oxides originating from China, where the value of these Chinese-origin materials constitutes at least 0.1 percent of the total value.
- "Meanwhile, rare earth metals and oxide manufactured outside China yet involving Chinese relevant technologies in the process of rare earth mining, smelting and separation, metal smelting, magnetic material manufacturing, or rare earth secondary resource recycling should also apply for the license, the statement noted. The two new regulations will take effect on December 1. "
- "And all exports involving rare earth metals and oxide originating from China need to apply before exporting immediately. "
- "Chinese regulators will not approve export applications for foreign military users, as well as export applications for importers and end-users listed on export control or watch lists."
Although the article does not mention the word "extraterritorial", that's what China's new controls are all about, extraterritorial controls that covered every step of all supply chains everywhere in the world, just like President Biden's controls.
Readers should note China's biggest bargaining chip in the last quoted paragraph: China could block exports to foreign military, e.g., the U.S. Department of War. These notes discussed this mismanaged dependency in a previous installment.
Readers should note China's biggest bargaining chip in the last quoted paragraph: China could block exports to foreign military, e.g., the U.S. Department of War. These notes discussed this mismanaged dependency in a previous installment.
Given that the Global Times is an English language Chinese quasi-official publication, its announcement's meta-data signaled a crucial aspect of its message.
- First, the announcement was in English, so President Trump could read it immediately.
- Second, it was published on October 9, 2025, just four weeks after President Trump's signal that he was contemplating imposing massive 500 percent tariffs on China. In other words, this announcement was China's direct response to his signal.
- Third, its powerful worldwide extraterritorial scope was inspired by President Biden's worldwide extraterritorial export controls on U.S. technology and software. Therefore one can be sure that the Chinese controls had been meticulously crafted well before President Biden left the Oval Office. The Chinese government was waiting for a moment of maximum impact to make this announcement.
- Fourth, it was published October 9, 2025. President Donald Trump and Chinese President Xi Jinping were scheduled to meet on October 30, 2025 at an airport in Busan on the sidelines of the APEC Summit in South Korea APEC (Asia-Pacific Economic Cooperation) hosted by South Korea ... just three weeks later. Therefore China's announcement of its controls must have come as a shocking surprise to President Trump, the man who had gleefully shocked the world with his own surprise announcements, week after week, since his second inauguration in January 2025. There was not enough time for his advisers to prepare a well considered response
d) Truce at meeting in South Korea.
President Trump did not have enough time to prepare a well considered response to China’s new worldwide extraterritorial export controls, so he improvised a strategy, a truce that sounded like an even trade, but it wasn’t. The U.S. would suspend its export controls in exchange for China’s suspension of its controls.
For example, we know that his tariffs would soon be invalidated by the Supreme Court, so they are not worth repeating here. More importantly, China did not affirm the suspension of all of its controls.
e) China’s new controls — which remained in effect, which were suspended until November 10, 2026, and who would be affected by these controls.
Before getting into the details of the timing of China's export controls, we think the reader will benefit from a final review of China's long-term, mid-range, and short-term uses of its processed rare earths.
- Monetize for long-term.
China's long-term objectives are to monetize its processed rare earths. As per Deng Xiaooing's original strategy, China does not really want to sell any of its processed rare earth to any other country. The total annual sales of rare earths is less than $10 billion dollars. Even if China somehow managed to sell its rare earths for ten times their current value, that would generate less than $100 billion per year. Deng envisioned earning hundreds od billlions of dollars each year.
China really wants wealthy foreign investors to invest tens of billions into China's own manufacturing infrastructure each year and to provide these investors with substantial returns on their investments within three to. five years. It does so by producing components, subassemblies, assemblies, and sometimes final products that quickly dominate their markets because China's thousands of patents embody far greater knowledge of the best ways to "season" products than foreign competitors.
China's superior versions of the components, subassemblies, assemblies, and final products soon dominate the markets in affluent consumer countries that generate the desired hundreds of billions of dollar annual revenues for China.
China uses its license requirements to "nudge" foreign manufacturers to shift their production of components, subassemblies, assemblies, and final products to China. The process for obtaining licenses for buying processed rare earths contains so much friction that foreign manufacturers eventually perceive the "wisdom" of relocating their productions to China. - Weaponize for short-term self-defense... e.g., trade wars.
China will only weaponize its rare earths against affluent countries like the U.S., in trade wars for self-defense. Full blown trade wars will severely damage the economies of targeted affluent countries and thereby greatly reduce the funds its wealthy investors can make in China's manufacturing infrastructure and greatly reduce the purchases its affluent consumers can buy from China. These losses will severely damage China's own economy. Everybody loses. - Détente for mid-term transitions ... special cases.
The editor of this blog is convinced that China understands that the apparently unstoppable success of its long-range strategy sparked the repressive responses President Trump initiated in his first administration, responses that that were perfected by President Biden.
That's why President Xi granted President Trump's request for a truce, for a suspension of hostile actions by both countries for a year, a year in which President Xi hoped that President Trump might adjust his own strategy to one that might allow both countries to live with each other's success at least for one or two years thereafter.
In other words, President Xi took the first steps in a third Chinese strategy, Détente, taking a deliberate, voluntary step back from the brink of an apocalyptic conflict. As per our description of China's reactions to President Biden's export controls, Détente was a multi-step, multi-year process conceived by Secretary of State Henry Kissinger in 1969 to enable the U.S. and the Soviet Union to bring their apocalyptic nuclear arms race to a peaceful close.
And that's why President Xi only paused China's export controls that would provoke an immediate response from Trump's Department of War. Would China really block the sales of its processed RRE's to the U.S. defense contractors who embed them in our drones and missiles while we are conducting a massive intervention in Iran that will substantially deplete our stockpiles? Our war in Iran presents no clear and present danger to China, so of course not.
President Trump does not have the temperament to engage in multi-year talks, accords, treaties, and agreements, but no matter. He hates to lose, so he punted in October 2025 and he will probably punt again next week. Fortunately for all of us, that's the same tactic that a President who valued Détente would adopt ... 😎
Here's another special case. China is determined to design its own advanced chips. That's only part of the process; it also has to develop fabrication machines that produce its new chips. Only one company in the world produces these machines, ASML in the Netherlands and its machines cost about $500 million. ASML's machines contain components "seasoned" with China's processed RREs. If China blocked ASML's access to the materials that are "seasoned" with its RREs, it might provoke extreme reactions from the Netherlands, from Germany where important components of ASML's machines are produced, from the EU as a whole, and from the U.S. Not a very Detente-y move.
But suppose China agreed to (1) approve the supply of RREs to the Netherlands for 10 years, (2) sharply reduce the sales of its BYDs and other EVs in Europe for ten years that are currently depressing Germany's automotive industry, and (3) only sell its advanced chips to customers in its domestic market for 10 years. Perhaps all parties involved might support China's efforts to hire teams of ASML engineers as consultants for China's development of its own fabrication machines ... assuming that China does not use any advanced U.S. chips in its machines - Which controls were not paused?
According to Yahoo!Finance, April 26, 2026,
-- "However, earlier controls introduced in April 2025 remain in force, requiring case-by-case export licenses for seven medium and heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, along with all their metals, oxides, alloys, compounds, and permanent magnet materials."
In other words, China merely kept seven RREs on its long-range "nudge the buyer" list ... 😎
This section focuses on hyper-scale data centers, rather than on smartphones, desktops, pads, monitors, fitness watches, glasses, and other hardware because that's where Big Tech is investing at least 90 percent of its capital nowadays.
The editor initially posed this research task to Claude, Anthropic's chatbot. Then he posed the same task to ChatGPT, OpenAI's chatbot. Like Claude, ChatGPT provided a list of links to reliable sources of information about the uses of different RREs in data centers. But when it got to magnets, it suddenly listed all of the related RREs. The editor then asked ChatGPT to revise its entire list into the same format, citing a use, then naming the relevant RREs.
The editor took ChatGPT's revised list back to Claude for a red team identification of any uses ChatGPT may have missed. Claude found a few and suggested a more inclusive perspective that involved the supply chains of the data centers. So the following list is a Claude-ChatGPT-Claude production ... with some final edits by the editor of this blog to make their presentation a tad bit more concise ... 😎😎😎
... Rare Earth Elements in AI Hyper-scale Data Centers ...
1. Cooling Fans and Cooling Pumps
- Neodymium (Nd), Praseodymium (Pr), Dysprosium (Dy), Terbium (Tb)
- Uses: High-performance permanent magnets (NdFeB magnets) inside
-- server cooling fans
-- liquid cooling pumps for AI accelerators
-- precision electric motors - The magnets allow smaller motors with higher torque and lower electricity consumption — critical in AI data centers that consume enormous amounts of power. Dysprosium and terbium improve heat resistance at high operating temperatures.
2. Hard Disk Drives (HDDs) and Data Storage
- Neodymium (Nd), Praseodymium (Pr), Dysprosium (Dy), Terbium (Tb)
- Uses: Rare earth magnets are used in:
-- hard drive spindle motors
-- actuator arms
-- precision positioning systems - These magnets enable ultra-fast and extremely precise movement of read/write heads in large-scale storage systems. HDDs still dominate bulk cold storage and archive tiers, though new builds are increasingly migrating to SSDs, which do not use rare earth magnets the same way. Total storage-related rare earth demand is shifting downward over time but remains substantial.
3. High-Efficiency Electric Motors
- Neodymium (Nd), Praseodymium (Pr), Dysprosium (Dy)
- Uses: AI data centers contain thousands of electric motors in:
-- cooling systems
-- ventilation systems
-- backup infrastructure
-- robotic maintenance equipment - Permanent magnet motors reduce power consumption and physical size while increasing efficiency.
4. Backup Power Systems and Grid Infrastructure
- Neodymium (Nd), Praseodymium (Pr), Dysprosium (Dy), Lanthanum (La) and Cerium (Ce) — declining
- Uses:
-- permanent-magnet generators
-- power conditioning systems
-- grid stabilization equipment - The substantial rare earth content in modern data center backup is in permanent-magnet generators and motors. Lanthanum and cerium were historically important in nickel-metal hydride batteries, but lithium-ion has largely displaced NiMH in current backup systems, so La/Ce demand for batteries is declining.
5. Fiber Optics and Optical Communications
- Erbium (Er), Ytterbium (Yb)
- Uses:
-- optical signal amplifiers (erbium-doped fiber amplifiers, EDFAs)
-- fiber optic communication systems
-- high-speed data transmission equipment - Erbium is especially important in fiber optic amplifiers used in long-distance and high-bandwidth communications between data centers and within distributed AI workloads.
6. Semiconductors, Phosphors, and Advanced Electronics
- Terbium (Tb), Yttrium (Y), Europium (Eu), Gadolinium (Gd)
- Uses:
-- semiconductor specialty coatings
-- phosphors (in LED indicators, monitoring screens, and the limited displays data centers contain)
-- photonic systems
-- advanced electronic materials
-- high-performance thermal and optical applications tied to AI hardware
7. Superconducting and Advanced Thermal Systems
- Yttrium (Y)
- Uses:
-- experimental superconducting applications
-- advanced cooling technologies
-- energy-efficient computing systems - Currently mostly emerging or experimental at commercial scale, but expected to grow with the next wave of high-density AI installations.
8. Server Chassis and Structural Components
- Scandium (Sc)
Uses: Scandium-aluminum alloys are used in:
-- server racks
-- structural enclosures
-- frames for high-density installations - These alloys provide light weight, high strength, and resistance to wear — particularly relevant for high-density AI installations where weight and thermal management matter.
9. Chip Manufacturing Inputs (Indirect Dependency)
- Cerium (Ce), Yttrium (Y), Gadolinium (Gd)
- Uses:
-- cerium oxide as polishing slurry for silicon wafers (chemical-mechanical planarization)
-- yttrium in YAG lasers used in chip patterning support
-- gadolinium in shielding and certain semiconductor processes - This is not rare earth use inside the data center itself, but every GPU and AI accelerator currently powering those data centers required rare earths in its manufacturing. The dependency runs through the chip supply chain, not just through data center components.
10. Catalysts in Fuel Cell Backup Power
- Cerium (Ce), Lanthanum (La)
- Uses: Solid oxide fuel cells with rare earth catalysts are used for:
--primary or backup power at selected data centers (Microsoft has been notable in deploying these)
-- power conditioning systems - Currently emerging rather than mainstream, but real and expected to grow as data centers seek alternatives to grid power and diesel backup.
Our upcoming federal elections will be held on November 3, 2026. Therefore no one should be surprised that China set the deadline for responses to its export controls on November 10, 2026 -- one full week after our elections. By that time enough returns will be finalized to assess the GOP’s gains and losses.
- If the GOP does well in the elections, then President Trump will have maximum power, so President Xi will have minimal leverage; but if the GOP does poorly, then their relative positions will be reversed.
- President Trump is scheduled to meet President Xi in China next week. Of course, this will be another short-term bargaining session with President Xi offering minimal commitments, and President Trump proclaiming maximum victory, no matter what really happens behind closed doors
Meanwhile, the U.S. Supreme Court's denial of President Trump's authority to impose tariffs has already afforded China's leverage a substantial boost.
President Trump is scheduled to visit China in the next few days. We will post an addendum to this installment that will cover any substantive agreements that are reached.
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