JPMorgan: The U.S. is too dependent on China for critical metals, entering a "mutual stranglehold" phase

1. 10th month, the conflict between China and the U.S. intensified again, and the U.S. felt the pain of controlling rare earths. JPMorgan's Michael Cembalest wrote a report analyzing various critical metal elements and the U.S. supply situation.

2. It is very serious that China has "presumed rejection" for military and high-end semiconductor uses, and also the 0.1% long-arm jurisdiction rule, which is essentially to strike the U.S. military hard. China said that the reason was that after the Madrid meeting, the U.S. did not refrain from new confrontation actions but arbitrarily introduced many sanctions, such as Commerce Secretary Rutnik, who made a mess, which is an administrative management problem. The report believes that China's "foreign direct product rule" for rare earths has been aligned with U.S. chip control, and the mutual "stranglehold" between China and the U.S. has entered a mirror stage.

3. Minerals that the U.S. relies on 80–100% on imports from China include: terbium, dysprosium, holmium, erbium, thulium, ytterbium, europium, yttrium, scandium (Tb, Dy, Ho, Er, Tm, Yb, Eu, Y, Sc). The historical lesson is that in the 1980s, the U.S. was the global leader in rare earths! By 2000, the U.S. rare earth production had gone to zero, mainly due to high environmental costs and China's low-price strategy. Mine reactivation takes an average of 18 years, and U.S. approvals can take up to 20 years. Japanese, Australian companies, and American companies like MP Materials are developing them, but they cannot fill the gap in the short term. If China strictly enforces the new rules, industries such as semiconductors, automobiles, aerospace, healthcare, and communications will all be affected.

4. The report suggests that if the U.S. wants to rebuild the critical mineral supply chain, it needs strategic alliances, financial guarantees, and shorter approvals, but these are all long-term matters, "the distant water cannot quench the immediate fire." The report concludes that the "technology-resource" mutual stranglehold between China and the U.S. is entering a new stage of parity, institutionalization, and spillover. The report warns that the market may underestimate the long-term impact of policy continuity and supply constraints.

5. This report shows that the U.S. is really in pain, and now there is no solution at all. Bassent became so upset he said to expel 300,000 Chinese students, indicating that he has no idea. In the long term, efforts can be made, such as convening G7 countries to discuss how to solve the problem, but these people are politicians who don't understand how to mine and refine, and it would take many years to figure out. But now, they need to have food on the table, and playing hard only leads to both sides losing.

6. Another big issue is that Trump was corrupted by his younger son, addicted to stock market and cryptocurrency speculation, and is very sensitive to stock market declines. When Sino-U.S. confrontation intensifies, the first reaction is usually the stock market. The surge in gold reflects a significant increase in geopolitical and fiscal credit risk premiums, which is also不利 to the U.S.

7. Playing the game to this point, basically all the cards are exposed. The Chinese gain is that they dare to confront the U.S. One is the tariff war, mutually increasing to over 100%, which proves a major victory, and the U.S. could not withstand it for a month. The escalation of confrontation in October was not about tariffs, but about the U.S. continuously launching unreasonable sanctions. The U.S. keeps coming up with various underhanded moves against China's shipping, chips, and other industries. Previously, China generally maneuvered and found ways internally to deal with pressure. But now, China's posture is to mutually strangle each other and see who can hold out longer! The result will be the same as the 100% tariff confrontation, and the U.S. will not be able to withstand it for long.

8. Moreover, the U.S. is starting to think about other big moves from China and finds that there are indeed many. For example, cutting off the supply of U.S. pharmaceutical raw materials, refusing to use dollars in trade, etc., are bigger cards. The U.S. imports much more from China than it exports, and many of the ones that can be shifted have already been moved, leaving many that have been given tariff exemptions. These are actually China's cards. As long as they are determined to not make money, see who can bear the loss more, the U.S. will fear going further.

Original: www.toutiao.com/article/1846197301308428/

Statement: This article represents the views of the author.