You should have paid closer attention in chemistry class

Over the past several months there has been some market discussion on the strategic relevance of critical minerals, but not nearly enough.

For analysts like me who follow the ins and outs of deepening great-power competition, critical minerals are one of the most meaningful variables to monitor today, and well into the future. Why? These key economic inputs are a dominant variable in how today’s rapidly fracturing geopolitical order could evolve. Access to and control of critical minerals could shape the direction of global markets, trade flows, supply chains, national security policies, and a variety of other macro variables including inflation, rates, and future monetary policy.

The road to this new world order (and whether it arrives peacefully or with severe geopolitical, policy, military, and market disruptions) will run through this collection of elements most of us haven’t thought about much since chemistry class in secondary school.

Without these specific critical minerals, you can’t produce automobiles (including all EVs), aircraft, semiconductors, wind turbines, solar panels, and batteries — to say nothing of vital military and weapons systems such as communication satellites, combat and surveillance drones, precision-guidance systems used in missiles, high-frequency radar, and hundreds of other uses.

The bottom line here is: Critical minerals matter — a lot. And, today, China controls almost all of them.

More geopolitical leverage for China

For decades, Chinese leaders had the foresight and planning to prioritize this crucial industrial chokepoint, and Beijing now holds a dominant position in this area.

To get here, the Chinese government implemented a series of Five-Year Plans in the sector. These plans ranged from taking state-backed majority stakes in mines across Africa, South America, and Southeast Asia, to investing heavily in midstream processing of these minerals. These plans worked. Today, China has near-monopoly control of the critical mineral market. In fact, Beijing controls an estimated 70% of the total global market for critical minerals, with even higher shares in processing and refining.

This market dominance is particularly acute when it comes to US national security because, simply put, you can’t run a modern military without these critical minerals. This fact isn’t lost on the Pentagon, which remains dangerously exposed to supply chain disruptions in the sector, especially across essential US military systems in every US military service domain.

Given this huge geostrategic advantage, it’s no surprise that China has used this leverage in its ongoing trade negotiations with the US. In response to new tariff announcements from Washington, Beijing made major changes to its critical minerals export regime, including:

• The imposition of new licensing requirements for obtaining Chinese critical minerals
• New restrictions on specific rare-earth processing equipment and technical expertise
• New bans on end uses of these Chinese exports, including military and other “sensitive” sectors

Given the national security and economic impacts, these moves touched a nerve in Washington and triggered immediate Trump administration threats to restart the US-China trade war. These latest policy developments demonstrate how critical minerals will shape US-China competition in the coming months and years across economic, diplomatic, and especially military dimensions.

Understanding the investment implications

Given the high stakes, these national and economic security aspects will drive policy, producing a balance of risks and opportunities for investors along the way.

First, China’s latest moves are likely to incentivize the US and its allies (Canada, Australia, and others) to accelerate their own production and processing capabilities for critical minerals. But this will take years and expend significant domestic political capital and resources. During this time, Beijing will undoubtedly seek ongoing opportunities to alter its relationship with Washington in ways more favorable to China.

Over the short and medium term, Chinese government leverage is also likely to accelerate a more transactional approach to US foreign policy that will reshape supply chains across the world, while producing ongoing friction with Beijing.

We should therefore expect more policy protection and promotion of this vital sector alongside ongoing efforts in:

• Semiconductors
• Biotechnology
• Robotics and automation
• Artificial intelligence
• Quantum computing
• Other emerging technologies on the frontlines of great-power competition, many of which require their own substantial inputs of critical minerals.

This disruption is also likely to produce market winners and losers at regional, country, industry, and company levels. This is a potential boon for active management, particularly for long/short strategies. These dynamics could also produce new opportunities across private markets, particularly as many emerging technology companies exist within this space.

Lastly, from an asset allocation perspective, the increasing centrality of critical minerals on the macro and geopolitical front should act as a longtime driver for several commodities and decarbonization themes. This is also likely to produce policy tailwinds to support traditional defense, defense innovation, and climate resilience themes as national security becomes an even larger variable across the global investment landscape.