Bronze, Oil, Magnets

The more critical an input is to the economic success of a society, the more it attracts interests beyond the realm of businessmen. This has been true since the dawn of human civilization, yet over the last 80 years, leading thinkers convinced themselves that businesses could globally conduct commerce independently from state interests and influences. This period of exception is now rapidly closing.

As I have drifted across the continents over the past few years, I have had a front row seat to witness the shifting plates of the global economy as this period closes. I have worked on data and ML systems in both the US and China, and Continental Drift is born out of my lived experience and analysis of global supply chains and critical resources as the world returns to the historical mean.

State actors have been involved in commerce since the days of the Bronze Age city-state, whose leaders made it a priority to develop long-distance supply chains to secure critical inputs to the forging of bronze. In those days, bronze meant more than just weapons and the security of the state. It provided the ability to build better ships, manufacture agricultural tools, construct buildings, and project power.

You don't need to venture that far in the past though to see that critical resources have attracted state interests. I am in the midst of reading Daniel Yergin's history of the global petroleum industry, The Prize, and his narrative details how the business of oil did not remain only for the oilmen for long. The rise of many states, particularly in the Middle East, was explicitly linked to the amount of "black gold" that lay below their feet, and they spent a great deal of effort to secure and grow their cut of revenues from the oilmen.

History is sprinkled with these stories, as states have always held a key interest in the economic activity of any resource or technology that can serve to strengthen the state itself, strengthen its enemies or threaten the balance of powers. Success in a global economy often comes down to the ability to serve bottlenecks in the value chain, and during the Industrial Age, the ability to control key choke-points in the production process of advanced manufactured goods naturally grew as an extension of this principle.

As the world globalized in the post-war period (1945–1973), a new ideology emerged, one in which commerce was viewed independently of the state. Major proponents believed in free markets, comparative advantage, and notions of commercial peace via economic interdependence. This belief was then supercharged after the fall of the USSR in 1991, when there was no longer a credible competitor to the US-led order. This was followed by the creation of NAFTA (1994) and the WTO (1995), which further ensured the ideology's spread throughout the globe.

This viewpoint was akin to a luxury belief, one that can only be held in a world order that was underwritten by American hegemony and its global security umbrella. Armed with this ideology and secured by the US Navy, western firms increasingly focused on the high-value add, high financial-margin portions of the value chain, and let the intensive, lower margin work shift to firms in developing countries.

However, with the rise of Chinese technological prowess and the outbreak of the Russo-Ukrainian War, leaders on both sides of the Atlantic received a personal wake-up call that challenged this long-held ideology. Since then, drastic steps have been taken in order to reassert the strategic interest of the state in critical commercial affairs, including the push to re-shore/friend-shore manufacturing and the subsidization of strategic industries.

We are currently seeing this reassertion of state presence in all of the inputs of the AI economy, exactly where my interest and experience lie. Of notable relevance is the category of rare earths and critical minerals, as they serve as key components in the manufacturing of:

Electronics & Consumer Tech
Electric Vehicles & Motors
Wind Turbines & Energy
Defense & Military Systems
Industrial & Manufacturing
Medical Technology
Batteries & Energy Storage
Aerospace

This stack fuels the modern world, and those that control it have the power to influence, maintain, and strengthen their position within it. It should come as no surprise that the foremost powers on earth, sitting in Washington and Beijing, are jockeying for position in these areas. The well-noted key choke point is the expertise of the Chinese in rare earth processing and the United States' attempt to garner some degree of self-sufficiency in this process.

It's the same story as the Bronze Age, but instead of jockeying over the supply chains of copper and tin (well, still copper), states are racing to secure their access to silicon, tungsten, and rare earths as well as the capacity to turn them into chips, batteries, magnets, and missiles. The bottleneck is rarely the rock itself. It sits somewhere down the chain, and each week I'll investigate where.

Continental Drift is free. One essay every Thursday, in your inbox. Unsubscribe any time.

Subscribe