Last week, I looked at the escalating trade war between China and the US and the opportunities this could present for investors in Australia.
As you know, China dominates the supply of refined critical minerals like graphite, rare earths, cobalt, and lithium.
As I’ll detail below, this remains China’s most powerful tool in countering trade barriers imposed by Western nations.
The US understands this…it desperately wants Australian and Canadian miners to step up and provide alternative supply.
But this can’t come fast enough!
As I pointed out last week, Australia’s resource minister, Madeline King, went on a critical metal spending bender after high-level talks in Washington earlier this year.
The reason?
With its vast reserves of critical minerals, the US views Australia as a major cog in the West’s pivot away from China.
As a result, Arafura Rare Earths [ASX:ARU], Renascor [ASX:RNU], and AlphaHPA [ASX:A4N] were all big winners from the Washington visit.
Combined, these three stocks received over AU$1 billion in government incentives to build their critical mineral operations.
In fact, all three of these stocks were recommended to my paid membership group, Diggers & Drillers, well before government initiatives were announced earlier this year.
Here’s the problem…
Australian and North American critical metal developers are still years from ramping production and installing downstream capacity.
Western governments are walking a tightrope. By escalating trade pressure against China, they risk sudden supply disruptions of key minerals.
This could become a major pinch point for the West.
China has already threatened export limits on certain critical minerals, including germanium, gallium and refined graphite anode material.
But so far, these countermeasures have been tepid.
That’s perhaps why the US has become bolder in its push against China’s manufacturing dominance.
As I pointed out last week, the US scaled up trade tariffs on a wide range of Chinese goods, including steel, aluminium, semiconductors, EVs, solar cells, and medical products.
In some cases, tariffs have risen by 100%.
And the imposition against China is spreading.
Last week, the European Commission announced that imported Chinese electric vehicles will be subject to additional duties of up to 38.1%.
Like the US, these measures are based on the premise of ‘protecting local companies and manufacturing jobs’.
With important elections coming up across the UK, France, and the US, further trade wars against China loom large.
You see, China’s manufacturing dominance remains a juicy target for political parties in the West rallying nationalism in a bid to win the popular vote.
That’s why I believe trade tensions could escalate in a big way in 2024.
Over in the US… both Trump and Biden have used anti-China trade policies to boost their re-election odds.
Will this trade war reach a peaceful termination in 2024? Unlikely.
Expect this to become a major topic as citizens cast their votes.
But what about China?
Will the world’s second-largest economy sit idly by and watch its manufacturing empire slowly disintegrate?
Don’t count on it.
Anticipating China’s next move
Clearly, critical minerals remain China’s most important bargaining chip against the West.
As I pointed out, Washington understands what’s at stake, hence the pressure to back Australian and North American critical metal developers.
But as I highlighted, these alternative supplies won’t arrive fast enough.
That ensures China will hold an ace card for some time yet.
But WHEN will this critical metal behemoth play its most important hand?
Undoubtedly, the window is closing on China’s ability to reap maximum fallout by imposing strict restrictions on critical metal supply.
Moves to develop mines and downstream processing facilities in Australia and North America are well underway and will (eventually) weaken its advantage.
That’s why China could be preparing its major move soon.
There’s no crystal ball gazing on how this will play out… All signs point to further escalation.
As the West vainly tries to drive trade away from China, the world’s most important supplier will have little choice but to impose broad critical mineral export bans.
Fat Tail editors join forces
This is a truly historic moment; we’re witnessing the breakdown of globalisation.
Unfortunately, that’s likely to increase inflation and raise economic volatility.
While we can’t control what happens globally, we can decide how to position our investments.
And at Fat Tail, we firmly believe investors should have full control over their investment choices.
We’re here to guide and provide views that the mainstream may not always consider conventional.
But that’s your edge.
To find out how your Fat Tail editors are positioning for the looming inflation problem, you can do so here.
Enjoy!
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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