The chips are down.

The poker game between Washington and Beijing has reached a pivotal moment.

This week, Treasury Secretary Scott Bessent and Chinese trade officials hammered out what they’re calling a “framework” ahead of Thursday’s Trump-Xi summit in South Korea.

The stakes?

A proposed 100% tariff on Chinese goods versus China’s stranglehold on rare earth minerals that power everything from smartphones to fighter jets.

Investors need to be prepared for all outcomes.

Path #1: Happy Days

The optimistic scenario has Trump and Xi shaking hands, tariffs paused, rare earth exports flowing, and markets ripping higher. China agrees to buy American soybeans, delays its export restrictions, and everyone walks away claiming victory.

If this unfolds, expect the S&P to surge as recession fears evaporate. Tech stocks would celebrate restored supply chains. The AI infrastructure boom would accelerate without geopolitical friction.

But here’s the thing: even in this rosy scenario, the underlying tensions haven’t disappeared. They’ve just been kicked down the road.

I also think this could be bearish for gold over the medium-term as investors cycle back into fiat/paper assets like stocks.

Path #2: Tensions simmer, critical minerals rally continues (BAU)

The more interesting scenario—and the one I think deserves your attention—is the middle path where it’s (Business As Usual).

No grand deal, just a brief lull before the great powers resume their competitive machinations.

Trade talks produce a temporary truce, but neither side fundamentally changes course.

China maintains leverage through its 90% control of rare earth processing. America doubles down on securing alternative supply chains through Australia, Africa, and domestic production.

This is where the critical minerals story gets explosive.

We’re already seeing it play out. The US government took a 5% stake in Lithium Americas, sending the stock up nearly 100%. Fifteen Australian critical minerals companies just returned from Washington with promises of equity stakes, debt-equity hybrids, and prepaid offtake deals.

The playbook is clear: America will pay whatever it takes to break China’s stranglehold.

Lithium, copper, and rare earths are all strategic battlegrounds. And the kicker? Data centres alone could consume 400,000 tonnes of copper annually by 2030.

Africa will once again be the frontier, this time between East and West.

A mad scramble for deals.

I’ll be watching this space closely.

Gold should continue to do well over a longer timeframe in this scenario as well.

Path #3: The “Schopenhauer scenario”

There are some famous pessimists out there – Arthur Schopenhauer once said, “Today it is bad, and day by day it will get worse, until at last the worst of all arrives.”

Nobody wants to think about this one, but we’d be foolish to ignore it.

Full-blown trade war. China weaponises rare earths completely. Supply chains fracture. Manufacturing grinds to a halt. Tech stocks crater as the AI infrastructure buildout stalls without critical inputs.

The April 2025 tariff shock wiped out trillions in market cap in 48 hours.

And then it got back to Business As Usual (BAU) very quickly.

If tensions escalate rather than resolve, we could see genuine economic pain play out.

But that won’t necessarily translate to market pain, remember, Western central banks still have significant monetary stimulus available.

Or an actual war could break out.

So consider the “Schopenhauer scenario” to a degree.

You could build a bunker (which is getting remarkably popular these days) or you could go live on an island.

But as investors, I think the activity of investing to a degree involves some element of optimism about the future.

Which means it’s our job to prepare for different scenarios.

Working through the permutations

The choose-your-own-adventure book is open. The question is: which chapter are you preparing for?

The people orchestrating this from Beijing and Washington have war-gamed every scenario. They understand the leverage points, the pressure valves, the ways this could spiral out of control or stabilise.

As investors, we need to do the same mental exercise.

Here at Fat Tail, we try to look forward in a historically informed way. That means having vigorous discussions about edge-of-the-bell-curve ideas that have yet to hit the headlines.

Here are some of the ideas that are top of my list.

A massive lithium surprise run in 2026 as battery backups for AI data centres, robots and drones create unexpected demand.

AI commodities.

And specific companies with structural advantages in the age of AI, positioned at strategic chokepoints in supply chains the West desperately needs to secure.

Or even better – small, nimble, AI companies that are still off the radar of most investors.

Pssst…By the way: I’ve recently recommended an AI pure play company on the ASX for readers of Australian Small-Cap Investigator. AI isn’t going anywhere, and I think this special company will thrive in the next wave of the technology’s development. Read more here.