Scientists and researchers in China are developing cutting-edge tools for the deployment of 6G telecom networks.

6G is thousands of times faster than 5G, with near-zero latency, and will completely transform almost all industries.

China has monopolies on the key raw materials inputs for 6G systems, including gallium compounds.

The same rare earth materials and components that are in high demand by the Pentagon and NATO militaries, also have profound uses in civilian applications.

Report:

Good morning.

The supply chains for the most important technologies run through China. The materials for the key industries, which today make modern life possible, as well as the hardware and systems that will power the rest of the century.

It’s already a crisis at the Pentagon. It doesn’t matter how much the United States plans to spend on defense; they need Chinese companies to mine and refine the raw materials that go into all their strategic weapons platforms, and even to build the semiconductors for them.

And China is cutting off exports of those materials and components to Pentagon contractors, and to weapons makers outside China.

Over 300 new F-35 jets have been delivered without radars, because of China’s export bans on gallium. Gallium nitride is used for the radars on advanced aircraft, and in those giant radar systems that Iran blew up in the Persian Gulf. Gallium nitride makes smaller and lighter systems possible. That has profound implications for militaries, but gallium is also critical, for that same reason, in civilian telecom systems.

The United States doesn’t make any gallium at all, and China makes 99 times more than the rest of the world, combined. The Pentagon needs gallium for over 11,000 components, while 85% of the Pentagon’s supply chains are dependent on Chinese suppliers to get weapons built.

This is from the US Geological Survey, with the most painful parts highlighted: no domestic production of gallium in the United States for forty years. That’s the top line. Bottom line: net import reliance, 100%. China is 99% of global production:

China has gallium, so their most advanced jets have the most advanced radars. Pentagon suppliers, in the meantime, are shipping planes out with ballast where the radars are supposed to go. Lockheed Martin hopes one day to find some gallium and build some radars, but until then they need to put barbells on the planes, so they don’t somersault in-flight.

At the time of China’s export ban on gallium, the US National Defense Stockpile didn’t have any gallium, which makes us wonder what those guys are doing, exactly. Do they understand what their job is?

No reason to be pessimistic, though: the United States needs a “hard pivot” and develop and a full gallium supply chain that includes gallium extraction and wafer fab and packaging, with production lines for military and civilian customers. Simple enough. Except that the gallium industry is a by-product of the aluminum mining and smelting industries, and the United States needs to build one of those, first:

Let’s assume that not much is likely to happen in NATO countries anytime soon, to dislodge China and its total monopolies on gallium. Obviously, that’s a problem for the Pentagon, and those Air Force pilots who are flying planes with no radars on them.

But those monopolies also mean that Chinese researchers can get busy on 6G telecom, before anyone else. The Number 55 Research Institute is under US sanction. They just developed a revolutionary gallium semiconductor for 6G, and is producing 5 million of them to build smart terminals for a space-air-ground integrated network.

These chips are for industrial applications: 6G communications, commercial space launches and satellites, emergency response. The low-altitude economy is heavy drones, used for everything—air cargo, mining, construction, passenger transport. The chips will also be used in high-end phones, especially in areas where land-based cellular signals haven’t yet been built, and now there is no hurry to be. Users can simply be direct to 6G satellite.

The commercial and industrial applications are the most important difference, between 5G and 6G. 5G is adequate for household and personal users. 6G presents a quantum leap in speed and latency over 5G, which is a boon to industry, especially the industries that China also has major advantages in.

Chinese companies are way ahead in local, industrial-level deployment of private 5G systems. This is a huge industry here: private telecom networks for warehouses, logistics nodes, mines, and factories. The differences in speed are at orders of magnitude higher for 6G, thousands of times faster, and 6G allows for rollouts to areas that are not being served at all, currently.

This is very important: 6G networks have not been standardized. Global protocols have not yet been established, because the systems have not yet been built. But China is building them, and so China will define those standards:

This research asks and answers some important questions: 5G seems to be just fine for doing what users need, so why bother building 6G? And here again, it is in business and industry where the demand will be. Breakthroughs in sensing, imaging, and precision positioning, which is an industry China recently took over. Precision in robots and advanced manufacturing. 6G operates in the terahertz frequency bands, and so 6G data centers will run faster and cost less.

This is to say that 6G are technologies where the demand will be heavily weighted on the industrial side, and far less so for individual users. To download a 21 terabyte-sized file will take 5 hours on a 5G network, and just 18 seconds on a 6G. Going back to this, 6G systems allow for downloading 200 films a second, and there is little demand for that speed, today at least, from individual consumers. The demand is from industry, where money is no object to building data centers, for example.

Capital Expenditures for 6G are already ramping up, but Ericsson is going to hit the same ceiling they’re already at for 5G: they need gallium from China, and the commercial success of 6G will depend on “tangible use cases” on the industrial side. And those run through China too.

Boston Consulting Group estimates that 5G has generated over $1 trillion in new economic output, which will grow to $18 trillion by 2035. But 6G will create completely new enterprise models and large-scale AI. 6G will transform manufacturing, smart cities, healthcare, and public safety. BCG urges that governments and industry come together and establish standards for radio frequency spectra and infrastructure planning and buildouts.

The Trump Administration acknowledges that 6G is “foundational to the national security” of the United States, foreign policy, and economic prosperity, and it is the policy of the United States to lead the world in 6G. President Trump ordered consultations and research to figure out the radio spectrum problem and get busy on commercial applications. Also, to get the State Department working with friendly countries that support the US position, that the United States should be in charge of 6G.

The problem is that the United States cannot do any of that, because it cannot build anything for 6G until the mining and refining problems are solved to get the raw materials, and then thousands of scientists and engineers are trained to apply the technology to build out 6G.

Chinese scientists and engineers are doing exactly that already. This is from Matter, a Cell Press Journal, and we’ll turn to Interesting Engineering for more help understanding it: It’s a photonic engine that uses white light to transmit data, which can power intelligent 6G networks. Conventional light communications can operate only in small areas, but this new technology works over 1 kilometer:

Here’s another one, and once again we needed IE to translate it for us. This Chinese group built the world’s first all-frequency 6G chip. The entire radio spectrum from 0.5 to 115 Gigahertz is now on a single chip; previously they needed nine different radio systems:

This chip then can be used in systems everywhere, and establishes a foundation for AI networks and used in phones, base stations, drones, and IoT devices. Phones, drones, and Internet of Things devices.

And suddenly here are applications that WILL have high consumer demand, from non-commercial users.

And that’s the point for all these technologies; all these advances. Supply chains are everything, and so are hundreds of thousands of top STEM researchers and engineers who are busy building applications for them, and new markets for them.

Right now, the Pentagon can’t put radars on their hundred-million-dollar planes or replace billion-dollar radar systems, because the Chinese won’t sell to them. And those chips, and those gallium semiconductors—mass-produced--mean that ten years from now anyone who wants the best phones or the best drones or the best robots will need China to sell to them.

Be Good.

Resources and links:

Reports Suggest F-35s Are Being Delivered Without Radar Amid APG-85 Delays
https://theaviationist.com/2026/02/12/reports-suggest-f-35s-delivered-without-radar/

Ballast Instead of Radar: Lockheed Martin Delivers F-35 Without AN/APG-85 Due to Delays
https://militarnyi.com/en/news/lockheed-martin-delivers-f-35-without-an-apg-85-due-to-delays/

China's newest air force jets have next-generation radars. New USAF F-35's have no radars at all.

China begins large-scale delivery of gallium chips for space-ground 6G network
https://www.scmp.com/news/china/science/article/3356321/china-begins-large-scale-delivery-gallium-chips-space-ground-6g-network

Why America’s best fighter jets are being made with deadweight
https://www.washingtonpost.com/opinions/2026/04/27/pentagon-fighter-jets-are-being-delivered-without-radar/

US Geological Survey, Gallium
https://pubs.usgs.gov/periodicals/mcs2026/mcs2026-gallium.pdf

The United States Is Repeating Its Silicon Mistake with Gallium Nitride
https://warontherocks.com/cogs-of-war/the-united-states-is-repeating-its-silicon-mistake-with-gallium-nitride/

What are the key differences between 5G and 6G?
https://www.raconteur.net/technology/key-differences-5g-6g

Why Do We Need 6G and What Are the Challenges?
https://www.idtechex.com/en/research-article/why-do-we-need-6g-and-what-are-the-challenges/28805

What is 6G? How is it different from 5G?
https://www.rantcell.com/how-is-6g-mobile-network-different-from-5g.html

5G vs 6G spectrum comparison
https://electronics360.globalspec.com/article/18760/5g-vs-6g-spectrum-comparison

6G: The Network for the Future of AI and Immersive Connectivity
https://web-assets.bcg.com/9c/73/4ac7634848a0b0bb31cf8dae40cb/6g-the-network-for-the-future-of-ai-and-immersive-connectivity-report-feb-2026-edit-03-web.pdf

Tailoring quasi-transparent ceramic as a laser-driven photonic engine for kilometer-level white light communication
https://www.cell.com/matter/abstract/S2590-2385(26)00185-2

Numbers Matter: Defense Acquisition, U.S. Production Capacity, and Deterring China
https://www.govini.com/blog/numbers-matter-defense-acquisition-u-s-production-capacity-and-deterring-china

Ultrabroadband on-chip photonics for full-spectrum wireless communications
https://www.nature.com/articles/s41586-025-09451-8

How Much Control China Has Over the World’s Critical Minerals
https://elements.visualcapitalist.com/how-much-control-china-has-over-the-worlds-critical-minerals/

Charted: China’s Grip on Critical Mineral Refining
https://www.visualcapitalist.com/charted-chinas-grip-on-critical-mineral-refining/

China’s New Rare Earth and Magnet Restrictions Threaten U.S. Defense Supply Chains
https://www.csis.org/analysis/chinas-new-rare-earth-and-magnet-restrictions-threaten-us-defense-supply-chains

De-risking Gallium Supply Chains: The National Security Case for Eroding China’s Critical Mineral Dominance
https://www.csis.org/analysis/de-risking-gallium-supply-chains-national-security-case-eroding-chinas-critical-mineral

China Leads the Way With Private 5G Networks at Industrial Facilities
https://www.wsj.com/business/telecom/china-leads-the-way-with-private-5g-networks-at-industrial-facilities-11647163802

Chinese exports of the highest-value products are rocketing higher.

Semiconductors, power equipment, cars, and ADP gear are hitting all-time records, despite over a decade of trade policies designed to protect domestic companies in North America and Europe.

The trade surpluses from China are at the highest absolute levels in history, and are over 2x previous records set by Germany and Japan, at their industrial peaks.

Report:

Good morning.

This is a chart of China’s balance of trade, over the past three years. Orange is exports, the percent change from the previous year. Blue is imports.

Can you please point out where the trade war happened? The objective of the new Trump Administration tariffs on China, was to push that orange line, below zero. The EU enacted policies to do the same in European markets: to contain China’s export growth, and thereby protect domestic industry.

But these data through April—two months ago, demonstrate pretty forcefully that the tariffs didn’t work, against China at least, and the CHIPS Act didn’t work, to slow down China in semiconductors, and whatever strategy there was in Venezuela or Iran to damage China’s energy supply chains—that blew up too.

China’s exports of high-tech products rose 51%, ADP equipment up by two thirds, and car exports up 39. The AI boom needs semiconductors, and China builds most of the legacy chips used in electronics.

This obviously wasn’t supposed to happen either. From the Federal Reserve: China’s trade surplus was $1.2 trillion in 2025. A “new milestone in China’s integration into, and dominance of, the global trading system.” That was over 1% of world GDP, which is two times the previous record highs, set by Japan and Germany.

So in April it worked out to $500 million per hour to Chinese manufacturers. Every hour, $500 million move from banks across the world, to banks in Hong Kong and on the Mainland. And that is driven by the high-end, the most expensive products. Integrated circuits, more than doubling since a year ago. Tariffs were zigzagging all over the place, and reached a high at one point of 145%. But the tariffs are irrelevant. In the US, an unhealthy amount of economic growth comes from the investment into new data centers, and they need China to build the equipment for them.

Just those four companies – Amazon, Google, Facebook, and Microsoft – have budgeted over $700 billion in Capital Expenditure for 2026; most of that is for data centers. Chinese companies build the hardware and power systems. And China also makes semiconductors that are in high demand.

Chips exports more than doubled. Computer equipment parts up 47%. China is also importing a lot of that gear, up 42%.

So Silicon Valley wants to build a lot of data centers, and they’re already falling behind schedule, and need Chinese equipment to bring the few data centers online in the first place.

In 2022, Congress and President Biden signed the CHIPS Act into law. The objective of the CHIPS Act was to prevent China from building semiconductors that can be used even in Chinese AI, let alone for data centers in the US. And it also provided $53 billion in subsidies and incentives to impel manufacturing of semiconductors in the United States.

This is a 14-page PDF from the Congressional Research Service, chronicling the efforts of policymakers in the United States with respect to Chinese semiconductors. For almost a decade, the US government sought to tighten exports of advanced chips; the express purpose is to restrict Chinese access to the technology, and the ability to manufacture it here. And curtailing access to computing and AI applications. Policymakers in both parties have “concerns about China’s efforts to build a home grown and self-sufficient semiconductor” industry.

Here is how that is going:

GPU’s are Graphics Processing Units. The most sophisticated semiconductors, powering large language models. When the CHIPS Act was signed, China’s self-reliance in that industry was 20%. Now it’s 41%; more than doubling, and Morgan Stanley projects that will double, again, by 2030.

China is the world’s top supplier of AI products—this report runs 457 pages, and breaks down the artificial intelligence industry into subsectors. Chinese firms are highly competitive in every industry segment, or have already taken it over completely.

Summing up: the objective of all those acts was to prevent China from building an AI industry, at all. The thinking was that China was dependent on Silicon Valley’s top hardware in order to turn their computers on, and they were so far behind on chip design they could never catch up. Even the top people from Silicon Valley were saying that, just two years ago.

But now it’s all the other way around: Silicon Valley can’t build their new data centers without Chinese gear, and it’s Chinese large-language models that are taking over, not just here, but across the world.

Also in April: China is importing less oil, and exporting a lot more cars.

Then we got the numbers from May. Export growth is accelerating; faster than April. Semiconductors more than doubled again; fastest growth in 13 years.

Exports to the US rose 36%, the most since 2021. Makes us wonder what all the trouble was about: 2021 was Joe Biden’s first year in the White House. All the tariffs and trade restrictions from Biden and Trump II, and nothing mattered. Chinese integrated circuits exports were $36 billion. That is three times higher than in 2021 in dollar value terms, and by percentage growth up 36%, also the highest since 2021.

Here is another strange wrinkle. China is importing less oil than anyone predicted. And this is ironically keeping energy prices LOWER everywhere else, than anyone predicted. That’s to say that were China’s oil imports maintained at regular levels, oil prices would be much higher today.

So Venezuela didn’t matter. The war on Iran didn’t matter. Chinese planners knew all along that fossil fuel dependency was a national security issue for them; that reliance was a true vulnerability for them, and that informed their diplomatic efforts with Russia, and their building out of an energy mix that was powered by domestic sources, and renewables. What’s more, they encouraged the electrification of their transportation fleets, and the manufacturing of electric vehicles.

Now the entire world is waking up to those same vulnerabilities. Just a small handful of countries are self-sufficient in energy; ironically the United States is NOT one of the countries. But that means the push now, is global, to do what China did for their energy supply chains, and that means everyone is buying renewable power equipment from China, and electric vehicles from China:

Be Good.

Resources and links:

China rides AI wave as exports surge past forecast
https://www.reuters.com/world/china/chinas-may-trade-data-beat-forecasts-exporters-rush-orders-ride-ai-wave-2026-06-09

AI Supercycle Propels China’s Trade With 111% Boom in Chip Sales
https://www.bloomberg.com/news/articles/2026-06-09/china-s-exports-imports-extend-rapid-growth-as-ai-propels-trade

China Earns $500 Million an Hour From Exports Supercharged by AI
https://www.bloomberg.com/news/articles/2026-05-12/china-earns-500-million-per-hour-from-export-supercharged-by-ai

Artificial Intelligence Index Report 2025
https://hai-production.s3.amazonaws.com/files/hai_ai_index_report_2025.pdf

China’s Trade Dominance and the Role of Industrial Policies
https://www.federalreserve.gov/econres/notes/feds-notes/chinas-trade-dominance-and-the-role-of-industrial-policies-20260323.html

Congressional Research Services, U.S. Export Controls and China: Advanced Semiconductors
file:///C:/Users/dell/Downloads/R48642.6.pdf

FACT SHEET: President Biden Signs Executive Order to Implement the CHIPS and Science Act of 2022
https://www.presidency.ucsb.edu/documents/fact-sheet-president-biden-signs-executive-order-implement-the-chips-and-science-act-2022

The CHIPS and Sciences ACT of 2022 - The Impact on China
https://www.dorsey.com/newsresources/publications/client-alerts/2022/09/the-chips-and-sciences-act-of-2022

Biden signs order on $52 billion chips law implementation
https://www.reuters.com/markets/us/biden-sign-order-52-billion-chips-law-implementation-2022-08-25/

U.S. Export Controls and China: Advanced Semiconductors
https://www.congress.gov/crs-product/R48642

Chinese EV exports surge as carmakers look offshore
https://www.commbank.com.au/articles/newsroom/2026/06/chinese-ev-exports-surge-as-carmakers-look-offshore.html

Higher Tariffs Here to Stay Despite Trade War De-Escalation?
https://www.statista.com/chart/34447/additional-tariffs-by-the-us-on-china-and-vice-versa-2025

America’s Data-Center Build-Out Is Falling Way Behind Schedule
https://www.wsj.com/tech/ai/americas-data-center-build-out-is-falling-way-behind-schedule-e408a9a8

Eric Schmidt says China can't catch up to US in AI for 4 reasons
https://www.businessinsider.com/eric-schmidt-comments-china-behind-united-states-ai-2024-5

Silicon Valley is quietly running on Chinese open source models and almost nobody is talking about it
https://www.reddit.com/r/Futurology/comments/1siea6z/silicon_valley_is_quietly_running_on_chinese_open/

Ten Reasons Oil Is Still Below $100 a Barrel
https://www.bloomberg.com/opinion/articles/2026-06-11/oil-prices-10-reasons-why-oil-is-still-below-100-a-barrel

Western drug companies are pouring tens of billions of dollars into China, to develop medicines that can be resold at premium prices in Europe and the United States.

China dominates all phases of the pharmaceutical industry, from new drug development, testing, and mass production.

Report:

Good morning.

Last week the Pentagon blacklisted a group of Chinese companies, including a biotech firm, Wuxi AppTec. That means that US government contracts with Wuxi AppTec are restricted going forward. The Untied States wants to reduce its dependence on China’s pharmaceutical industry, and the Pentagon’s move is a warning to Chinese companies who want access to the $500 billion drug market in the US.

The thinking is that Beijing’s dominance in biotech research and drug development will put the United States in the same spot as in for most of the world’s raw materials supply chains, and in rare earth metals and magnets. China’s restrictions on the exports of rare earths means that the Pentagon can’t build advanced weapons platforms, or even replace the missiles and radars that Iran is blowing up in the Persian Gulf, until they can get new mines and refineries online, and then learn how to make the magnets.

That’s the background there. In 2025, Wuxi revenues in the American market were 32 billion RMB, which is about $4.7 billion USD. So the US is a major market for Wuxi AppTec; about two thirds of their total sales. But here is the problem on the Americans side: Wuxi helps make a fourth of the drugs and medicines used in the United States, including for the most expensive drugs.

Members of Congress are drafting laws, which also target Chinese biotech firms. American drug companies like Pfizer and Bristol Myers are outsourcing research and development work and manufacturing to the Chinese companies, and the Biotech Investment National Security Act would subject those deals to the same high scrutiny they use on Nvidia, for example. Investments in biotechnology will be reviewed by the Treasury Department, and the War Department will assess whether they affect national security.

These investments now are enormous, and suddenly so. Pfizer and BMY were two of dozens of companies, which combined for $136 billion worth of licensing deals with Chinese drugmakers. That is a 27 times increase in just five years.

Drug companies in the United States and Europe pay Chinese labs to develop the medicines, which are then sold in Western markets with big markups. Naturally that also attracts venture capital money, and VC firms are worried that Congress may harm China’s biotech industry, which will in turn blow up the money-printing machine they’ve got going.

They shouldn’t worry about that first part though: It’s already too late to stop Chinese biotech firms. Whether or not they are allowed to license drugs in the US is irrelevant, when they are building drugs for the entire world. The United States is the most lucrative pharmaceutical market, but it’s American and European drug companies who grab most of those profits, along with VC and Private Equity firms who buy up shares in the early-stage drugs.

And there are lots of headlines now like this one: drugs developed in China perform better than blockbuster, high-profit drugs on the market in the US.

Industry insiders know all that, and the Pentagon blacklisting won’t move the needle at all, on the partnerships between Chinese drug development companies, and the big pharma companies who put their logo on the side of the box and jack up the price a hundred times. China has no peer in building quality compounds at low cost.

One issue is keeping all the executives at Western pharma companies awake at night: it’s the patent expirations problem. Morgan Stanley crunched the numbers, and Big Pharma had sales last year of $171 billion from drugs that will go off-patent over the next five years. At Pfizer, it’s an $18 billion problem by 2028, and $20 billion by 2030:

(These charts are in billions, not trillions.)

Pfizer is PFE, and that $20 billion is about 30% of its total sales, which will be dramatically reduced when those particular drugs go off-patent. At Bristol Myers, BMY, it’s $26 billion in sales that go away, and nearly 60% of its sales. Amgen needs to build new drugs to replace over 60% of their sales.

At the moment a drug loses its patent protections, the market opens up to generics from several companies, and the price collapses, along with profit margins. Drug prices fall from 30 to over 80% on average, and the steepest declines are in the American market, because that’s where the prices are set the highest. So Keytruda is a $30 billion drug for Merck, and goes off-patent in 2028 both here and in the United States.

And this is why it’s a much bigger problem for them, in the United States: In, Keytruda treatments cost $1,500 to $3,000 dollars each, with a full year cost of $20,000, at the most. In the United States, that’s the cost of a single dose. And a full year of Keytruda treatment costs $150,000 in the United States. Over seven times as much, for the same drug.

And your first thought is probably something like, why don’t patients in the United States just fly to China, check into a luxury hotel right next to the hospital, get the treatment there, and fly home and save a hundred thousand dollars? If it’s obvious to us, it’s obvious to Chinese too, and we’ll come back to that. Plus, we’ve just learned that Akeso developed a drug that works better than Keytruda, anyway.

Eliquis is a blood-thinner drug used to prevent clots. It comes from Bristol Myers Squibb, and last year threw off over $13 billion in sales. It loses patent protection in 2028 in the United States. In China, Eliquis costs $60 for a 30-day supply. In the US it’s anywhere from 5 to 10 times that depending on the pharmacy the patient is using.

Those “patent cliffs” are a major crisis for Big Pharma, but a major opportunity for firms here. China’s biotech companies work faster, with lower costs, and so companies are paying up-front for research to be done here, as soon as possible, to get new drugs ready to sell.

Neil Roberts is one of our channel’s compadres, and he’s always sniffing around the internet for stories and angles that are flying under everyone else’s radars. He doesn’t like these deals any more than our Congress does, but for a different reason. His concern is that the Chinese companies may be compromised, by spending their valuable time to develop high-profit-margin drugs for Pfizer and other companies operating in the US market, instead of doing what’s best for everyone else, everywhere else. And that’s valid.

We also find it curious that Pfizer donated thousands of dollars to help those two members of Congress get elected, who are now drafting laws to prevent Pfizer from developing new drug pipelines in China. And that Pfizer donated millions of dollars to help President Trump celebrate his election party. And that Pfizer is at the same time sending Chinese labs billions of dollars to make sure they have drugs to sell after 2028.

Wuxi Apptec does it all: the R&D, the drug discovery, scientist recruitment and training, and the mass-production. And so there are two points we want to emphasize here, with respect to the Chinese system: the government negotiates hard with drug companies, no matter where from, on fair pricing in exchange for access to China’s population of over a billion patients. But those low prices are even more a function of these Chinese companies’ capability to build and test the drugs, and the capacity to quickly scale up production after approval.

Marco Rubio was a Senator in 2024, and reported that the US once enjoyed a comfortable lead in the highest-value research, and China’s biotech industry is now an instrument of “soft power”. The Chinese are selling low-cost drugs to the developing world, and Mr. Rubio—now Secretary of State Rubio—is alarmed.

Going back to those math problems we did earlier, the cost differences between China and the United States, for the exact same treatments. Likang is a Chinese company that developed a personalized cancer vaccine. It’s in clinical trials for the FDA; it’s going through the approval process here in China. But the drug is already being offered to patients in Hainan.

Very important section, right there. The cost of the treatment will run around $21,000. A similar drug from Merck or Moderna would be multiples of that. This drug may not ever be approved in the US at all, and if so, only at a very high price. So if you’re an American reading that, and maybe your doc has just told you there’s not much they can do for you, what are your options? And it’s on that question that American venture capital and drug companies should be really worried. There is a market for that drug, right now, but China is the only place anyone can get it.

Hainan is the world’s largest free-trade zone and is also a giant zone for medical treatments. Over 30 hospitals, offering treatments and therapies that have not yet been approved even here on Mainland China.

This will be a multi-trillion dollar industry, for Hainan Island, and for hospitals on the mainland who can offer treatments at a fraction of what hospitals in Europe, or especially in America will charge. Chinese firms developing treatments, and American patients unable to buy them, in the United States; for those patients, those Chinese hospitals are the only ones who can help.

Chinese drugmakers will win, either way. Wuxi builds therapies that are in turn sold by American companies, at high profit margins, for the treatment of conditions that are money-no-object from the perspective of patients. These are terminal illnesses, and Wuxi is the only company making the treatments for some of them. Replacing Wuxi in the supply chains means there’s no more coming for years, and remember, American drug companies don’t have “years”. A third of their revenues are going away, starting next year.

So the money is pouring in to China to develop new drugs, and soon enough the money will be pouring into China by patients who need treatments that are not even approved in their home countries, or who do the math and figure that it’s like being paid a hundred thousand dollars to take a vacation in Hainan and receive treatment there. This is another company, Hengrui, who is now the top clinical sponsor in the world, with over 400 ongoing clinical trials, and multi-billion-dollar deals with Merck and Glaxo Smith Kline.

This did all happen very fast. Just like in everything else, no matter how much our political leadership likes to pretend otherwise. True experts and industry insiders know it. “There is no sense that these are areas the US can win”. Precision medicine, biotech, and medical equipment are literally national-level priorities, national security priorities, for the Chinese government.

And while that kind of emphasis would drive prices and costs way up in the American market, like we see at the Pentagon, for example, in China the cost structures go the other way. The system is more efficient, so costs fall, and timelines speed up. Since 2021—and that five-year plan—the number of drugs under development increased eight times. China is committed to excellence in service, and the US is not stepping up and competing, and cannot.

Morgan Stanley again, and drugs coming from China will grow to $34 billion in five years, and $220 billion in fifteen years, and a major driver of that increase is that the treatments are for the high-profit-margin drugs.

China is investing in the R&D, and in the people and facilities. Zhangjiang Gaoke is in Shanghai, and home to over 1700 medical companies in a single zone. Seed capital investment in US biotech is at the lowest level in over 20 years, so it’s only the Chinese companies now who are doing the hard work of drug research and discovery. Much of that work is very labor-intensive, by highly skilled chemists. So, it’s cost-prohibitive to even try it in San Francisco or Boston. Pudong, Shanghai isn’t cheap, either, but China is where the people are, and those Chinese PhD’s are building the highest-value drugs.

China built a new system, while the industry in the United States headed the opposite way. China approved 20,000 new drugs in just two years; in the same time it takes the FDA to look at three hundred or so.

And so Chinese companies, and some American ones, are indifferent as to what the Pentagon or Congress does. China is that blue parabola that now is the world leader in new drug discovery and development for the most valuable drugs:

China is also that blue line, for Clinical Trial Activity:

China is doing more trials than the United States and the EU combined, and there’s a big reason why: Phase I trials take two years in the US but get done in about a third that time in China. In other words, China is doing more trials, and finishing them faster.

Here’s another blue line: license-out deals, which tripled from 2024 to 2025. Last year worth $135 billion:

And this year, 2026, it’s growing even faster. In the first three months, $60 billion, which is two times the rate of 2025, and 2025 was 10 times bigger than 2021.

So that’s the concern on the US side: Western companies are addicted to the low-cost drugs coming out of China, which they can mark up to American patients for hundreds of billions of dollars.

But it’s also causing some problems here, for Chinese policymakers, who are concerned in the same way Neil Roberts was in his email to us. The first priority for Chinese drugmakers, should be to care for Chinese patients.

Regulators understand that some of these most novel and revolutionary treatments fall far outside the traditional processes for testing and approval. Personalized medicine – precision medicine -- is completely different, and millions of patients are suffering, right now. Those patients need faster approvals for those therapies, and they also need companies who will build them.

Anew regulatory pathway for treatments for rare and terminal-stage diseases is being established. The objective, specifically, is improved access to the most advanced therapies for Chinese patients. Those new protocols will offer vast new revenue opportunities for Chinese biotech firms, while reducing their need to partner with the Pfizer’s and the Merck’s of the world just to keep the lights on and their people paid.

There is massive demand, right now: patients who need new drugs, and need Chinese companies specifically to build them. That new industry will be all-China: all the drug development, and all the treatment, first to Chinese patients, and then to anyone else who buys a plane ticket to Hainan.

Be Good.

Resources and links:

Pentagon casts dark cloud over China biotech
https://www.reuters.com/commentary/breakingviews/pentagon-casts-dark-cloud-over-china-biotech-2026-06-09/

Moolenaar, Dingell Introduce Legislation to Prevent Offshoring Biotech Industry to China
https://chinaselectcommittee.house.gov/media/press-releases/moolenaar-dingell-introduce-legislation-to-prevent-offshoring-biotech-industry-to-china

House bill aims to crack down on China biotech deals
https://www.biopharmadive.com/news/binsa-china-biotech-deals-house-moolenaar-dingell/821841/

China’s Biotech Is Cheaper and Faster
https://www.nytimes.com/2025/08/17/opinion/china-biotech.html

Chinese Company Under Congressional Scrutiny Makes Key U.S. Drugs
https://www.nytimes.com/2024/04/15/health/wuxi-us-drugs-congress.html

China’s biotech industry sees global expansion as unstoppable, despite US pressure
https://www.scmp.com/business/china-business/article/3356778/chinas-biotech-industry-sees-global-expansion-unstoppable-despite-us-pressure

Chinese drugmaker becomes top trial sponsor — and other clinical trends
https://www.pharmavoice.com/news/chinese-china-drug-clinical-trial-pharma-jiangsu-hengrui/804665/

US drug pricing policies are ‘red lights’ for investors, and China beckons
https://www.pharmavoice.com/news/drug-pricing-red-lights-biopharma-china-venture-capital/810167

China turns the tables in biotech
https://www.science.org/doi/10.1126/science.aef7757

Patent cliffhanger: will China biotech throw Big Pharma a lifeline?
https://www.scmp.com/business/china-business/article/3337038/patent-cliffhanger-will-china-biotech-throw-big-pharma-lifeline

Chinese pharmaceutical firms’ cost advantages trump Pentagon blacklist: analysts
https://www.scmp.com/business/china-business/article/3356564/chinese-pharmaceutical-firms-cost-advantages-trump-pentagon-blacklist-analysts

The paradox of biotech protectionism: Why walling off China biotech weakens America
https://rapport.racap.com/all-stories/the-paradox-of-biotech-protectionism-why-walling-off-china-biotech-weakens-america

The Innovation Boom in China Biotech
https://www.morganstanley.com/insights/articles/china-biotech-boom-generics-to-innovators

How China Became the Biotech Industry’s Back-Office
https://www.forbes.com/sites/shimiteobialo/2026/01/21/how-china-became-the-biotech-industrys-back-office/

As China biotech crackdown calls reverberate in Washington, the pushback gets louder, too
https://www.fiercebiotech.com/biotech/divisive-bill-seeks-add-biotech-industry-law-limiting-investment-chinese-industry

The Year China Surpassed the USA in Biotech Innovation, Deal Value, and Clinical Output
https://www.synbiobeta.com/read/the-year-china-surpassed-the-usa-in-biotech-innovation-deal-value-and-clinical-output

The China question is tearing biotech apart
https://www.statnews.com/2026/05/18/biotech-industry-split-chinese-drugs-opportunity-versus-existential-threat/

Amid a flurry of biotech deals, China looks to keep innovation at home
https://www.pharmavoice.com/news/licensing-pharma-deal-china-regulation-policy/822443/

Political contributions data from OpenSecrets.org

US says BYD, Baidu, Alibaba and other tech giants are aiding China's military
https://www.reuters.com/world/asia-pacific/pentagon-lists-entities-designated-chinese-military-company-2026-06-08/

On this Chinese island, patients are trying latest experimental drugs for cancer
https://www.scmp.com/news/china/science/article/3310623/chinese-island-patients-are-trying-latest-experimental-drugs-cancer

Order backlogs for new jets will take over a decade to clear, as Airbus and Boeing cannot build or deliver planes on time.

As a result, airlines are flying older planes for far longer than they had planned.

Older planes are more expensive to maintain, and are less fuel efficient than new aircraft.

Jet price prices are soaring higher, doubling in major markets from a year ago, while the industry had forecast a drop in oil and fuel prices for 2026.

COMAC is a Chinese aircraft manufacturer and is quickly scaling up production, but not yet fast enough to meaningfully close the gap between new plane demand, and production from the duopoly of Boeing and Airbus.

Report:

Good morning.

COMAC is a Chinese airplane manufacturer, which builds the C919. And Chinese airlines have a major problem, which is shared by all airlines, everywhere in the world: their planes are getting older, faster than they can be replaced.

Aircraft replacements are still below the levels of the previous decade: current deliveries are behind the rates of 2019. And since 2020, the number of planes over 20 years old is growing faster than new aircraft rolling off the lines.

Older planes means that airlines spend more money to keep them flying. All the costs go up. They need to be more closely inspected, maintenance and repairs go up, which means higher costs for replacement parts, and the technicians. And older planes are less fuel efficient. It’s especially a problem for the most expensive parts, like engines and landing gear assemblies.

So COMAC sees an opportunity, especially in China, to grab market share from Boeing and Airbus. And China overall represents the fastest-growing aviation market in the world. It will be the biggest market. India and Indonesia will also be major markets here in East Asia:

And the problem with aircraft availability is global, and urgent. It’s the most significant constraint to the growth across all the markets: airlines are ordering planes, but airline manufacturers cannot build and deliver them.

This is the industry update and forecast from last December, from the International Air Transport Association. Severe supply chain problems constrain the ability of airlines to grow new markets, and even to meet their demand for replacement jets. The backlog in aircraft orders is growing, and accelerating, and those same supply chain issues are impacting existing fleets and are a “drag on airline profitability.”

That’s to say that the same supply chain problems that preclude Boeing and Airbus from building new planes, also mean that replacement parts are hard to come by. Production is picking up some, compared to before, but new orders are coming in even faster, so the backlogs grow.

The IATA has a breakdown of the industry’s cost structures. Remember, this is from December, 2025. But things are already much worse than they thought. The industry forecast for 2026 called for a decline in fuel costs, with a consensus view for crude oil to be $62 a barrel, and jet fuel costs to drop to $88 a barrel. Fuel will be 25.7% of airlines’ operating expenses in 2026, a percent below the previous year.

We all know that didn’t work out, but here’s how much they were off: the cost for jet fuel is $146.25 a barrel, and higher in the North American and European markets:

We’ll return later to the fuel problem. The demand for new aircraft, compared to new production, is only worsening, and the mismatch isn’t going to go away until the 2030’s. There is a record-high order backlog of over 17,000 planes:

That is 60% of the active fleet, right now. Historically, the ratio was half that. This industry wants to grow, and has placed orders, but manufacturers cannot keep up. They need 12 years of current production capacity just to meet the backlog they had, last December. There are over 5,000 planes in storage, but those need new parts and new certifications, and those are harder to get.

So old planes are flying for longer, and airlines are flying the wrong kinds of planes in many markets.

Most of the delays are supply-chain related. Engine manufacturers, for example, cannot keep up with production of the airframes, which are being parked until the engines get finished and installed.

Tariffs blew up supply chains last year. Tariffs on China, Canada, and the EU slowed everything down and drove costs up. Add up all the new costs that were hitting airlines—before the war on Iran—and it’s over $10 billion a year. These all result from that order backlog of 17,000 planes, and airlines flying older jets for longer.

A key problem for the airline industry is this duopoly; Boeing and Airbus have 90% of the market share. This chart is for narrowbody jets, which include the C919. COMAC and Embraer combine for only 9% of this market.

Russia also builds narrowbody jets, but their companies are under sanction, and that is another big part of the problem. Russia is the primary source for titanium to Airbus and Boeing and the engine makers, and those companies now need special waivers to buy Russian titanium. The price is shooting higher. There are also shortages in aluminum and steel.

And civilian airlines are trying to buy new planes at the same time the Pentagon and other governments are racing to build new military aircraft. “Military programs compete aggressively with commercial aviation for an acutely limited labor pool”.

So everything is tight—supply chain constraints are everywhere, and costs are going up. Back to the fuel cost efficiency problems, when flying older planes. This table shows the impact on profitability at different price points for jet fuel. Remember, the industry experts believed that fuel prices would drop to 2024 levels, in 2026, and that would be a $32 billion dollar hit to industry profitability.

That was based on a jet fuel price of $2.30 a gallon. Top line. But today it’s over twice that. In the US, jet fuel is over $7 per gallon at major airports.

The cost of flying all those older planes drives airlines’ fuel costs up, even in peacetime. Then come the higher maintenance costs on the older aircraft. The average plane today is two years older than the ones flying in 2019. Maintenance has to be performed more often, and become more complex. More inspections for issues such as metal fatigue and stress fractures in the airframes, for example. More planes need to be overhauled and retrofit completely, which further strains the supply chains for parts, and on skilled labor.

And Airbus and Boeing cannot keep up with deliveries for new planes. Airbus had previously been meeting their delivery schedules better than Boeing, but now Airbus can’t get engines fast enough to meet their delivery schedules.

Boeing, Airbus, and Pratt & Whitney all use a just-in-time inventory management system, which is failing in practice as well as in theory—JIT means that production happens as new orders come in: that is when parts are ordered and work begins, to meet demand. But the demand is there, and the production is not. So Pratt can’t build engines, so Airbus can’t deliver planes.

And making it all worse is that the airlines need to keep their old planes flying with old engines, which in turn need replacement parts to make that go. Everyone is blaming everyone else, and we’re back to the duopoly and monopolies: there are too few manufacturers, and a tiny group of companies are happy with the way things are right now. Backlogs are a big problem for airlines, but an opportunity for Pratt & Whitney to make money selling new engines to Airbus, as well as old ones to the airlines—at high prices, and there’s nothing that the airlines or Airbus can do about it.

So this is where we are. This is as of 30 April, so 4 months in to 2026. Airbus production—not deliveries, but production—was 226 planes. At Boeing it was 190. A smaller number actually were delivered, so let’s just look at best case. 226 plus 190 is 416. Divided by 4 months is 104 planes. At 104 planes per month, it will take 159 months, or over 13 years, to clear that backlog of 17,000 planes. Back in December the was “nearly 12 years” to clear, and just a few months later the backlog jumped to over 13 years.

Some airlines are responding by ordering many more planes than they need. Alaska Airlines just ordered 110 new Boeing narrowbodies and bought an option for 35 more, and when you read the language of the announcement carefully, a large part of the order was simply to hold more space in line, and “secure critical delivery slots” and thereby pay up front for some flexibility later. Their forecast is for 189 new aircraft to build new routes and replace older planes, but placed options for another 71.

So this all represents a big opportunity for COMAC, but also a serious challenge. The C919 is in active service in China, with high utilization rates in the markets where it is used. It’s now at 29 airports and flown by the three largest domestic carriers. But the challenge now is scaling up.

Next year COMAC hopes to produce 150 aircraft, and 200 per year starting in 2029. But that’s still not going to move the needle, much, on that global deficit right now of 17,000 planes.

Eventually we should expect that the commercial aviation industry will go the same way all the others have, and China will eventually take it over.

China has no problem buying titanium from Russia, for example. And there are no supply chain issues in China for aluminum, or in steel; no shortages of skilled labor. COMAC will sell all the planes they can build, and by 2050 will have blown up the duopoly that Airbus and Boeing have now.

But that’s a long way off, and things will be a lot worse for this industry until things are much better.

Be Good.

Resources and links:

China’s C919 jet poised to tackle ageing domestic fleet: industry official
https://www.scmp.com/economy/china-economy/article/3356365/chinas-c919-jet-poised-tackle-ageing-domestic-fleet-industry-official

The Countries With the Most Airline Passengers
https://www.statista.com/chart/34633/biggest-aviation-markets/

Airbus has warned of the risk of falling behind its delivery target. So far, it is ahead of Boeing
https://en.oninvest.com/article/airbus-has-warned-of-the-risk-of-falling-behind-its-delivery-target-so-far-it-is-ahead-of-boeing

Airbus’ Growing Inventory: Why the 2026 Delivery Target is at Risk Despite Growing Production
https://flightplan.forecastinternational.com/2026/04/30/airbus-growing-inventory-why-the-2026-delivery-target-is-at-risk-despite-growing-production/

Here's The Real Reason Airlines Keep Ordering Aircraft They Don't Need Yet
https://simpleflying.com/real-reason-airlines-keep-ordering-aircaft-dont-need-yet/

Reviving the Commercial Aircraft Supply Chain
https://www.iata.org/contentassets/85b59d951fc04c1c83fa2aab47824300/reviving-the-commercial-aircraft-supply-chain.pdf

Aerospace Supply Chain Bottlenecks Continue to Constrain Airlines
https://www.iata.org/en/pressroom/2025-releases/2025-12-09-02/

China’s C919 Jet Maker Get USD6.2 Billion Capital Injection From State-Owned Backers
https://www.yicaiglobal.com/news/comac-receives-usd62-billion-capital-injection-from-eight-state-owned-shareholders

Airbus Unsure of Reaching A320 Target Due to Pratt Problems
https://www.bloomberg.com/news/articles/2026-06-09/airbus-unsure-of-reaching-a320-target-because-of-pratt-problems

Airline Profitability Stabilizes with 3.9% Net Margin Expected in 2026
https://www.iata.org/en/pressroom/2025-releases/2025-12-09-01/

IATA, Jet Fuel Price Monitor
https://www.iata.org/en/publications/economics/fuel-monitor/

Alaska Airlines announces largest fleet order in airline’s history
https://www.sec.gov/Archives/edgar/data/766421/000076642126000004/ex991172026pressrelease.htm

Boeing captures 33% of single-aisle sector, maintains big lead for wide-bodies
https://leehamnews.com/2026/01/02/boeing-captures-33-of-single-aisle-sector-maintains-big-lead-for-wide-bodies/

COMAC C919
https://english.comac.cc/products/ca/

China's COMAC will be bigger than Boeing and Airbus, combined, by 2040.

China supplies over half the global market of offshore oil drilling equipment.

Vast new offshore fields are under development in South America and Asia, particularly in countries with close diplomatic and economic ties with China.

The Chinese are better insulated against energy supply chain shocks than other major economies, and surprised experts who issued forecasts to the contrary after American strikes on Venezuela and Iran.

In North America, offshore oilfield development is a slow-growth industry, with a CAGR of barely 2%. But in the rest of the world, it is growing at double-digit annual rates.

Report:

Good morning.

This is a recurring theme for us, by now. We get poking around an industry we believe is poised to take off, for some reason, looking for good investments in that theme, only to learn that Chinese companies already control it.

The world is scrambling to find new energy sources, and whether it’s in renewables, or in nuclear. But China is already there, with structural monopolies on the manufacturing of the equipment, and everything in the upstream supply chains.

Same thing happened somehow in the offshore oil and gas equipment industry. Chinese firms build most of the machinery used, and those companies are booming:

That number—50% of the global market for offshore engineering gear—means that Chinese companies are more than the rest of the world, combined. And this industry is growing fast—doubling over the previous five years--and as we’ll see it’s only going higher.

China has very strong diplomatic and economic ties with South America, and Brazil is a fellow BRICS member. South America’s oil exports are rocketing higher, especially since just one year ago.

Over the past 10 years, Persian Gulf countries were 43% of all seaborn oil trade. This chart is the difference between the first five months of 2026, compared to the first five months of 2025. 675 million barrels that used to be floated out of the Middle East are gone, because of the closure of the Strait of Hormuz. That’s the red bar. The gray bar at the bottom is the sum total of all deltas of oil exports, and that is still a huge gap. But exports from South America have risen by 155 million barrels. That’s more than the increases from all the other regions combined.

Most of those South American crude exports come from Brazil, which have increased by 150 million barrels per year, since 2021.

And most of Brazil’s exports come here, to China. Oil shipments from Brazil to China more than doubled, year over year—up 122%, to 16 million tons. That’s by volume. Crude oil trade was up 94% in USD terms, even though prices are higher, which suggests that Chinese buyers are getting a discount.

Brazil enjoys immense advantages, especially with the Hormuz closed, and massive new buy orders are pouring in, which has prompted their own oil executives to caution, that Brazil is hitting a ceiling and cannot scale much more new production, at least not quickly.

But Brazil is in a great position and will likely stay there. The country is branding itself as a “safe haven” for oil, targeting importers in China and India:

China’s imports of Brazil crude were 10% to start the year, and that also nearly doubled: now it’s 18%. India is Brazil’s second largest customer. Last year India imported less than 100,000 barrels per day from Brazil. Now the number is 290,000 bpd.

Petrobras is Brazil’s state-owned energy company, and by far the biggest in-country. And most of Brazil’s new oilfield discoveries are offshore, clustered near the mouth of the Amazon river. That means a boom in jobs, now at a 16-year high, along with tens of billions of dollars in new investment.

There are lots of headlines about Brazil’s soybean industry putting the American farmers out of business, but oil an even bigger export market for Brazil, and China is an even bigger buyer of crude than soybeans. And China builds more of that equipment for the oil industry than the rest of the world, combined.

Referring again to that map, “offshore” is obviously everything in the Atlantic and Pacific Oceans, but offshore oil drilling equipment is also necessary for most of those fields in the Amazon basin upriver. But it is the deepwater sources specifically which are high production at low cost, after that equipment is deployed and pumping.

China has a large industry for oilfield equipment, because it is one of the world top oil and energy producers. In 2024 China ranked #6 in the world for crude oil production, just ahead of Iran, and Brazil. Brazil and Guyana are major sources of the new growth in crude oil supplies.

And when we add in petroleum liquids, China ranks fifth in the world. Energy independence is a strategic priority, set at the highest levels, and production hits records every year.

In the most recent five-year plan that concluded last year, annual investment was 48% higher than during the previous five years, and now that new production is coming online.

Today, domestic crude production is 4.3 million barrels per day, and the Bohai Gulf and South China Sea offshore production accounted for more than half of the new production since 2020. There are plans for new fields off the mouth of the Pearl River. What’s more, foreign oil companies have been “quietly” denied access to all the new Chinese energy fields.

Many political analysts, and some energy industry insiders, made some forecasts during the first few months of the year, which have not panned out, at all. Many believed that China would be crippled by the loss of their Venezuelan suppliers, then wiped out by the war on Iran. But some tankers outbound Iran are still making it this way, anyhow, and China is far better insulated from energy supply shocks than anyone thought.

China previously imported more oil from the Persian Gulf than India, Japan, and South Korea combined, but policymakers in those countries have enacted rationing and austerity measures. China is telling people that the “energy rice bowl” is in their own hands: so handle with care; don’t waste it, but don’t worry about it.

China has as many electric vehicles as the rest of the world combined, they have a diversified energy mix, and vast coal reserves plus renewables mean that China’s electric grid is powered mostly by domestic sources.

The situation is almost exactly what their central planners had in mind, over many years, to “reduce their reliance on imported and seaborne fossil fuels.” Six years ago, Beijing set a goal for 20% electric vehicle sales by 2025. But the final 2025 sales result was over half. That unexpected boom means a far larger, and far earlier than expected impact on Chinese oil imports:

The oil demand that was displaced by EV sales canceled out what China used to buy from Saudi Arabia. Going out to 2030, EV sales will displace oil demand from Saudi, and Russia. So, oil demand in China is peaking and in decline, and the situation is unlikely to get worse, no matter what happens in the Persian Gulf, or in Venezuela, or in Russia. The electric grid is less dependent on oil than ever: now flatlining, at barely above zero:

And China also has a deeper diversification of crude oil suppliers, compared to other Asian countries. Less than 20% of China’s imports come from a single source, and their number one supplier is Russia, who is also better insulated than anyone to disruptions in seaborne oil transport:

Gas is a higher share of China’s electricity mix than oil, and that percentage is growing, though it’s harder to tell given the boom in renewables. Electricity production is booming, along with consumption, but domestic supplies of gas are keeping pace with the rise in demand, and they are also hauling in record volumes through Russian pipelines:

There are American companies that also build offshore oil equipment. But they’ve got a bunch of problems. The offshore equipment market is a low-growth industry, for US firms. The compound annual growth rate in North America is barely over 2%. Investors can make more than twice that buying US Treasury bonds.

Chinese companies are now over half the world’s market share for this equipment, and we should assume that the Chinese are building high-quality gear at competitive prices, and doing so in countries that are more friendly with China, than with the United States. And doing so in countries who strongly prefer NOT to use US dollars or US banks to finance the purchases. And, in countries who hope to be one of China’s energy suppliers after production comes online.

Be good.

Resources and links:

Brazil, Guyana, Venezuela Fuel South America’s Oil Export Boom
https://finance.yahoo.com/sectors/energy/articles/brazil-guyana-venezuela-fuel-south-230000460.html

Brazil's offshore oil and gas plans contradict COP30 climate ambitions
https://globalwitness.org/en/campaigns/fossil-fuels/brazils-offshore-oil-and-gas-plans-contradict-cop30-climate-ambitions

Brazilian Oil Jobs Are at 16-Year High on Offshore Drilling Boom
https://www.bloomberg.com/news/articles/2026-05-14/brazilian-oil-jobs-are-at-16-year-high-on-offshore-drilling-boom

How China is cashing in on a global scramble for offshore oil and gas
https://www.scmp.com/economy/china-economy/article/3356113/how-china-cashing-global-scramble-offshore-oil-and-gas

China's largest offshore oil production base, Bohai Oilfield, sees 2025 output exceed 40 million tons
https://www.globaltimes.cn/page/202512/1351112.shtml

China’s Oil Pumping Power Breaks All Records
https://oilprice.com/Energy/Energy-General/Chinas-Oil-Pumping-Power-Breaks-All-Records.html

China's CNOOC commences new offshore oil project in the South China Sea
https://www.reuters.com/sustainability/boards-policy-regulation/chinas-cnooc-commences-new-offshore-oil-project-south-china-sea-2025-12-22/

China's record oil output reaches limits of what's possible
https://www.reuters.com/business/energy/chinas-record-oil-output-reaches-limits-whats-possible-2026-03-20/

X, Arnaud Bertrand

China added more crude to its massive stockpile in March, but outlook shifts
https://www.reuters.com/markets/commodities/china-added-more-crude-its-massive-stockpile-march-outlook-shifts-2026-04-16/

How China can survive without the Strait of Hormuz
https://www.reuters.com/graphics/IRAN-CRISIS/CHINA-OIL/egpbeormkvq/

Watch China Overtake The US As The World’s Major Trading Partner
https://merchantmachine.co.uk/china-vs-us/

REPORT China EV market situation in first half of 2025
https://carnewschina.com/2025/07/21/report-china-ev-market-situation-in-first-half-of-2025/

Electricity per person, nearly entire global growth coming from China
https://www.reddit.com/r/EconomyCharts/comments/1pm63md/electricity_per_person_nearly_entire_global/

The BRICS Map: Who's In? Who's Engaged?
https://bricslab.mit.edu/bricsresearch/brics-map/

China dominates all stages of solar panel production
https://www.statista.com/chart/24687/solar-panel-global-market-shares-by-production-steps

China is world leader in wind energy
https://www.voronoiapp.com/energy/China-Is-The-World-Leader-in-Wind-Energy--1825

Nuclear plants under construction, by country
https://www.globaltimes.cn/page/202601/1352332.shtml

Offshore Drilling Equipment Market
https://www.marketresearchfuture.com/reports/offshore-drilling-equipment-market-41587

Ranked: The Top Crude Oil Producers in 2025
https://www.visualcapitalist.com/ranked-worlds-biggest-producers-of-crude-oil/

The World's Largest Oil Producers
https://www.statista.com

South America's stealthy ascent to key crude oil swing supplier
https://www.hydrocarbonprocessing.com/news/2026/06/south-americas-stealthy-ascent-to-key-crude-oil-swing-supplier/

SpaceX will soon go public, in an offering that will value the company at over a trillion dollars.

Anthropic and OpenAI are Artificial Intelligence companies, who also plan IPO's for later in the year.

Recent changes to indexing rules will compel massive share buys into these companies by retirement and pension plans, and by passive ETF's and mutual funds.

In the past, new companies were required to wait until insiders sold most of the shares after the lockup periods before being added to investment indices. Companies also needed to show a strong history of growth and sound financial practices.

Report:

Good morning.

The heads-up on this story comes from one of our favorite Substacks, Gold and Geopolitics. Our concern is that the public, normal people, are at least unaware, and maybe even indifferent, to how really screwed they are at the highest level, and by people at the highest level. It’s not the kind of story that is felt tangibly, at least not at first, like a big spike in gas or food prices. And it’s also difficult to follow, and that’s exactly what the architects of our financial and political system are counting on.

It involves the qualification requirements for a new company to be included in the NASDAQ-100. The regulators changed those rules, so that new public companies can be part of the index. In the past, companies had to wait, and have a track record of revenues and profits. Because trillions of dollars’ worth of pension investments—which is money invested on behalf of workers, millions of private retirement plans, plus exchange-traded funds and other mutual funds, are invested in those indices. And they do so, assuming that the top 100 tech companies, in this case, are well-managed and profitable businesses.

But that rule is gone. Now, a newly public company can qualify, simply based on size—how big it is. And they changed the definition of “public”. Companies can qualify as a megacap public company simply by being large at the time of its IPO, then limiting how many shares they sell to the public. The index now accepts a weighting multiplier. That is what “small float” means—insiders of the company still own almost all of shares, and so completely control the company, even though it’s “public”.

They also threw out the rule for four consecutive quarters—one full year—of profits.

With these rule changes, the guardrails are down and regular Americans will be forced to buy shares of bad companies, that don’t make money.

The NASDAQ, in this case, gets big fees from the Initial Public Offerings of companies that want to avoid the rules that used to govern the industry, and protect small investors, somewhat, and SpaceX, in this case, will have tens of millions of passive investors buying their shares. That massive, passive buying will put a floor under the stock price no matter what happens, at the same time that insiders are allowed to dump their stock. Insiders and early investors are restricted from selling their shares during the IPO; they must wait to do so, until later.

That was previously a major risk to company insiders, and early investors: if the IPO price is set too high, or if the company does poorly after the IPO, their shares will be worth far less than they had hoped, just as they and all the other insiders are selling. But with these rule changes, passive investors will be buying shares, every single month, because they’re buying the index.

This is the source document. Paragraph 2 explains the new “fast entry” rules for new companies that list on the NASDAQ exchange. If the company’s market cap is in the top 40 of companies already there, it’s a Fast Entry addition, and will be put into the index after 15 trading days. So 15 days after the IPO, SpaceX will go into the index. The company will be exempt from “seasoning and liquidity requirements”—seasoning is how much experience the company has, earning money, and liquidity is how much money it has in the bank. Exempt.

Paragraph 3. These changes will go through, “without regard to free float considerations”. They changed the definition of “public company” and replaced it with a formula. So a public company is now one where just a tiny handful of shares actually are made available for sale to the public. A low-float company will just multiply the percentage of shares by five to meet the 10% float requirement, which goes away anyway for the new megacap companies.

SpaceX insisted on these specific rule changes in order for NASDAQ to get the listing, instead of the New York Stock Exchange. SpaceX wants early inclusion on the Nasdaq 100, which is the gold standard for large institutional investors, like pension and retirement plan managers investing in tech companies.

And there again—for executives and early investors, like private equity funds and venture capital firms—inclusion in the index now protects them from downward price moves. SpaceX goes into the index after 15 trading days, whereas insiders are required to wait 90 to 180 days to sell during their lockup period.

This is all every bit as bad as it sounds, and the head of the New York Stock Exchange is being as diplomatic as possible, considering that these rule changes mean that every giant new company will list on the NASDAQ from now on. New York has no chance now to get Anthropic or OpenAI, which are the next big IPO’s on the way. She says the Fast Entry rules—expedited index inclusion—artificially inflates valuations. And that’s the point. That’s just what insiders want, and just what the public should not want.

Substack writers are less cordial. Gold and Geopolitics calls it Graft, the active extraction of capital from passive, long-term investors to guys who just rewrote the rule book.

This one says the index is being rigged to appease a billionaire, who will be a trillionaire soon enough. It’s now a template for the forcible “transfer of wealth from the retirement accounts” of everyday Americans directly into the pockets of billionaire founders and billionaire VC funds.

George Noble is another Stack we like: “a shameless structural manipulation.”

The NASDAQ blew up the prestige of their own index just to get a stock listing. Every other public company up to now was required to meet minimum standards, at the very highest level, to qualify even for a public offering in the first place, let alone a designation as a top 100. All gone.

He explains the math here about what the 5x float multiplier means, and for companies qualifying for the index. But what makes that part much worse is that the small number of shares available to the public means that every single passive tech fund is chasing a small number of shares. The stock price is almost guaranteed to go up, starting on the 15^th day, and insiders still get to own the other 95% of the company’s stock. The insiders who do sell have a guaranteed buyer: you. Your 401k plan, your pension.

The richest and most powerful people in the world can take a company public and never worry about the stock price, or ever losing control of the company. At least ten top officials in the Trump Administration stand to make millions on the SpaceX IPO. And let’s remember too that those same government officials can guide federal contracts to SpaceX already. Steve Witkoff isn’t in the administration, officially, but also has large holdings in SpaceX.

The new rules mean that fundamentals don’t matter. Valuations don’t even matter. Investment advisories do deep research into companies and prepare reports and estimates that are used by their clients and subscribers. Morningstar crunched the numbers on SpaceX and concludes that SpaceX is worth less than half what the IPO target raise is. The “company has been significantly overvalued”.

SpaceX will offer only 3% of the company’s shares to the public, which implies a more than $1.5 trillion valuation given the previous funding rounds.

Morningstar figures the company is worth $780 billion. This is a very good business; that is a huge number. Starlink is great technology, and SpaceX has an 80% market share in space launches. The other businesses—X, Twitter, and their AI investments don’t add up to very much, and even after modeling possibilities with Grok and Twitter, there’s no scenario that gets the company to $1.5 trillion.

But it doesn’t matter. The rules were changed, and not even Bloomberg can quite understand what it means, yet. But it doesn’t sound good. The SpaceX IPO is just the first of a bunch more megacap offerings and the integrity of the whole market is threatened:

Passive fund custodians are already modeling how to invest their trillions of dollars under management, because they have to. Their prospectus requires them to buy the index, no matter what companies are in, or how they got there. New exchange-traded funds and derivatives are also being created. The entire SpaceX float is just $75 billion, so all these funds have to fight over those shares which are a tiny—relatively tiny—share of the $1.8 trillion, or whatever the final number is. That’s to say that they have to weight their buys of the 3% of shares that are available, as if all the shares of the company were available to the public, which isn’t true.

This is Bloomberg, and they don’t know the rules anymore, or how anyone can follow them. But the balance of power on Wall Street is now unambiguously on the side of billionaire founders and private equity insiders; the institutions that at least claim to protect public investors aren’t even bothering to even pretend anymore:

The SpaceX IPO is coming in a few days. Next up is OpenAI and Anthropic, and they’re going to enjoy the same treatment. SpaceX would have been a blockbuster IPO, anyway. It is a good business; they have revenues and real products, but that is not something that’s true of AI companies. There are a handful of money managers who have come forward to say that SpaceX is uninvestable, fundamentally. They have ethical concerns too.

But none of that matters. Valuation doesn’t matter. Passive demand is what matters, and that will be almost unlimited, given the tiny number of shares they can buy, and the rules that say they must buy.

The NASDAQ 100 itself is $1.4 trillion in notional market value, including mutual funds at 75 billion, ETF’s like QQQ making up $587 billion more. Derivatives are 650 billion. All these market players are required to shift assets to SpaceX, whether Twitter or Grok makes money or not. Nothing matters.

And it’s all just in time for the new IPO’s for AI. We’ve covered the Artificial Intelligence industry a good bit on our channel, and the severe problems that Chinese AI companies pose the American hyperscalers, and AI companies like Anthropic and OpenAI.

Anthropic has filed for their IPO, and it would already qualify for inclusion into the NASDAQ 100 and the S&P, which means that their insiders will get the same guarantees that SpaceX just got. Hundreds of Anthropic employees will become millionaires, with huge paydays on the way for the seed companies, and none of them need to worry about the stock price going down before their lockout period ends.

And once again, doesn’t matter if the company makes money or not. Annualized non-GAAP revenue for the most recent month, times 12, gets a number is $47 billion. Not earnings—revenues. So the company IPO is 25 times annualized sales, or so.

Michael Burry is world famous for taking apart companies and systems and finding there’s nothing really there. SpaceX and Anthropic aren’t in the same league as collateralized mortgage obligations during the housing bubble, where loans to people who could not and would not ever pay them back were bundled together and sold off to institutional investors.

But he says there’s no way these companies are worth what the Wall Street underwriters claim, but the rules were just changed and it doesn’t matter anymore. The institutionals are the suckers again, and have to buy the shares anyway. Anthropic’s models cost too much, and costs are going up, while its users are leaving and services revenues are going down, and Anthropic insiders are rushing to cash out.

The SpaceX IPO and the rules changes will make Elon Musk a trillionaire, on paper, thanks to all the passive investors who will buy Space X in their ETF’s and retirement accounts. But the economics of AI companies posing a different set of problems for insiders, and for investors.

SpaceX has a wide moat in rocket launches, for example. Chinese companies launch rockets too, but the US government isn’t going to ask China for help putting up weather or spy satellites. But China is coming for AI, and the AI industry in the US has a lot of problems that are home-grown. Data center construction is slowing down, due to serious bottlenecks in the equipment to plug into the electric grids, which are under strain already. There is strong local opposition to new centers, almost everywhere. And without new data centers, the training of the large language models hits a hard ceiling:

All this CAPEX spend by the hyperscalers is contingent on data centers coming online, and they’re not. Half of projects that were supposed to be finished this year, aren’t even close, and looking out a few years, the construction of new centers has hit a wall:

Companies like Morningstar and Dow Jones used to matter, and if they said that a company was going public at more than twice what they thought it was worth, it would cause problems for underwriters. But those days are gone, and even Bloomberg knows none of this is good.

And we’re left to wonder just what, exactly, the Securities and Exchange Commission is supposed to be doing. And why it is that the only ones who have been screaming about these problems are in independent media, like Substack. The SEC is supposed to protect investors. Financial media is supposed to tell us what’s going on in industry, and in the most important companies.

But nobody is minding the store, anywhere. Ed Zitron is one the very best writers in the AI space, and is one of the Stacks we pay for. He is curious here, for example, what OpenAI’s numbers really are. OpenAI is ChatGPT, and generated $5.7 billion in revenue in Q1 of this year. Remember this is a company that underwriters think is worth over a trillion dollars. But the company has negative margins of 122%. ChatGPT is starting to charge users money for the service, and user growth suddenly stopped. It just costs a lot more to run AI programs than these companies are getting paid.

What’s worse, “large line items” were excluded. Stock-based compensation wasn’t counted, and if they had to report under GAAP rules, the losses could be a lot higher. But who knows? The company aims to make $30 billion in revenue, but earnings don’t matter anymore anyway. Fifteen days after the IPO, OpenAI is index-worthy and billions of dollars will pour in from investors.

More funny math over at Anthropic. This is the headline from the Wall Street Journal. “Mind Blowing Growth” will propel Anthropic to its first profitable quarter. The startup expects a 130% revenue surge, its first operating profit, defying skeptics. Sounds amazing.

And here’s an amazing chart, with a black bar there, “adjusted operating income”, finally drifting over zero for the first time, in quarter 2. Which we are still in, by the way. But this is a forecast. What made that possible was a reduction in its costs for computing power, going from 71% of sales to 56%.

It’s unclear what accounting methods the company used, or what is the legal basis of some of the revenue. Don’t know if this is “mind blowing” but it does sound promising.

Not to Ed Zitron, though, who got busy and found it convenient that they figured out how to cut operating costs at just the exact same time they were looking for new funding, and learned from SpaceX’s S-1 that it’s a very temporary cost reduction, which can be canceled:

$15 billion a year in compute costs were discounted for two months in Q2—and only in the second quarter.

This is work the Wall Street Journal is supposed to be doing. That’s what the Securities and Exchange Commission is supposed to be asking questions about. Instead it’s left to “Where’s your Ed at?” and a handful of podcasts who are showing the world that the investment thesis for the entire American AI industry is blowing up. Costs are rising, not falling. AI data centers today are budgeted to cost $50 billion per gigawatt to build—and they’re not getting built anyway. Soon they’ll cost $80 to $100 billion per.

And the costs are rising just as companies who use the AI are realizing they’re not getting their money’s worth. Uber is a client of Anthropic, and has already spent its entire 2026 budget. Will they load up on some more tokens, to get through the rest of the year? Doubt it—it was a “head exploding moment” to learn how much Uber spent on tokens, which did NOT result in useful consumer features.

Alibaba is a Chinese company, and their Qwen large language model is the world’s most popular AI tool for business owners outside the United States. Airbnb tried to use ChatGPT to design a new reservation feature on their app, and even though the CEO of Airbnb is good friends with Sam Altman at OpenAI, his company switched over to Qwen instead. It works faster and costs less.

And that is catching on. Other companies are quietly making the switch to Chinese large-language models because they cost far less, and they’re open source and easier for their teams to use in their companies. The performance of Chinese models is similar to Silicon Valley’s best products, and are easier to use, cost less, and are more efficient. Companies are enterprise users—they pay for tokens, and executives lose their jobs if other executives heads blow up when they see their AI bill and ask what they’re getting for it. Companies are looking for alternatives to OpenAI and Anthropic, and signing up for DeepSeek instead. That also means that data is not going through US data centers, it’s coming to China instead, where electricity also happens to cost a lot less.

That could be the biggest challenge of all. For active investors – not the passive ones --- business models matter. Revenues and profits – they matter. And the cost of compute is what is driving these corporate users of AI. They pay for the AI. Their engineering teams use it, every day, to develop new tools and applications, and they’re switching over to Chinese LLM’s.

Anthropic and OpenAI are fundamentally bad companies, with bad valuations, and produce financial reports that not even their own top executives trust. Their customers are moving away. And that used to mean that the insiders cannot cash out and make billions of dollars. They might even go to jail. But that was before they changed the rules, and so they’ll make you buy them instead.

Be Good.

Resources and links:

Gold and Geopolitics, Honest graft

Gold and Geopolitics

Honest graft

As a thanks to my paid subscribers they received this article yesterday. After a day, it opens up for everybody else…

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NYSE President Criticizes Nasdaq’s Rule Changes Amid SpaceX IPO

https://phemex.com/news/article/nyse-president-criticizes-nasdaqs-rule-changes-amid-spacex-ipo-84650

Nasdaq’s Shame

How to rig an index to appease a billionaire

Keubiko’s Musings

Nasdaq's Shame

Disclaimer: The following article is for informational purposes only and represents the opinion of the author. It should not be construed as investment or any other kind of advice. All information is based on publicly available data believed to be accurate as of the date of publication, but the author makes no representations or warranties as to its com…

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3 months ago · 524 likes · 48 comments · Keubiko

Reuters, SpaceX weighs NASDAQ listing after seeking early index entry

https://www.reuters.com/business/finance/elon-musks-spacex-weighs-nasdaq-listing-after-seeking-early-index-entry-sources-2026-03-10/

George Noble, The Noble Update

Trump Officials Held Millions of Dollars of SpaceX Ahead of IPO

https://www.bloomberg.com/news/articles/2026-06-03/spacex-ipo-poised-to-enrich-trump-officials-who-hold-millions-in-stock

SpaceX: What Investors Need to Know About Its Enormous Upcoming IPO

https://www.morningstar.com/stocks/spacex-what-investors-need-know-about-its-enormous-upcoming-ipo

Morningstar values SpaceX at $780 billion, half its IPO target

https://www.reuters.com/business/media-telecom/morningstar-values-spacex-780-billion-half-its-ipo-target-2026-06-02/

SpaceX is worth less than half of its $1.75 trillion IPO target, Morningstar says

https://www.cnbc.com/2026/06/03/morningstar-spacex-ipo-target-price-nasdaq.html

SpaceX’s IPO Forces Wall Street to Reorganize Around It

https://www.bloomberg.com/news/features/2026-05-31/spacex-s-ipo-led-by-elon-musk-forces-index-funds-and-retail-to-change-the-rules

America’s Data-Center Build-Out Is Falling Way Behind Schedule

https://www.wsj.com/tech/ai/americas-data-center-build-out-is-falling-way-behind-schedule-e408a9a8

‘Big Short’ investor Michael Burry says neither SpaceX nor Anthropic is worth $1 trillion

https://www.businessinsider.com/big-short-michael-burry-spacex-anthropic-ipo-ai-bubble-claude-2026-6

The U.S. and China Lead The Space Race 2.0

https://www.statista.com/chart/28667/countries-are-leading-the-space-race-20

OpenAI’s OWN CFO just admitted they cannot pay their bills.

Alibaba’s Qwen family captures over 50% of global open-source downloads, report finds

https://www.scmp.com/tech/big-tech/article/3349552/alibabas-qwen-family-captures-over-50-global-open-source-downloads-report-finds

$64 billion of data center projects have been blocked or delayed amid local opposition

https://www.datacenterwatch.org/report

Investor alert: Chinese AI is booming in global markets, and Huawei’s chips beat Nvidia’s

The AI industry in the US is doomed. Now China owns it all.

Initial Public Offerings: Lockup Agreements

https://www.investor.gov/introduction-investing/investing-basics/glossary/initial-public-offerings-lockup-agreements

Uber’s COO says it’s getting harder to justify the money spent on AI tokenmaxxing

https://www.businessinsider.com/uber-coo-andrew-macdonald-ai-token-spending-harder-justify-2026-5?ref=wheresyoured.at

AI Doesn’t Have ROI

https://www.wheresyoured.at/author/edward/

Amazon and Google have billions riding on Anthropic. The IPO will finally reveal how much.

https://fortune.com/2026/06/04/amazon-google-billions-anthropic-ipo/

TechCrunch, Ahead of its IPO, Anthropic’s Amodei shrugs off doubts about AI returns

https://techcrunch.com/2026/06/04/ahead-of-its-ipo-anthropics-daniela-amodei-shrugs-off-doubts-about-ais-returns/

Nasdaq-100 Index® Consultation – February 2026

https://indexes.nasdaqomx.com/docs/NDX_Consultation-February_2026.pdf

Exclusive: Elon Musk’s SpaceX weighs Nasdaq listing after seeking early index entry, sources say

https://www.reuters.com/business/finance/elon-musks-spacex-weighs-nasdaq-listing-after-seeking-early-index-entry-sources-2026-03-10/

Danish Pension Blacklists SpaceX Over ‘Catastrophic Governance’

https://www.bloomberg.com/news/articles/2026-05-29/danish-pension-fund-blacklists-spacex-citing-governance-issues

Mind-Blowing Growth Is About to Propel Anthropic Into Its First Profitable Quarter

https://www.wsj.com/tech/ai/mind-blowing-growth-is-about-to-propel-anthropic-into-its-first-profitable-quarter-7edbf2f4

Where’s Your Ed At?

https://www.wheresyoured.at/author/edward/

https://www.wheresyoured.at/where-are-all-the-data-centers/

Why Airbnb switched from OpenAI to Chinese AI (and what it means for your budget)

https://www.techfornontechies.co/blog/290-why-airbnb-switched-from-openai-to-chinese-ai-and-what-it-means-for-your-budget

Airbnb ‘relies heavily’ on Alibaba’s Qwen models to power its AI customer service agent, CEO Brian Chesky says

https://www.scmp.com/tech/tech-trends/article/3329921/airbnb-picks-alibabas-qwen-over-chatgpt-win-chinese-open-source-ai

Cheap and Open Source, Chinese AI Models Are Taking Off

https://www.thewirechina.com/2025/11/09/cheap-and-open-source-chinese-ai-models-are-taking-off/

More US firms turn to China’s DeepSeek over pricey Silicon Valley AI

https://www.scmp.com/tech/tech-trends/article/3355927/more-us-firms-turn-chinas-deepseek-over-pricey-silicon-valley-ai

China imports 85% of their natural rubber consumption, and enjoys strong trading relationships with the top rubber producers.

But the war in the Persian Gulf is driving oil prices higher, which in turn is making natural rubber substitutes far more expensive.

China is limited in its capacity to expand natural rubber production. Domestic sources are mostly from Hainan Island, and Southern Yunnan, which are two areas slated for massive expansions in high-end tourism and industry.

Scientists are now growing natural rubber in the Gobi Desert, and are quickly scaling up production.

Report:

Good morning.

This headline was mystifying to us; it made no sense at all. Rubber prices are shooting higher because of the war on Iran, which is “boosting Asian suppliers.”

This is a map of rubber-producing countries, and there’s no supply coming out of the Persian Gulf in the first place. By volume, almost all the rubber in the world comes from here, in Southeast Asia.

These 10 countries are 90% of total rubber exports—and there is only one country in the top 7—the Ivory Coast—that isn’t in this part of the world:

But the war in the Persian Gulf is blowing up oil prices, which in turn is pushing up the cost to make synthetic rubber. Tire manufacturers are also building inventories, in case they can’t get supplied at all.

And since natural rubber can replace synthetic rubber, prices are going up. The natural rubber industry is very labor- and land-intensive, and we can tell from the long-term price chart that there is little motivation to clear hundreds of thousands of new hectares of land to build out new natural rubber capacity, considering oil-based synthetics are widely available:

But now the prices are rising, and China in particular is exposed here. China accounts for 45% of global natural rubber demand, and is the world’s largest buyer, because China is now the world’s largest automobile market, and largest car manufacturer. Foreign tire manufacturers have set up here, and the industry is growing fast.

The boom in China’s electric vehicle industry is also putting pressure on natural rubber supplies. Battery packs are heavy, and EV’s accelerate faster, so the tires for these cars need to be stronger, with a higher proportion of top-grade natural rubber.

So on first glance, this chart doesn’t seem like a big problem. China, India, Thailand, Indonesia, and Vietnam are about 80% of global natural rubber demand, and most of the world’s natural rubber does actually come from these countries, who happen to be generally friendly.

But the strikes on Iran, and the closure of the Strait of Hormuz has pushed oil prices sharply higher, which means higher costs for synthetic rubber, and thus higher demand for natural rubber. The Singapore exchange is the benchmark for rubber in Asian markets, and prices are up over 37% since the start of the year. In China, the price has not moved as much—up about 14% year to date—but even here that is the highest level in over two years.

China does have a strong recycling industry for tires; in terms of volume, China recycles more than any other country. But demand for new rubber in China is outstripping what is coming off the roads. And here is another challenge for China, in developing new domestic sources of supply: most of its production comes from Hainan, and from an area just south of here in Yunnan province.

The Chinese have other, major development plans for those areas. Hainan is being transformed right now into the world’s largest free-trade zone, and will also be the world’s largest center for medical tourism:

It already attracts hundreds of thousands of patients a year, who receive medical care, with treatments and therapies that are not yet approved even in Mainland China, let alone in North America or in Europe.

Xishuangbanna is in the Mekong River Delta. Natural rubber farming is an important industry there, especially at the small-village level. Again, the natural rubber industry is labor- and land-intensive. And the areas that are developed for rubber plantations aren’t good for much else. Over two decades, forest cover in Xishuangbanna dropped from over 70% to about half, which corresponded with the growth in rubber and tea plantations.

And that’s the tension: Authorities in Yunnan, and in Beijing, understand that the growth of natural rubber plantations is at odds with their plans for the tourism industries.

Here is a famous local example which illustrates the problem: Yunnan is a wildlife sanctuary for Asian elephants, who migrate between Xishuangbanna and Pu’er, which is the center of Yunnan’s tea industry. 70% of the protected animals in all of China are here in Yunnan, and the elephants in particular are being squeezed by the rubber plantations. Elephant populations in China are recovering, but only in the areas that are off-limits to the rubber industries. By the way, if you want to see them, best time is November-February.

All of this puts China in a strange spot. Their demands for natural rubber are higher than for any other country, and the only places they’ve got available to scale up production are slated for development of other industries that are far more lucrative. Eco-tourists fly in from all over the world to see the elephants and the other wildlife in Yunnan.

Medical tourism in Hainan will be a multi-trillion-dollar industry, which will boom long after the war ends and oil prices stabilize, at which time tire manufacturers will be comfortable with their raw materials inventories, and natural rubber prices revert to the norm.

Beijing is probably somewhat relaxed about sourcing their rubber imports from friendly countries next door, and in the Ivory Coast, which is a strong trade partner. And so there’s yet another headline, that is also mystifying. These Chinese researchers are building plantations for natural rubber in the Gobi, and again we’re left to wonder right away if this is something they did on purpose, or just discovered by accident.

China consumes seven million tons per year of rubber, and imports over six million tons. Duzhong is a plant, used in Traditional Chinese Medicine. It is also a key source of natural rubber, and is China’s only source of natural rubber. Rubber derived from Duzhong has applications in the defense sector.

China strongly prefers to not rely on supply chains running through foreign countries—friendly or not. And given that China’s import dependency in rubber is 85%, rubber is a poster child for a raw material that they’ve got their scientists nationwide hard at work on.

The Northwest Agricultural and Forestry University is one of the top unis in the world. It’s in Shaanxi, and this group headed out to Xinjiang to see if Duzhong could grow in the desert. First, they had to solve the genetics problem, then had to figure out how to scale up production in the desert, and to do so economically.

They discovered a new extraction process for the rubber that dramatically improves the yield, while doing so more cleanly than before. Fast-forward ten years to now, and today there is a Dezhong forest of 300,000 hectares, in the Gobi Desert, which will grow eleven times larger in the next five years.

At 3.3 million hectares, China by 2030 will be the world’s top producer of natural rubber.

Be Good.

Resources and links:

China's Hainan free trade port: what the world's largest FTZ means for global trade
https://www.mic-cust.com/mic-blog/posts/detail/ad/chinas-hainan-free-trade-port-what-the-worlds-largest-ftz-means-for-global-trade/

China grows military-grade rubber in Gobi Desert as war reshapes supply chains
https://interestingengineering.com/military/china-gobi-desert-military-grade-rubber

Mapping China’s rubber metabolism: tires and beyond
https://www.tsinghua.edu.cn/en/info/1245/14737.htm

It is ‘flourishing’: China’s man-made forest in Gobi produces good rubber for military use
https://www.scmp.com/news/china/science/article/3341641/it-flourishing-chinas-man-made-forest-gobi-produces-good-rubber-military-use

10 Countries Control 90% of Natural Rubber Export Value
https://www.kontango.com/blog/10-countries-control-90-of-natural-rubber-export-value

Tire Recycling Industry Statistics: Global Market Data
https://gradeall.com/tire-recycling-industry-statistics-global-market/

After the rubber boom: good news and bad news for biodiversity in Xishuangbanna, Yunnan, China
https://link.springer.com/article/10.1007/s10113-019-01509-4

Improving sustainable livelihoods for smallholder rubber farmers in Xishuangbanna
https://www.preferredbynature.org/projects/improving-sustainable-livelihoods-smallholder-rubber-farmers-xishuangbanna

Rubber Boom, Land Use Change and the Implications for Carbon Balances in Xishuangbanna, Southwest China
https://www.sciencedirect.com/science/article/abs/pii/S0921800918301289

Navigating between Tea and Rubber in Xishuangbanna, China: When New Crops Fail and Old Ones Work
https://www.mdpi.com/2073-445X/9/1/22

SunSirs: Natural Rubber Prices Continue to Rise; Supply-Demand Gap Sustains High-Level Performance
https://www.anrpc.org/news/sunsirs%3A-natural-rubber-prices-continue-to-rise%3B-supply-demand-gap-sustains-high-level-performance

Natural rubber prices soar on Iran tensions, boosting Asian suppliers
https://asia.nikkei.com/business/markets/trading-asia/natural-rubber-prices-soar-on-iran-tensions-boosting-asian-suppliers

25-year natural rubber prices
https://jmkintl.com/rubber-price-trend

Which Country Produces the Most Natural Rubber?
https://www.helgilibrary.com/charts/which-country-produces-the-most-natural-rubber/

In Search of Giants: Tracking Rare Wild Elephants in China
https://www.fabionodariphoto.com/en/where-see-elephants-china-yunnan/

The War on Iran has left hundreds of thousands of tons of fertilizers stranded in the Persian Gulf, and destroyed years of forward natural gas production.

Fertilizer supplies are collapsing, with billions of dollars' worth of contracts to farmers voided.

China enacted export curbs on fertilizers and upstream products in the opening days of the war, to ensure domestic farm production was not impacted.

Report:

Good morning.

Inflation in the United States is hitting multi-year highs again, with particularly big jumps in energy and food prices. The Consumer Price Index rose 3.8% since the same time last year. Gas prices are up sharply, along with food, coming either from restaurants or supermarkets.

There won’t be any relief on household spending for food anytime soon, and farmers – almost everywhere – are making painful decisions about how much to plant this Spring, based on those rising prices for fuel, and now for fertilizers. Both of those problems come from the War on Iran, and the closure of the Strait of Hormuz.

Fertilizer prices for American farms are ripping higher. Urea costs are up 47%, with DAP and other fertilizers up double-digits. In the United States, over three-fourths of the total cropland is treated with synthetic fertilizers, and most of that fertilizer is used in the Spring months, or right now.

Farmers signed supply contracts last year and earlier this year, but those contracts are not being honored by global suppliers. We covered that problem before; Middle East suppliers declared Force Majeure on billions of dollars of natural gas contracts, and there isn’t nearly enough coming from anywhere else, at any price.

In the United States, the situation is more severe in the South and Northeast, but farmers everywhere have a problem. 70% of farmers can’t afford all the fertilizer they need to plant their crops for this year.

Diesel fuel prices are also much higher, which means higher operating costs for farm tractors and transport, as well as for the heavy equipment used in irrigation. And fuel and fertilizer costs won’t come down, much, for later this Fall, or in time for next year’s planting season. Small- and medium-sized farms are under a lot of pressure, and bankruptcies are likely to also rise because crop prices aren’t going up nearly fast enough to cover the increases in cost.

This crisis was obvious, even in the early days of the war, when 21 ships carrying about a million tons of fertilizers were stuck in the Persian Gulf. About half of that was urea, and another eight ships with over 300,000 tons of sulfur. Sulfur sourced from the Middle East is primarily used as fertilizer. Half of those ships were intended for Asia, and urea heading to the United States was also stuck.

China, however, is getting some of their ships through the Strait. And China’s position in the fertilizer industry has ironically become much stronger, at least relative to other markets. Chinese farmers are planting their Spring crops, same as normal. The supply of fertilizer in China is sufficient, and prices are far lower than anywhere else.

Governments across the world are focused on finding energy and petrochemicals from wherever they can get them, while China is largely unaffected by those problems. It’s the same here, for fertilizers. The war on Iran has scrambled all these markets, and China enjoys supply-chain advantages on everything that goes into making chemical fertilizers.

China produces a third of all the fertilizer in the world, while also producing 70% of the raw materials used in the industry worldwide. That math, right there, makes China a major exporter of those upstream chemicals used to manufacture synthetic fertilizers, which we’ll come back to. All that production means that China has more latitude and flexibility, as they are far less reliant on the trade through the Strait of Hormuz.

Traffic through the Strait has collapsed, to just a handful of vessels per day, from over 50 before the war, and we’ve already seen that a bunch of those ships are coming to China anyway. There is some good news on this chart: fertilizers are usually shipped via dry bulk carrier; 85% of fertilizers go that way. Bulk transport are the pink bars on that chart, and some of those are getting through. Two caveats though—we don’t know how much of that is fertilizer, compared to other dry bulk, and those levels are still far, far below historical averages for this time of year.

China, though, is well supplied with fertilizers and is making them available to farmers. Beijing also put export restrictions on key raw materials for fertilizers, in the opening days of the war. That helped ensure domestic farmers would have uninterrupted access, and at lower prices than anyone else is paying. And price caps were put in place for urea.

Exports of sulfur were sharply restricted, with the exception of some sulfuric acid volumes for industrial users. That is pushing up prices across the world; up 44% in Chile, for example. 54% of sulfuric acid demand is for phosphate fertilizers; prices are shooting up for farmers.

A major reason for China’s “expanding dominance” over the fertilizer and petrochemical markets is low-cost energy. The Chinese energy mix is diversified, with costs that are the lowest in the world for a large economy.

China also has a lot of coal, and plants that produce Chinese fertilizers are mostly powered by coal, which doesn’t cost much. So in 2024, China led the world in the production of fertilizers, and ranked #2 in exports.

China and Russia together produce over half the world’s supply of phosphates, and add Morocco and Saudi and it’s over four fifths of the world supply. 82% of global phosphates are vulnerable to adversarial use or manipulation—that’s the conclusion there from the Department of the Interior, because such high levels of these fertilizers need to be imported to the United States from potentially unfriendly sources.

Farmers in North America, however, are saying their problems come from our own companies. Nutrien makes potash fertilizers, and their profits went up over 16 times in just three years. Mosaic’s profits jumped more than five times, and CF Industries increased by over 10 times:

This is yet another story of industry consolidation that deliberately reduces competition, and supply. The number of fertilizer companies went from 46 to 13, and by 2019 just four companies made up 75% of total production in the United States. That allows them to exploit crises and jack up prices for farmers. Dominant fertilizer corporations can use wars, or other supply disruptions to increase prices much faster than their increases in cost.

Farm advocates are calling for the government to do something about it. But they pretended to care about the problem last year. This is the Senate Judiciary Committee---not the farm committee, but they’re looking here for crimes—and the hearing is on competition in the seed and fertilizer industries. Lawmakers are asking here, why fertilizer and seed prices keep rising, while competition keeps shrinking.

Democrats and Republicans, from Blue States and Red ones, are hearing complaints from farmers that their prices are shooting up, while the number of vendors in the market is going the other way.

This didn’t help much either, at the time. The Trump Administration proposed big tariffs on fertilizers imported into the United States, with new rates that would apply beginning last August on 84% of the American ammonium phosphate supply chain. Most of those eventually were exempted, except for the tariffs on ammonia, sulfur, and sulfuric acid—those tariff schedules stay, and now that the Hormuz is closed and China has shut off export, that’s not making it over to American farmers anyway.

And here’s another twist. Farm Action, remember, pointed out that fertilizer suppliers in the US take advantage of global crises to gouge farmers by raising prices. But when Mosaic’s costs went up, they responded by just shutting down production. From 12 May: Mosaic is reducing phosphate fertilizer production, cutting it in half from their plants in Louisiana and Florida.

In April—just the month before—Mosaic publicly supported high tariffs on imports from Morocco and Russia to remain in place. Those tariffs were enacted in 2021, and are up for the five-year review. Mosaic is insisting here that if those tariffs on Morocco and Russia go away, it would threaten American suppliers like Mosaic who cannot compete on price. But they shut down production anyway, despite record prices. And that was because Mosaic cannot get sulfur either.

So the Fertilizer Institute was prophetic, in ways they surely didn’t intend, at all. What that industry group was doing there was asking for Congress to classify their products as critical minerals, and get a lot of federal money heading their way in the same way rare earth metals miners are getting big contracts now from the Pentagon.

Mosaic was even one of the panelists for the group who was warning that “fertilizer markets were vulnerable to manipulation”, whether deliberate or unintentional. That was last May, just one year ago.

Fast forward to now, the War on Iran has blown up energy markets in the Middle East, and so China now is the only country that can make cheap fertilizer. And China is also now the only country where its farmers will have surplus crops to sell in the fall.

Just one year.

Be good.

Resources and links:

How the Middle East crisis is expanding China’s agrochemical influence
https://www.scmp.com/economy/china-economy/article/3352366/how-middle-east-crisis-expanding-chinas-agrochemical-influence

China rushes to stabilise fertiliser market as Iran war chokes off imports
https://www.scmp.com/economy/china-economy/article/3347964/china-rushes-stabilise-fertiliser-market-iran-war-chokes-imports

Hormuz Blockade Propels China's Fertilizer Dominance, Threatening Global Food Security
https://finance.biggo.com/news/Yqmx-50BDXrLZJaAEa1v

Suezmax tanker with Iraqi crude reaches India after Hormuz transit
https://economictimes.indiatimes.com/industry/energy/oil-gas/suezmax-tanker-with-iraqi-crude-reaches-india-after-hormuz-transit/articleshow/131140680.cms

Strait of Hormuz shutdown leaves 1m tons of fertilizer stuck in Gulf
https://asia.nikkei.com/business/markets/commodities/strait-of-hormuz-shutdown-leaves-1m-tons-of-fertilizer-stuck-in-gulf

Farmers demand fertilizer ‘monopoly’ probe
https://www.aol.com/news/farmers-demand-fertilizer-monopoly-probe-125650048.html

Fertilizer Prices Under Fire: Monopoly or Markets to Blame?
https://www.agweb.com/news/policy/ag-economy/fertilizer-price-fire-monopoly-or-markets-blame

China Suspends Sulfuric Acid Exports, Global Copper and Fertilizer Supply Under Strain
https://www.echemi.com/cms/2963199.html

Fertilizer companies cash in while farmers struggle
https://projects.wuft.org/priceofplenty/profit/the-cost-of-growth-fertilizer-companies-cash-in-while-farmers-and-communities-struggle/

Fertilizers ARE Critical Minerals
https://www.tfi.org/wp-content/uploads/2025/05/DOI-CM-Briefing-briefing-5-08-25.pdf

Key suppliers of phosphate fertilizer to US face 10%-25% tariffs from Aug. 7
https://www.spglobal.com/energy/en/news-research/latest-news/fertilizers/080125-key-suppliers-of-phosphate-fertilizer-to-us-face-10-25-tariffs-from-aug-7

Beef, Most Fertilizers Exempt from New Trump Tariffs
https://farmpolicynews.illinois.edu/2026/02/beef-most-fertilizers-exempt-from-new-trump-tariffs/

Most US ferts cleared under new import policy
https://www.argusmedia.com/en/news-and-insights/latest-market-news/2791825-most-us-ferts-cleared-under-new-import-policy

Mosaic to cut US phosphate production — despite calling for import duties
https://www.michiganfarmnews.com/mosaic-to-cut-us-phosphate-production-despite-calling-for-import-duties

Mosaic Pulls Guidance, Cuts Spending as Fertilizer Costs Surge
https://www.wsj.com/business/earnings/mosaic-swings-to-loss-on-surging-sulfuric-acid-prices-fec74551

Farm Action
https://www.facebook.com/FarmActionUS/posts/the-fertilizer-price-spike-hitting-farmers-is-no-accident-a-handful-of-corporati/1325465483043964/

Chuck Grassley Leads Senate Judiciary Committee In Hearing On Fertilizer Industry Competition

Farmers Face a Fertilizer Crisis at Spring Planting Time
https://blog.ucs.org/omanjana-goswami/farmers-face-a-fertilizer-crisis-at-spring-planting-time/

Food Price Outlook - Summary Findings
https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings

China’s grain production trends upward
https://www.world-grain.com/articles/22559-chinas-grain-production-trends-upward

China releases Agricultural Outlook 2026–2035
https://www.dcz-china.org/2026/04/29/china-releases-agricultural-outlook-20262035/

Iran War fallout: Russia and China quietly take over natural gas markets in Asia, with Qatar gone

Mosaic to cut US phosphate production — despite calling for import duties
https://www.michiganfarmnews.com/mosaic-to-cut-us-phosphate-production-despite-calling-for-import-duties

Mosaic Pulls Guidance, Cuts Spending as Fertilizer Costs Surge
https://www.wsj.com/business/earnings/mosaic-swings-to-loss-on-surging-sulfuric-acid-prices-fec74551

Farm Action
https://www.facebook.com/FarmActionUS/posts/the-fertilizer-price-spike-hitting-farmers-is-no-accident-a-handful-of-corporati/1325465483043964/

Chuck Grassley Leads Senate Judiciary Committee In Hearing On Fertilizer Industry Competition

Farmers Face a Fertilizer Crisis at Spring Planting Time
https://blog.ucs.org/omanjana-goswami/farmers-face-a-fertilizer-crisis-at-spring-planting-time/

Food Price Outlook - Summary Findings
https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings

China’s grain production trends upward
https://www.world-grain.com/articles/22559-chinas-grain-production-trends-upward

China releases Agricultural Outlook 2026–2035
https://www.dcz-china.org/2026/04/29/china-releases-agricultural-outlook-20262035/

Iran War fallout: Russia and China quietly take over natural gas markets in Asia, with Qatar gone

The costs to replace advanced missiles and platforms used thus far in the War on Iran is at least tens of billions of dollars, and will take years.

But the missile systems require rare earth magnets and other materials which can only be sourced through China, who has strict bans on their export to Western weapons makers.

The United States expended massive missile stockpiles in just a few weeks of the war, and committed more resources to the defense of Israeli than did the Israelis themselves.

Report:

Good morning.

Military and government analysts are trying to figure out just how many missiles and bombs have used up, during the War on Iran, and during the war in Ukraine. These munitions are very expensive, they take a long time to build, and the supply chains for everything that puts them into the air and blows them up—those all go through China, and China has shut off exports of those materials and components.

We know that it will take many years, and hundreds of billions of dollars, just to rebuild the stockpiles back to pre-war levels, and even that assumes that Chinese exporters will cooperate. This report from the CSIS concludes that arsenals are sufficient to continue operations against Iran, but there are big question marks around anything that happens after.

Here is where they THINK things stand. These are the seven critical missile systems. Each Tomahawk, for example, costs $2.6 million. Before the war on Iran, estimated inventory was 3,100. Over a thousand have been used, so far. During normal times, 47 months are required to build them.

That’s four years or so, and these are not normal times. Usage running over a thousand, and fewer than 200 are expected for delivery in the rest of this year. Another 800 or so have been “requested” for next year.

The situation for the SM-3 missile stocks is even worse. About half of them were used up, and those take over five years to build:

Patriot missile stockpiles have also dropped by half, and big orders have been placed to replace those. $3.9 million each, 42 months to make a new one. Patriots are also in high demand across the world; Ukraine has already used up 600 of them.

The THAAD’s are Terminal High Altitude Area Defense. Those are ground-launched missiles to intercept incoming ballistics. In last year’s war with Iran, over 150 of those were used. The US only has eight batteries worldwide. One of those was in South Korea and missiles from those systems were hurried over to the Middle East to replace what was either blown up by the Iranians, or used up. Those missiles take 53 months to build.

This table spells out a little more clearly, the annual production rates, the lead time to first delivery, and production time for the full lot. Add those two columns together, which results in total delivery time for the production lots:

Even before the war, munitions stockpiles were inadequate for conflict with a peer adversary, like Russia or China, and let’s remind ourselves again, that Pentagon contractors need Chinese materials to make these weapons in the first place.

Just to return to pre-war inventories—this is Iran, not Iran plus Ukraine—will take five years in the case of Tomahawks, and for THAAD’s, at least four years.

The Pentagon also has existing contracts and obligations to other countries, which were facing long delays and cost overruns which pre-dated this newest war. Switzerland ordered five Patriot missile batteries in 2022. At the time, final deliveries were expected throughout this year – 2026 -- and next. Then came Ukraine, and that schedule was pushed back. Now the Iran war would mean even more delays and price hikes; delivery now is five to seven years, from now—2026.

Switzerland is looking at alternatives, including canceling the order outright. Contractors can’t build systems fast enough to replace what is being burned up in two theaters, now—Ukraine and the Persian Gulf.

Big problems with Patriot systems. THAAD stockpiles are also being drained, and are also in high demand not just by US forces, but by key allies.

This was surprising to learn, that the United States burned through more interceptor missiles over Israel than the IDF itself. “The US expended far more advanced interceptors to protect Israel, than Israeli forces did.” That analysis emphasizes the extent of Washington’s burden of protecting Israel from missiles outbound Iran, and raises doubts about other commitments across the world:

Here are the numbers: the US launched more than 200 THAAD missiles in defense of Israel—which was about half what the Pentagon went into the war with. Another 100 SM-3’s and -6’s were fired also. In comparison, the Israelis used fewer than 100 Arrow’s and 90 David’s Sling interceptor missiles.

This is a “lopsided dynamic”—the US launched 120 more interceptors at twice as many Iranian inbounds than the Israelis did. The Israeli PM pushed for the war in the first place, and spokesmen for the Pentagon and the Israeli Embassy emphasize that it’s a joint operation. The Pentagon said that Israel and the US “carried the burden equitably”, and the “Israeli government also defended the approach”, with operations “coordinated at the highest and closest levels to the benefit of both countries.”

Those explanations went over badly with analysts, because these commitments were so obviously one-way. The United States took on most of the mission of Israel’s missile defense, while Israel conserved its own stockpiles. Even assuming that the operational strategies were sensible, somehow, the US only has 200 THAAD missiles left and no way to get any more before 2029.

Last year the Pentagon said they only had a quarter of the air defense capability required to meet existing obligations. And now lots of people in lots of places who are also reliant on American systems realize that the magazines are empty, there are no more coming, and that the Israelis have first call on any new production:

Not even the Pentagon seems to know how big a hole they’re in, or how much it will cost to get out. On 1 May, Pete Hegseth, the Secretary of War, went to the Senate to answer questions as to what the new $1.5 trillion defense budget will be for.

Mark Kelly is a senator from Arizona, and by the way is a former astronaut and who spent 25 years in the Navy. He points out here that these missiles cost a lot and take a long time to build. The new Pentagon budget request is for $31 billion to expand production for those missile systems. Hegseth looks down at his notes, and says it’s $53 billion. Which is $20 billion higher. We’ll make that part bigger. Senator Kelly is asking how many years it will take to replace the Patriots, THAAD’s, and other expensive munitions. Hegseth answers he actually thinks it’s closer to $330 billion. Senator Kelly: But how long will it take?

Secretary Hegseth: Months. Years.

We’ve done a lot of work on the channel from the very beginning, documenting the China problem for the Pentagon’s supply chains. This is a new one today—samarium. China makes all the samarium in the world, and the Pentagon needs it to rebuild all the jets and missiles that are blowing up in the war on Iran, then obviously what they’re need to build new ones for the Swiss and the Koreans and the Japanese. Please note, too, that these reports were from last year. Already it was a serious problem, and the United States had no alternative to China’s supply of samarium.

China produces 100% the world’s supply, and the only customers for it are weapons makers. That is unlike the other rare earth elements—which China also has monopolies on—but which have “dual-use” applications. Both civilian manufacturers and defense contractors need rare earth magnets from neodymium, for example. But Samarium magnets are only used in advanced munitions. So the rules that China’s Commerce Ministry put out to strictly regulate dual-use materials do not apply to samarium at all.

The biggest American buyer of samarium is Lockheed Martin, who needs 50 pounds of samarium to build a single F-35. A spokesman there said that Lockheed Martin’s supply chains for rare earth elements are the government’s problem.

The Biden Administration invested money with two companies to build samarium plants in the US, and neither of them got built. It was called the Defense Department way back then, and they gave $35 million to MP, who kicked in $65 million or so of its own, to buy new equipment.

Then the Administration handed $351 million to an Australian company to build a plant in Texas. MP was hoping for a monopoly on samarium production in the US, and backed out of the deal and didn’t even bother unpacking their new equipment. Then Lynas decided to build their new production in Malaysia, instead of Texas, and also backed out.

So there is no Samarium in the United States, and none coming. This is also from last year. Pentagon contractors hit the phones, looking for samarium anywhere they could get it from a non-Chinese address. The CEO of this company in New York, Arnold Magnetic, found a big pile of it literally just sitting in a warehouse in France from five decades ago, and bought up all of it, and signed a contract to process it. The entire stash is about 200 tons, which insiders said would be enough to supply some Pentagon suppliers for a year, given that the US defense industry needs less than that.

But remember, again, this was all before the War on Iran sped everything way up. China’s export bans are still on, and this supplier to Raytheon says that China has successfully closed off all the loopholes that could be exploited before.

Navigating China’s export bans on dual-use materials was already a challenge for the neodymium magnets, for example, where importers could pretend to be a broker for electric vehicles. Samarium cobalt magnets are what the Pentagon needs, and samarium cobalt magnets are ONLY needed by weapons makers. So until new sources of samarium are found, or new substitutes for samarium are found, American manufacturers can’t build new fighters or missiles.

The Pentagon is trying to catch up to China, and Iran, and Russia, who have successfully already deployed hypersonic missile systems, but those also require samarium. Aisha Haynes was in charge of supply chain issues at the Pentagon, and says here that “you never want to give any one nation that much power” since they can shut off the source whenever they want.

Now the Trump Administration is trying the supply chain thing, and just gave MP another $150 million to get some production going for samarium, among other raw materials. That will take years to come online, if it happens at all. ReElement Technologies is out of Indiana, and got an $80 million loan. And Ucore Rare Metals, a Canadian company, was handed $22 million in grants to build facilities for samarium and gadolinium in Louisiana. Both ReElement and Ucore Rare Metals are using new technologies, and critics are pointing out that those companies have never produced magnets at all. What’s more, most of the money is NOT going to build the samarium-cobalt magnets that the Pentagon needs.

That was from last year, and part of a $1.4 billion rare earth magnet deal which included ReElement, and and which is already falling apart. The Pentagon is deciding now whether to junk it, after officials decided the company probably couldn’t scale the new technology they had developed. The Pentagon and the White House are fighting over it, and – if you can believe it --- it’s the War Department this time who is saying that it’s a waste of money and that the numbers can’t work.

Whether those investments to build samarium capacity go through or not, for now the only source of it is China, unless that guy in New York finds some more in his garage or something. And China’s export controls are written to regulate how their materials are used, even years after.

So countries are racing to build up their own reserves. China has a head start of 30 years or more, but better late than never, is the thinking here. The United States put $12 billion aside for “Project Vault”, so that American businesses are never harmed by shortages. Trump compared Project Vault to the Strategic Petroleum Reserve, which ironically is also being drained right now, because of the energy supply chains blowing up by the war on Iran.

Australia is putting in a tenth of that-- $1.2 billion. Efforts are underway to do the same in the EU. And South Korea has a plan to reduce reliance on China for its rare earth elements by diversifying their supply chains—to somewhere, doesn’t say—and increasing domestic production.

Lots of problems then. The Pentagon and its allies are out of missiles and are trying to build some more. Missiles and fighter jets need samarium, and China makes 100% of the world’s supply of it, and Pentagon contractors aren’t allowed to buy it. The handful of companies that have agreed to make the samarium magnets don’t have any experience doing so, and are years away from making it work, if ever.

But it’s not just the samarium; it’s the same story for literally everything else. Here are the critical minerals that go into just one of those systems, the Tomahawk:

Samarium is there at the top right, along with neodymium, for the magnets. There are 16 other critical minerals, besides those.

Tungsten, for the control surfaces. China controls over 80% of global tungsten production, and almost all the chemical supply chains to process it.

Gallium is used in the semiconductors, and China produces 98% of all that.

Cobalt is part of the samarium-cobalt magnet, and also used for the superalloys in the missile. Another near-monopoly there for China, who controls 60% of the mining and 90% or so of the chemicals for that.

Bismuth. For the fuses and electronics. China, over 80% of global production.

Graphite. 70% of the mining, 100% of the refining.

Molybdenum. 81% of global refining.

Neodymium. Over 90% of the world’s refining and separation.

Going back to that Senate hearing, with Senator Kelly and the Secretary of War. The conversation started at $31 billion, the bill for munitions. Ten seconds later it jumped to $53 billion. After another minute or so it was $330 billion, and “you name it, they are investing” tens of billions of dollars for it.

That $1.535 billion budget was “a highly rigorous process” at the Pentagon, involving the Secretary himself, his deputies, top commanders, top lawmakers, to “ensure the budget reflects the realities of the world we live in.”

But the reality is that no matter how much money they spend, or for how long, those missiles can’t get built without China. And China won’t let them.

Be Good.

Resources and links:

China’s Chokehold on This Obscure Mineral Threatens the West’s Militaries
https://www.nytimes.com/2025/06/09/business/china-rare-earth-samarium-fighter-jets.html

How U.S. Defense Industry Dodged a Rare-Earth Shortage After China’s Curbs
https://www.nytimes.com/2025/12/22/business/defense-industry-rare-earth-restrictions-china.html

China Rare Earth Export Controls 2026: What New Licensing Rules Mean for Manufacturers
https://www.certivo.com/blog-details/china-rare-earth-export-controls-2026-what-new-licensing-rules-mean-for-manufacturers

Pentagon doubts over rare earths deal provoke White House clash
https://www.mining.com/web/pentagon-doubts-over-rare-earths-deal-provoke-white-house-clash/

US munitions depleted by Iran war will take years to restore, analysis finds
https://www.militarytimes.com/news/pentagon-congress/2026/05/27/us-munitions-depleted-by-iran-war-will-take-years-to-restore-analysis-finds/

WATCH: In SASC Hearing, Kelly Challenges Hegseth on Munitions Burn Rate, “No Quarter” Comment, and Massive Defense Budget Proposal
https://www.kelly.senate.gov/newsroom/press-releases/watch-in-sasc-hearing-kelly-challenges-hegseth-on-munitions-burn-rate-no-quarter-comment-and-massive-defense-budget-proposal/

Severity Of America’s Depleted Advanced Weapons Stockpiles Detailed In New Report
https://www.twz.com/news-features/severity-of-americas-depleted-advanced-weapons-stockpiles-detailed-in-new-report

U.S. bears brunt of Israel’s missile defense, Pentagon assessments show
https://www.washingtonpost.com/national-security/2026/05/21/us-bears-brunt-israels-missile-defense-pentagon-assessments-show/

Rebuilding U.S. Missile Inventory: A Multiyear Project
https://www.csis.org/analysis/rebuilding-us-missile-inventory-multiyear-project

Last Rounds? Status of Key Munitions at the Iran War Ceasefire
https://www.csis.org/analysis/last-rounds-status-key-munitions-iran-war-ceasefire

Swiss considering rival air defences after Washington delays Patriots over Iran war
https://www.reuters.com/world/united-states-informs-switzerland-delays-price-hike-patriot-delivery-2026-05-13/

Critical Minerals Strategic Reserve
https://www.pmc.gov.au/domestic-policy/critical-minerals-strategic-reserve

Exclusive: Italy, France and Germany to lead EU critical materials stockpiling plan, sources say
https://www.reuters.com/sustainability/climate-energy/italy-france-germany-lead-eu-critical-materials-stockpiling-plan-sources-say-2026-02-04/

Korea Strengthens Rare Earth Supply Chain Independence
https://www.businesskorea.co.kr/news/articleView.html?idxno=262606

Hasty redeployment of US missiles from South Korea to Middle East leaves Seoul rattled
https://www.theguardian.com/world/2026/mar/11/redeployment-us-missiles-thaad-south-korea-middle-east-seoul-iran

China, Russia, and Iran have hypersonic missiles. And that changes everything.

America’s Emergency Oil Reserve Is Shrinking Fast
https://www.newsweek.com/americas-emergency-oil-reserve-is-shrinking-fast-11983476

Chinese EV companies enjoy enormous advantages in cost and scale, compared to automakers in Europe.

Nevertheless, some Chinese brands are scooping up closed production lines and factory capacity in Europe.

The motivation is primarily to avoid the European Union's high tariffs and regulations on cars inbound from China, and new policies on vehicles qualifying for government subsidies.

Skeptics point out that Chinese electric vehicles are taking over European markets right now, even while passing the high tariffs along to buyers. Further, that Europe's high cost structures and regulatory environment represent real challenges for Chinese carmakers hoping to keep prices low.

Report:

Good morning.

Manufacturing industries in Europe are dying. Automakers and chemical companies are closing production and laying off in Europe, to invest in new capacity and headcount here in Mainland China. One of the primary drivers of that is the cost of electricity; Western Europe has some of the most expensive power bills in the world.

Labor costs are also far higher in Europe, compared to China and other countries in Asia. This is from the Reshoring Institute. The mission of the Reshoring Institute is to help companies set up in the United States, and pull manufacturing back to the US. This table is called “China is no longer a low-cost labor country”, and we can only wonder why they published it at all.

Only Germany has higher labor costs for manufacturing workers than the United States, and China’s salaries lower by more than half. Other countries in Asia are lower still. It’s hard to see why these data would serve as motivation to relocate factory production from China to the United States. Or to Europe.

Ironically though, Chinese carmakers are considering exactly that. Chinese electric vehicles are blowing up markets everywhere, and taking over everywhere they are allowed to be sold. Chinese companies tend to be vertically integrated, and their EV industry has monopolies on the supply chains for everything that goes into making batteries for electric vehicles.

Chinese carmakers are crunching the numbers and concluding that they can probably—probably—make more money by buying up factories in Europe, that automakers there are shutting down, and cutting excess capacity.

Volkswagen previously was building12 million cars a year, worldwide. They are cutting that down to 9 million. So VW capacity that was turning out 3 million cars a year will be idled, and they are looking for their Chinese partners to move in.

Ford Motor Company has a factory in Spain. Geely is planning to take over one of those lines.

To Chinese carmakers, it’s a complex math problem. European labor costs are lot higher. European power bills are a lot higher. So these companies are trying to solve the problem of import tariffs, on cars built in China and sent to Europe.

This document is the tariff schedules and rules on Chinese cars. It runs almost 200 pages, and the summary is here. The base import duty on Chinese vehicles is 10%, and these are the “countervailing” tariffs, which are added to that 10% baseline number. So the new tariffs on Geely car imports, for example, are 18.8%, plus 10%, for an effective tariff rate of 28.8%:

Leapmotor is also expanding in Spain, and they’re at 30.7%; once again, they’re at 20.7% plus the original 10%. So that math is already part of the decision making for these companies.

Then there is this: a proposed new regulation that says electric vehicles need at least 70% of their components—excluding the batteries— to be sourced in the European Union to qualify for government subsidies. So when that becomes law, carmakers can still buy and ship the batteries from China, while meeting the 70% requirement by building locally.

By doing that, government subsidies can be applied to the purchase of Chinese electric cars.

Here is a nuts-and-bolts example of how that works now, compared to what’s coming later. Leapmotor is offering this car for sale, the T03. European buyers – lessees, sorry-- don’t need to pay a deposit, and can make a lease payment of $57 – 49 euro -- per month, for three years. This car is built in China. All of it. So when those new rules go into effect, this won’t work. Those 36 months times 49 euros means that they can drive this car for less than they would pay for a high-end bike.

This is an extreme example, to be sure. But there’s a big difference between driving off with that car for 49 euros per month, versus a down payment of 6,000 euro, then 49 euro per month. Then it’s not like buying a nice bike, and that’s the math that is driving some of these Chinese brands to buy up factory capacity from the Europeans, who already can’t make the math work in their own businesses.

There are skeptics, both here and in Europe. This auto industry analyst is dismissive of the whole idea. The costs will going up, a lot, and the Chinese are going to find out how hard it is to do business in Europe. New, higher labor costs, and the cost to build out new supply chains in Europe to meet the 70% component requirements.

In 2024, the labor costs for cars built in China was under $600, on average. That’s less than Poland, less than efficiency-obsessed Toyota. Spain was at $955. Per car labor cost in Germany is over $3300, or five times higher than China:

Foreign investment in these joint ventures is capped at 49%, so we do see a lot of these announcements at 51-49%. And that’s true here in China, too—where it’s the other way around. That’s not the problem. But the proposed new regulations for Europe will mandate half the workforce be European and include technology-sharing requirements. So the Citigroup guy is saying that nobody should be too excited, just yet.

There is also hesitancy on the Chinese side. Chinese carmakers are growing market share in Europe, right now, while just passing along the higher tariffs to end buyers. China is killing everyone else on EV’s, and that was BEFORE the war on Iran doubled gas prices for everyone in the world. So why hurry?

That may be what industry insiders here are thinking. It’s true that buying an existing factory saves time, and saves upfront costs compared to just building one from scratch. But what if European carmakers shut down capacity even faster, now that internal-combustion engine cars are even faster falling out of favor? Could Chinese companies just wait until prices fall some more? Or wait, and see if the European Union decides that it’s more important to get car buyers into electric vehicles—no matter where they come from—instead of buying fuel-burning vehicles made in the EU?

And the upfront cost savings shouldn’t be assumed either. Elvis Cheng is a top executive at Xpeng, and he’s got another problem: Xpeng wants to expand production in Europe and is talking to VW and other European companies, but the factories are so outdated that Xpeng may be better off just building a new one.

All that is happening here, in Europe, and in automotive in particular, is counterintuitive at first glance. Europe is de-industrializing, and companies there are moving to China. Yet Chinese companies and investments are also heading the other way. Chinese investment into the EU was at a seven-year high last year and was 25% of total outbound FDI. It was a 67% increase from 2024, and a big chunk of it went to the supply chain for electric vehicles.

“Greenfield Investment” is what Elvis at Xpeng is thinking about—building facilities from the ground up—that number was up 51%. Looking at some of those data, here—large greenfield investments for EV battery plants, from CATL and CALB. BYD opened an EV plant in Hungary. And going back to the tariff table, BYD enjoys the lowest tariff rate of all the Chinese car brands.

Hungary was also the first European country to join China’s Belt and Road Initiative, and so factories there can easily plug in to Mainland China supply chains, logistics, and banking systems. That’s over 12 billion euro in new greenfield FDI, just for Hungary.

There are a lot of moving parts here, and the skeptics are right to wonder just how much will result from all these discussions and negotiations. Because going back to that Leapmotor example, again. Right now the German subsidy is 6,000 euro, so drivers sign a 36-month lease for 49 euro a month. Suppose that subsidy goes away, for those cars that come in from China. Spreading out 6,000 euro over 36 months plus the 49 would mean about 220 euro a month.

It’s not apples to apples; the 6,000 euro are paid up-front, directly to LM by the German government, and no need to write to me and point it out. But charging the 6,000 euro to the lessees is still more affordable than anything coming out of a VW or Stallantis factory in Europe right now. But how much will that car cost Leapmotor to build in Europe, given all the higher costs and mandates?

Be Good.

Resources and links:

Mapping the impact of industrial decline on European regions
https://single-market-economy.ec.europa.eu/publications/mapping-impact-industrial-decline-european-regions_en

The Deindustrialization Of Europe In Five Charts

Robert Bryce

The Deindustrialization Of Europe In Five Charts

The headline on a February 9 Bloomberg article concisely sums up Europe’s unfolding disaster: “Germany’s days as an industrial superpower are coming to an end.” The article says, “Manufacturing output i…

Read more

2 years ago · 411 likes · 41 comments

The Reshoring Institute: Our Mission
https://reshoringinstitute.org/our-mission/

Electricity price statistics
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Electricity_price_statistics

China took over another $5 trillion industry, and Europe is moving money and jobs

Global EV Sales Top 20 Million as Europe and China Lead Electric Car Boom
https://electriccarsreport.com/2026/05/global-ev-sales-top-20-million-as-europe-and-china-lead-electric-car-boom/

Cheap and sleek Chinese EVs turn European heads
https://asia.nikkei.com/business/automobiles/electric-vehicles/cheap-and-sleek-chinese-evs-turn-european-heads

China's Leapmotor woos Germans with $57 monthly EV lease
https://asia.nikkei.com/business/automobiles/electric-vehicles/china-s-leapmotor-woos-germans-with-57-monthly-ev-lease

Stellantis and Dongfeng form EV joint venture for Europe
https://asia.nikkei.com/business/automobiles/electric-vehicles/stellantis-and-dongfeng-form-ev-joint-venture-for-europe

China's investment in Europe hits 7-year high, still far from peak
https://asia.nikkei.com/economy/china-s-investment-in-europe-hits-7-year-high-still-far-from-peak

Chinese EV makers awaken Western rivals' zombie production lines
https://asia.nikkei.com/business/automobiles/chinese-ev-makers-awaken-western-rivals-zombie-production-lines

Global Labor Rates: China is no longer a low-cost country
https://www.logisticsmgmt.com/article/global_labor_rates_china_is_no_longer_a_low_cost_country

As Chinese EV makers expand in Europe, are local automotive suppliers set to benefit?
https://www.scmp.com/business/china-evs/article/3354764/chinese-ev-makers-expand-europe-are-local-automotive-suppliers-set-benefit

COMMISSION IMPLEMENTING REGULATION (EU) 2024/2754 of 29 October 2024, countervailing tariffs on China-built vehicles
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202402754

EU tariffs on imports of China-made EVs
https://www.reuters.com/world/china/eu-tariffs-imports-china-made-evs-2026-02-11/

China's SAIC Motor plans EV factory in Spain, Bloomberg News reports
https://www.reuters.com/world/china/chinas-saic-motor-plans-ev-factory-spain-bloomberg-news-reports-2026-04-24/

Stellantis and Dongfeng in $1.2 billion deal to make Jeeps, Peugeots in China
https://www.reuters.com/world/china/stellantis-dongfeng-sign-117-billion-deal-build-peugeot-jeep-vehicles-china-2026-05-15/

China dominates the global chemicals industry, and leads the world in chemistry and research.

A major driver is China's boom in manufacturing, which requires robust supply chains for chemical inputs, and top chemistry engineering talent.

Chinese monopolies in cutting-edge chemical research, and massive production capacities which slash manufacturing costs, mean that China's policymakers can restrict its exports and final use, for example to weapons makers.

Top European chemical companies are cutting production lines and jobs in home markets, to build production and create jobs in Mainland China.

Report:

Good morning.

This is a report from almost exactly two years ago. It’s from the Information Technology and Innovation Foundation, and is a deep dive into the Chinese chemical industry. They concluded at that time that China was already leading in the production of chemicals, and was catching up quickly with industry leaders in other countries for more complex chemicals.

By 2022, China already was 44% of global production of chemicals, and 46% of new capital formation and R&D spending. Here are some of their predictions, from 2024: Chinese policymakers are determined that the chemical industry will be self-sufficient, and it is “likely that the country will be” comparable to foreign chemical companies with respect to innovation in just a few years, at the latest. China already enjoyed strong cost advantages, which meant that Western companies’ global manufacturing share would probably fall—significantly.

This is a $5 trillion industry, and comprises four large sectors: basic chemicals, ag, and the consumer segments. Chinese companies invest much more in R&D compared to peer countries and companies outside China, while also enjoying strong industry support from government.

The conventional wisdom in the chemistry field was the same as in everything else: cars, planes, semiconductors—that China is a copier, or at the most a “fast-follower”, while North America and Western Europe are the innovators.

The United States believes that they can attract top talent from across the world, and something magic happens when they show up, and they can create and innovate faster than if they had stayed home. There are lots of problems with that idea, as we see in just about every single industry there is. China’s costs are lower, so companies in China can afford to experiment with new technologies.

And it was always a weak thesis, anyway, that Chinese researchers are waiting around for American or German or Japanese scientists to do the work, then get busy working on knockoffs. It just doesn’t survive scrutiny.

These data are already six years old, from 2020: China was already the single highest source of value-added output in chemicals. That is not basic chemicals mass-production, then—this is surplus value created, and by 2020 was over 50% higher than the chemical industry in the United States.

There is only one market where that metric is moving sharply higher, over time. China’s value-add in 1995 was less than half compared to Saudi Arabia. India, in 2005, generated more than twice the surplus value of China. By 2010, China passed India. By 2023, China’s share of global market sales was over 40%, and China saw the highest capital investment intensity, 2.8 times more than the United States.

A primary driver of all of that, is that this is where the demand is, for chemicals of all kinds. And that’s another metric that has gone vertical---as Chinese manufacturing boomed, they needed a chemicals industry to feed their factory sectors, and that need continues to grow.

By 2024, Chinese chemical companies were already snapping up market share from competitors. This is a slow-growth, low-margin industry. There is a relatively small number of commercially viable products that are developed each year. It’s a mature industry, and investors need to be patient, and that’s a big part of the problem. Chinese companies have a lower cost of capital, lower borrowing costs, and lower operational costs structures. Western firms operating in North America and Europe don’t enjoy any of those advantages, and what’s more they answer to Wall Street investors who want to book short-term profits at high hurdle rates.

This is all to say that Chinese companies can afford to expand, today, in expectation of future demand, while Western companies cannot do so in their home markets. China is where the market is, and foreign companies have no choice but to invest heavily here, just to stay competitive in the Chinese market, selling chemical products to Chinese industrial users.

By 2022, 34% of Research and Development in the chemical industry was invested here, in China. And by the way, R&D dollars go a lot farther in China, compared to the United States or in Germany. And that boom in R&D has translated into new patents by Chinese firms and research institutes.

Now it’s 2026, just two years after that report from ITIF. China is now inarguably the leading country for chemistry research. In the past 10 years, China increased its research by four and a half times. Now China’s share of top research is higher than the next 50 countries combined. The University of Science and Technology is China’s second-ranked university for chemistry, and that single institution has a higher share than Spain and Canada—entire countries.

That focus on chemistry means that China, and Asia generally, now decides which chemicals get built and how they’re used, and obviously where they’re used. We mean here that China can use their emerging monopolies in chemical manufacturing, and deny them to weapons makers, for example—just as they have already done in rare earth metals, magnets, and industrial diamonds.

Here are the global university rankings in chemistry. USTC is at #2. Tsinghua in Beijing, and is top in the world. Unis in Singapore show up at #3 and #4; Stanford is ranked #5. Then it’s a lot of Chinese flags there in the top 30.

What does that mean for students, for young people across the world, who want to study chemistry, then actually get a job after? Where are those jobs in chemistry going to be?

We already know the answer to that, and so do the biggest chemical companies across the world. That is the CEO of Clariant, which is a giant Swiss chemical company. The Chinese market is bigger than the United States and Europe put together, so Clariant was already moving their money. In 2020, 10% of Clariant’s sales came from China—402 million Swiss francs. So Clariant opened a 45 million Swiss-franc R&D center in Zhejiang. In 2023, Clariant shut down facilities and cut jobs in Europe—the company closed a plant in Romania and downsized operations in Germany. They had invested in a plant with a capacity of 50,000 tons a year but never produced that much. Their Podari facility lost 77 million Swiss Francs.

Clariant turned around and invested that same amount—80 million CHF-- in a new facility in China, at Daya Bay which, by the way, is home to some of the biggest nuclear reactors in China. So we should assume that by parking their new plant right next door, Clariant doesn’t have to worry anymore about affordable electricity. Energy costs in the EU blew up along with the Nordstream, and Russia shipping their crude and natural gas to China instead of Western Europe, and that has made European manufacturing impossibly uncompetitive and unaffordable.

BASF is the biggest chemical company in the world, and they’re doing the same—closing production in Europe to open new capacity here in China. BASF is headquartered in Germany, where the company is laying off thousands of people to invest here, along with leading automakers and equipment manufacturers. “Surging energy costs”—that’s often the first reason cited by business executives getting ready to move their production. It’s true, but also relatable to the people about to lose their jobs. Europeans generally see it in their own utility bills. They’re aware that it costs a lot more to keep the lights on at home than just a few years ago, while they are likely unaware that in the roster of top universities to study chemistry, European unis don’t hit the list until ETH Zurich, at #25, and Germany doesn’t show up at all. The costs are too high to be competitive with Asia right now, and the talent pipelines for the future have also already moved away.

Europe has seen an erosion of manufacturing industry generally, along with business confidence and investment, which is a cycle that feeds on itself. China, meanwhile, is going the other way. BASF is shutting down facilities in Germany, laying off thousands of people there, and investing in cutting-edge plants in China, hiring thousands of people here.

We do appreciate these analyses, and wonder why we cannot find more of them. It isn’t particularly difficult to see charts like those, confirm that the data are right, and then ask, what does it mean if those trends continue, for just a little longer?

And then to ask, what might happen to accelerate them—and make them worse--for example an energy supply chain shock, like Russia-Ukraine in 2022, or another war in the Middle East, but this time against someone who can close the Hormuz?

The trends did continue in China, and did get worse in Europe, and today the biggest chemical companies in the world have decided that the chemical industry in Europe is gone. It has no future, because manufacturing industry in Europe has no future. So those companies are moving.

And that is all good for young people to know. If you want to study chemistry, or work in chemistry, you can’t stay in Europe either.

Be Good.

Resources and links:

Charted: China’s Rise to Manufacturing Dominance Over 30 Years
https://www.visualcapitalist.com/china-vs-americas-industrial-growth-2019-2024/

Best Global Universities for Chemistry
https://www.usnews.com/education/best-global-universities/chemistry

What China’s rise in chemistry means for the rest of the world
https://www.nature.com/articles/d41586-026-00428-9

BASF launches biggest overseas project in China with green-powered mega-site
https://www.scmp.com/business/article/3348021/basf-launches-biggest-overseas-project-china-green-powered-mega-site

Clariant CEO: China chemicals market bigger than U.S. and Europe combined
https://www.cnbc.com/video/2025/11/20/clariant-ceo-china-chemicals-market-bigger-than-u-s-and-europe-combined.html

Chemical market overcapacity and weakening demand: a perfect storm
https://www.icis.com/explore/resources/chemical-market-overcapacity/

How Innovative Is China in the Chemicals Industry?
https://itif.org/publications/2024/04/15/how-innovative-is-china-in-the-chemicals-industry/

BASF Agricultural Solutions plans to change production network of glufosinate-ammonium
https://www.basf.com/global/en/media/news-releases/2024/07/p-24-230

German 'chemical town' fears impact of industrial decline
https://www.france24.com/en/live-news/20260517-german-chemical-town-fears-impact-of-industrial-decline

BASF drives forward structural adjustments at the Ludwigshafen site and closes production plants for adipic acid, CDon and CPon
https://www.basf.com/global/en/media/news-releases/2024/08/p-24-269

BASF quietly closed 11 factories in Germany and transferred to China for plant investment
https://www.echemi.com/cms/1939901.html

BASF: 2024 at a Glance
https://report.basf.com/2024/en/overviews/2024-at-a-glance.html

Clariant to cut 170 jobs after closing Romania plant, downsize German operations
https://www.reuters.com/business/clariant-cut-170-jobs-after-closing-romania-plant-downsize-german-operations-2023-12-06/

China recently launched the world's first underwater data center powered by offshore wind.

The cost of the project, off the coast of Shanghai, is less than half that of comparably sized data centers on land.

Microsoft pioneered the underwater data center, but abandoned further efforts despite successful testing.

Report:

Good morning.

There is a race on to build data centers for Artificial Intelligence. But it is running into a lot of problems in the United States and in Europe, where contractors are hard up against the lack of electricity to feed the data centers. There just isn’t enough, and local residents and politicians are mobilizing against new construction.

That is the primary driver of the political problem: the power demands for these data centers are putting strains on electric grids where households are already seeing big spikes in their utility bills, right now.

Those constraints don’t exist here in Mainland China, where construction of new data centers is a national-level objective, and electricity costs are falling. This is China’s newest data center, which is a project off the coast of Shanghai. It’s major engineering story, but getting deeper in we see how the other constraints that are slowing AI data center builds in the United States and Europe are not issues here.

This is an underwater AI data center, and this is the first in the world that is powered with offshore wind. It was launched last summer, and cost $226 million to build. It’s a partnership with power and engineering companies, and China Telecom. There are 2,000 servers at the data center, which is right next to large wind turbines offshore:

Underwater Data Centers (UDC) are cooled with seawater, which dramatically reduces the power need, and improves their Power Usage Effectiveness. The PUE of the Shanghai project is 1.15, which is about 30% lower than data centers operating on land. Overall, the electricity consumption drops by over 22%, and reduces to almost nothing the need for water, obviously, and land.

That is the thinking here, for this Chinese design. It is connected directly to the wind power plants, and the processing outputs sent to Shanghai, which is 10km away. Network latency overall is 0.5 milliseconds.

Microsoft was the pioneer of offshore data centers. Project Natick was a data center placed at a depth of 117 feet, about 35 meters, off Scotland. Researchers used nitrogen instead of oxygen. If you’ve got human researchers operating the equipment, they need to breathe air with oxygen, but oxygen is actually less optimal for computer servers. Getting rid of people gets rid of the need for big oxygen particles floating around, and that also got rid of clumsy people, who bump into the systems and spill things.

Microsoft’s water-cooled system was found to be more efficient, and the failure rate of their offshore data center was just one-eighth compared to one on land.

Microsoft also understood that putting the data center underwater next to population centers would result in the same low latency that the Shanghai project enjoys now. But nevertheless, Microsoft abandoned the plan to build more underwater data centers, and as of two years ago had no active data centers underwater.

Their Chief of Cloud Operations and Innovation said that the Microsoft program did work. Only 6 of the 855 servers on their underwater center broke down, compared to 8 out of 135 on dry land. She didn’t explain why the company walked away, only that they learned a lot about how to apply what they learned in other places.

Shanghai is the first underwater data center powered by offshore wind. But China’s first offshore data center was launched off of Hainan Island, in 2023. This, also, is 35 meters underwater, and that project followed testing that began two years prior, in Zhuhai.

Several Chinese provinces have underwater data centers in their five-year plans, which means that this is official policy, from the top down, to deploy these units at scale, in lots of coastal areas.

We were curious why Microsoft abandoned their plans for underwater data centers, even though their own research pointed out that their Natick program was a success. The Shanghai project is the only one that has shared their cost data. It’s a $226 million project, with a capacity of 24 megawatts. It is designed for AI workloads, big data, and development of large language models.

Compared to the construction and development costs for data centers as a whole, that Shanghai project comes in less than half. These are the cost data for a typical data center, worldwide:

AI-intensive facilities are $20 million per megawatt, so a 24-megawatt data center, on land, would run over $480 million. Liquid cooling is one of the major cost drivers. Another driver is compute density, which is a function of power availability. Shanghai’s underwater data center solves the cooling problem, and they parked it right next to a giant offshore wind farm, so the issue of “robust power deliver” also goes away. Shanghai’s cost was $226 million, under half that of the $480 million cost of a comparably sized center, on land, in the US or Europe.

Locating these data centers nearby available power supply is more important than the cost of the land itself. But then there is this. The electrical systems make up a substantial part of the construction budget. Substations, switching equipment, and transformers are hard to come by; order backlogs are years-long in the United States.

US tech companies have all the money in the world, and seem to be committed to spending all of it to get their data centers built. But besides the political problems and power issues, there is a severe shortage of electrical components, and half of the data centers that are supposed to come online in 2026 are either delayed or were canceled outright:

Same problem runs into future years—lots of announcements, but just a handful of construction projects underway. The power grid needs to be continually upgraded and expanded, then comes the new demand from data centers, so delivery times for transformers and switching gear are now five years.

Data center contractors are reliant on imports to make up that difference, and China is a major source for that equipment. Builders are indifferent to the high tariffs on Chinese gear coming over, because those customs charges are negligible compared to the money coming in from the hyperscalers like Amazon and Microsoft.

It’s ironic, there, that Microsoft was the first to figure out how to build data centers underwater and showed the world the benefits of doing so. But Microsoft can’t plug their underwater data centers into offshore wind farms, because the United States is canceling them all.

And so Microsoft is waiting in line — with everyone else — for more electrical equipment to come over from China

Be Good.

Resources and links:

Interesting Engineering, China activates world’s first offshore wind-powered underwater data center
https://interestingengineering.com/innovation/china-offshore-wind-data-center

Microsoft confirms Project Natick underwater data center is no more
https://www.datacenterdynamics.com/en/news/microsoft-confirms-project-natick-underwater-data-center-is-no-more/

Microsoft waves goodbye to underwater data centers
https://www.windowscentral.com/microsoft/microsoft-waves-goodbye-to-underwater-data-centers

China puts ‘world’s first’ offshore wind-powered underwater data center into operation
https://www.offshore-energy.biz/china-puts-worlds-first-offshore-wind-powered-underwater-data-center-into-operation/

China launches 'world's first' underwater data center powered by offshore wind energy.
https://gigazine.net/gsc_news/en/20260519-undersea-data-center-china

Microsoft's underwater datacenter thrives in the depths of the Scottish sea
https://www.windowscentral.com/microsoft-undersea-datacenter

Off the coast of Shanghai's Lingang Special Area, a newly operational platform now hosts the world's first commercial underwater data center
https://www.facebook.com/watch/?v=1543813920507409

China deploys 1,400-ton commercial underwater data center
https://www.datacenterdynamics.com/en/news/china-deploys-1400-ton-commercial-underwater-data-center/

What Does It Cost to Build a Modern Data Center in 2026?
https://www.constructelements.com/post/cost-to-build-modern-data-center-2026

America’s AI Build-Out Hinges on Chinese Electrical Parts
https://www.bloomberg.com/news/features/2026-04-01/us-ai-data-center-expansion-relies-on-chinese-electrical-equipment-imports

Microsoft's AI Strategy Deconstructed - From Energy to Tokens

SemiAnalysis

Microsoft's AI Strategy Deconstructed - From Energy to Tokens

Microsoft was at the top of AI in 2023 and 2024, but then a year ago they changed course drastically. They paused their datacenter construction significantly and slowed down their commitments to OpenAI. We called this out a year ago to datacenter model clients…

Read more

7 months ago · 240 likes · 13 comments · Jeremie Eliahou Ontiveros, Dylan Patel, Myron Xie, Wei Zhou, Jordan Nanos, Clara Ee, Daniel Nishball, and AJ Kourabi

Why are communities pushing back against data centers?
https://news.harvard.edu/gazette/story/2026/04/why-are-communities-pushing-back-against-data-centers/

New data reveals at least 48 data center projects were blocked or stalled by local opposition in 2025
https://www.thecooldown.com/green-business/data-center-opposition-local-resistance-construction-challenges/

Anti-data center measures gain traction at state, local level
https://thehill.com/policy/technology/5843665-data-center-backlash-grows/
EIA: Electricity prices to rise faster than inflation through 2026
https://www.americanexperiment.org/eia-electricity-prices-to-rise-faster-than-inflation-through-2026/

Why is China's electricity so cheap?

Trump suspends all large offshore wind farms under construction, threatening thousands of jobs and cheaper energy
https://edition.cnn.com/2025/12/22/climate/trump-offshore-wind-suspension-virginia

Trump administration cancels $679 million for offshore wind projects
https://www.cnbc.com/2025/08/29/trump-administration-cancels-679-million-for-offshore-wind-projects.html

Microsoft Pulls Back on Data Centers From Chicago to Jakarta
https://www.bloomberg.com/news/articles/2025-04-03/microsoft-pulls-back-on-data-centers-from-chicago-to-jakarta

Microsoft's AI Strategy Deconstructed - From Energy to Tokens

SemiAnalysis

Microsoft's AI Strategy Deconstructed - From Energy to Tokens

Microsoft was at the top of AI in 2023 and 2024, but then a year ago they changed course drastically. They paused their datacenter construction significantly and slowed down their commitments to OpenAI. We called this out a year ago to datacenter model clients…

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7 months ago · 240 likes · 13 comments · Jeremie Eliahou Ontiveros, Dylan Patel, Myron Xie, Wei Zhou, Jordan Nanos, Clara Ee, Daniel Nishball, and AJ Kourabi

The European Union plans to "rip-and-replace" Chinese telecom gear from their systems, across the continent.

Regulators estimate the cost of the program at around 4 billion euro, and hope that member countries switch to Nokia and Ericsson to build 5G telecom systems.

But the United States has been trying to ban Huawei and ZTE for decades, and Congress also budgeted $4 billion to rip and replace Huawei gear from civilian networks.

Only a small percentage of companies have done so, and even the Pentagon requests annual waivers from laws that require them to use contractors using non-Chinese gear.

China's monopolies on gallium, and massive R&D investments allow Huawei and other Chinese equipment makers to grow, despite Western bans.

Report:

Good morning.

The European Union has plans to get Chinese-built electronics gear out of their telecommunications networks. Earlier in the month, a key legal advisor said that member states are allowed to ban Huawei equipment on national security grounds. Policymakers in the EU are “ready to crack down” on countries in the EU that still allow China to sell 5G network equipment. The new law will restrict Chinese companies from building equipment for European telecom, and also for the energy, security, and transportation industries there.

Here is the problem as they see it. For most countries in the EU, Huawei and ZTE are over 40% of the telecom hardware market. Sweden is one of the light pink countries on that map, with less than 20% of its networks reliant on Chinese vendors.

Back in 2020, Swedish regulators banned the use of telecom equipment from Huawei and ZTE in its 5G systems, and said that they would rely on Ericsson—which is headquartered in Sweden, and Nokia from next door—to provide the continent with 5G. “The new installations . . . must be carried out without Huawei or ZTE.”

Immediately following that announcement, Ericsson was basically put out of business here in China. Ericsson had won contracts to build 5G for the three biggest mobile phone carriers in China, then in the year immediately following the Swedish ban on Chinese companies, Ericsson’s revenues fell by half.

Fast-forward to now, and cutting Chinese vendors out of networks Europe wide would cost between three and four billion euro, and we will circle back to that shortly. Huawei and ZTE are deeply entrenched in the European system, and the new law there would compel European telecom companies to buy more equipment from Nokia and Ericsson. Countries who complain about replacing low-cost Chinese equipment with higher-priced European made gear will just have to pay for everything themselves, instead of asking for funds from the EU general budgets to cover it.

The problem with that idea is that when we go deeper into the numbers, it’s a fantasy that the union-wide cost will come in at €4 billion. KPMG and industry groups did their research and estimated that it would cost over 100 times that--$430 billion. Just the part of removing Chinese components and replacing them with European equipment would cost €146 billion, plus costs from downtime and employment problems. The researchers went on to include other costs that push the annual losses to be €39 billion euro for this year, and climbing to about €90 billion annually in three years.

We’ve seen this movie before. The United States did a own version of the same thing. This is a Congressional report from 2022. The United States “has raised national and economic security concerns about Huawei for two decades.” In 2017, the US government started imposing sanctions and restrictions on Huawei, restricting the use of Huawei equipment in Department of the Defense, and prohibited federal funds from being used to buy Huawei gear.

Their conclusion: The US government has taken steps to remove Huawei from American networks, and to restrict Huawei from having the tools the company needs to grow and expand across the world.

The Federal Communications Commission followed up with rules to “rip and replace” equipment from Huawei and ZTE from telecom systems in the US, and set up a $1.9 billion fund to compensate companies for cost of replacing Chinese equipment.

President Trump, then Biden later, was also pushing US allies to also ban Huawei. Mike Pompeo was Trump’s Secretary of State, and before that was director of the CIA. He says that Huawei and other Chinese tech firms are “Trojan horses for Chinese intelligence” services. Later they realized $1.9 billion wasn’t enough, so Congress kicked in $3 billion more.

But two years after that law was passed, only 12% of American companies had replaced their Chinese equipment, and it was obvious by then that the wheels were coming off the whole thing, and that the “assassination attempt on Huawei” was backfiring. Huawei sales grew.

That was civilian companies. The problem with the rip and replace idea is on the “replace” part. There’s not enough money in the United States -- or in the EU, or in the Milky Way -- to replace Chinese telecom equipment, because there are no replacements.

The Pentagon is in the national security business, and nobody has more money than the people there in that building. But ever since 2019 the Pentagon has been barred from doing business with anyone who uses Huawei equipment. And every year since then the Pentagon begged for a waiver so they could continue doing so. Huawei is so deeply entrenched across the world that setting up alternative vendors is impossible:

They’re saying here that if the Pentagon followed American law, they couldn’t buy medical supplies, drugs, clothing, fuel, parts, transportation. Resupply missions in large parts of the world where the DoD operates wouldn’t get off the ground. Without those waivers, nothing moves. The Pentagon literally cannot get away from Huawei. American allies in the Middle East and South America literally cannot get away from Huawei. US troops stationed outside the US use Huawei gear themselves, and literally cannot get away from Huawei.

So here again we see a huge disconnect between the rhetoric of policymakers in the United States and Europe, compared to the real world of supply chains and manufacturing. This is a nice summary of all the laws and executive orders and rulings from US government agencies.

But despite US actions against Huawei and the other Chinese firms, Huawei is stronger than ever. Their market share is higher today than when it all started, and now they are developing new markets, and doing so without the help anymore of companies like Ericsson, or US firms.

Here is a strong example of that, and what our group sees every day: private 5G networks for mines and factories. Localized networks are driving factory automations, local logistics, and robotics. Almost all the growth in that industry comes in places outside North America and Europe:

Huawei is still the most prevalent provider of 5G infrastructure in the world, and especially in the parts of the world most of the people live. They are the places that are growing fastest, and where this technology is going to make the biggest difference.

All the orange countries on that map use Huawei. And think of the problem in this way: using Huawei means that these countries can develop faster, at lower cost. Local 5G networks can be built using Chinese equipment, and serve areas that national carriers haven’t reached yet. There are hundreds of thousands of warehouses and mines and industrial parks across the world, and they can get 5G right now, without waiting for Ericsson or Nokia to show up, someday, and bid on the job.

Chinese telecom companies’ dominance come from mastery of the supply chain, and Research and Development. 5G networks rely on gallium to make them go. Gallium nitride enables faster data transfer. It allows hardware companies to build lighter and smaller systems that are more energy efficient. It’s used in amplifiers and power supply.

Those are the advantages to using gallium, and China has all the gallium. Last year China produced 95% of the world’s total supply of gallium, and Huawei has over 2,000 patents related to gallium nitride. Nokia and Ericsson also have filed a lot of patents for gallium, but Nokia and Ericsson don’t have any gallium. Ericsson’s website admits as much—they don’t have it.

Gallium is a by-product of aluminum mining. China increased their aluminum production by ten times in 20 years and today supplies over half of all the aluminum in the world. There’s Chinese production of aluminum, compared to everyone else. And gallium, compared to everyone else:

And that Chinese monopoly on gallium means that Chinese companies can build better communications systems, and nobody else can.

Be Good.

Resources and links:

EU cyber plan barring Chinese suppliers will cost US$430 billion: report
https://www.scmp.com/economy/china-economy/article/3352610/eu-cyber-plan-barring-chinese-suppliers-will-cost-us430-billion-report

Wall Street Journal, China Leads the Way With Private 5G Networks at Industrial Facilities
https://www.wsj.com/business/telecom/china-leads-the-way-with-private-5g-networks-at-industrial-facilities-11647163802

Ericsson.com, Critical minerals supply chain
https://www.ericsson.com/en/about-us/sustainability-and-corporate-responsibility/responsible-business/responsible-sourcing/conflict-minerals

Ericsson and Nokia see their sales in China fall off a cliff
https://www.lightreading.com/5g/ericsson-and-nokia-see-their-sales-in-china-fall-off-a-cliff

Ericsson and Nokia can't gain in Europe what they lose in China
https://www.lightreading.com/5g/ericsson-and-nokia-can-t-gain-in-europe-what-they-lose-in-china

Sweden bans Chinese firms Huawei and ZTE from 5G networks
https://www.euronews.com/2020/10/20/sweden-bans-chinese-firms-huawei-and-zte-from-5g-networks

EU’s plans to reduce dependency on high-risk vendors
https://eutechloop.com/eus-plans-to-reduce/

Brussels plans to force governments to block Huawei from 5G
https://www.politico.eu/article/brussels-plans-force-governments-block-huawei-zte-5g/

Reuters, EU plan to phase out Chinese tech could cost bloc over $400 billion, Chinese study says
https://www.reuters.com/world/china/eu-plan-phase-out-chinese-tech-could-cost-bloc-over-400-billion-chinese-study-2026-05-06/

ICB, The Pentagon and FCC have a big Huawei problem: there are no substitutes, and there's no more money

Bloomberg, Pentagon Has a Huawei Dilemma Congress Doesn’t Want to Solve
https://www.bloomberg.com/news/articles/2024-07-03/pentagon-has-a-huawei-dilemma-congress-doesn-t-want-to-solve

The US is moving very, very slowly away from Huawei
https://www.lightreading.com/security/the-us-is-moving-very-very-slowly-away-from-huawei

FCC Designates Huawei and ZTE as National Security Threats
https://www.fcc.gov/document/fcc-designates-huawei-and-zte-national-security-threats

ICB, US price tag for China's gallium export ban: $602 billion and new monopolies for Huawei

Huawei has one 5G power that is hard for the US to hurt
https://www.lightreading.com/5g/huawei-has-one-5g-power-that-is-hard-for-the-us-to-hurt

Gallium: China is increasing its influence on the miracle metal as Huawei is working on promising applications beyond 5G
https://en.institut-seltene-erden.de/gallium-china-verstaerkt-seinen-einfluss-auf-das-wundermetall-da-huawei-an-vielversprechenden-anwendungen-jenseits-von-5g-arbeitet/

Fortune, Even the Pentagon can’t completely freeze Huawei out of its operations
https://fortune.com/asia/2024/07/03/pentagon-huawei-ban-national-defense-authorization-act/

Pentagon says it's impossible to ditch Huawei telecom gear — officials beg Congress for waiver from Chinese sanctions
https://www.tomshardware.com/tech-industry/pentagon-says-its-impossible-to-ditch-huawei-telecom-gear-officials-beg-congress-for-waiver-from-chinese-sanctions

Gallium Nitride Semiconductors in 5G Networks
https://www.azom.com/article.aspx?ArticleID=22494

China’s gallium monopoly a red flag for US & its allies. 5 steps to de-risk supply chains
https://theprint.in/opinion/chinas-gallium-monopoly-a-red-flag-for-us-its-allies-5-steps-to-de-risk-supply-chains/1710814/

Brussels reissues its Huawei warning, six years on, and prepares to make it stick
https://thenextweb.com/news/eu-huawei-zte-connectivity-infrastructure-recommendation

EU recommends member states to not use Huwaei, ZTE in connectivity infrastructure
https://www.reuters.com/sustainability/boards-policy-regulation/eu-recommends-member-states-not-use-huwaei-zte-connectivity-infrastructure-2026-05-04/

EU legal opinion opens door to Huawei ban in telecoms networks
https://euperspectives.eu/2026/03/eu-legal-opinion-opens-door-to-huawei-ban-in-telecoms-networks/

U.S. bans new Huawei, ZTE equipment sales, citing national security risk
https://www.reuters.com/business/media-telecom/us-fcc-bans-equipment-sales-imports-zte-huawei-over-national-security-risk-2022-11-25/

Backfire: Export Controls Helped Huawei and Hurt U.S. Firms
https://itif.org/publications/2025/10/27/backfire-export-controls-helped-huawei-and-hurt-us-firms/

U.S. Restrictions on Huawei Technologies: National Security, Foreign Policy, and Economic Interests
https://www.congress.gov/crs-product/R47012

The war on Iran has caused severe liquidity problems at the world's central banks, who were forced to sell off gold reserves to buy energy.

But in China, gold buying accelerated in March and April. Further, China's government announced aggressive expansions of domestic and foreign gold mining.

The global race to build up gold reserves is primarily driven by breaking free of Western banking systems, in which even sovereign reserves held in custody can be frozen or seized.

China's gold buying has another dimension, however. Gold is critical as a component in advanced manufacturing, and China is locking up supply chains for the raw materials that will power the rest of the century.

Report:

Good morning.

China is the world’s top gold mining country, with production in 2024 of 380 metric tons. China is also the world’s most aggressive buyer of gold. Since 2020, the gold holdings at China’s central bank increased by 357 tons. Since that time, the price of gold, in US dollars, has more than tripled, up over 3.6 times.

And China’s central bank was unique, in that they increased their buys of gold in foreign markets during the month of March. Gold prices fell in March – by 12% -- because of the war on Iran, and it was the worst month for gold in almost twenty years. But the PBOC increased their gold holdings by five tons. At that time, that was 17 months in a row of net buying of gold by the Chinese central bank.

Gold is the ultimate safe haven, and especially during a time when dollar-denominated assets can be frozen or seized or sanctioned. China and many other governments now are reducing their exposure to dollars, and so they trade the dollars -- earned by trade -- for gold, which is hauled back to vaults in friendly jurisdictions.

Then came April, and even more gold buying from China’s central bank. The PBOC bought 8 tons for the month, and that is an acceleration from periods prior. It was the highest addition in over a year:

That big spike in March – month 3 of 2026 -- may have been China taking advantage of gold’s falling price to buy more. But in April gold prices were basically unchanged, and China increased their purchases even faster. And most of that increase is from gold imports, not from increased domestic production:

This is a profound quote, there. Central banks literally print money. It’s their job to manage the supply of their own fiat currencies, and ensure that their FX reserves are sufficient to buy and sell with other countries, who are using other currencies.

And most of the world’s central banks have concluded that they do not need more dollars, or more of their own fiat, but they do need more gold. In the case of the war on Iran, countries that needed to raise cash fast to import more energy could dump some of their gold holdings. China is not in that position—they have not had to run down their oil reserves, and instead of dumping gold to buy energy, they’ve been dumping dollars to buy more gold. That’s what those big spikes in March and April mean, on the charts above.

Then there’s this. We reported recently on Tether, and its huge ‘own goal’ that made USDT useless as a tool to anyone who is trying to operate outside US banking systems.

But Tether’s gold buying is quietly putting another floor under prices during the War on Iran. In the first quarter of 2026, Tether bought 6.5 tons of gold and now holds 132 tons.

Over the past year and a half, Tether’s gold holdings grew by 73 tons, which is more than the People’s Bank of China’s buys during that time. Tether’s gold holdings more than doubled in 12 months, and last year bought more gold than any other country’s bank except Poland.

Tether now shows up at #31 on this list of the top 100. Surprisingly Tether has more gold than the central banks in Mexico, or South Korea, or Australia. Tether’s gold reserves are stored in Switzerland, and the CEO notes there that gold-backed alternatives to the US dollar are coming, and implies that if Tether is going to operate in those markets, they’ll need a lot of gold to offer their stablecoins in countries that are completely off of dollars:

Remembering what we concluded earlier: that strategy might work for small transactions, at the household or small business level in the BRICS and global south countries, but not for clearing of trades for large businesses and institutions. And forget it for state-owned enterprises anywhere that’s not in North America or Western Europe.

We’ve learned that Tether works hand-in-glove with the Treasury department, and funds in a Tether wallet can be frozen or seized, even when held at a foreign central bank itself. Tether even issued their own press release about it.

So it is true what Tether’s CEO says, that “Gold is logically safer than any national currency”, but that doesn’t mean that Tether stablecoins backed by gold are safe.

But Tether is nevertheless buying a lot of it, with that in mind—they hope to be a vehicle for this trade in the part of the world where users hate going through SWIFT banks.

Back to China, who has also announced plans to dramatically increase their own production of gold over the next five years. Again, to “bolster self-sufficiency” in a global shift away from the US dollar.”

This proposal to upgrade China’s gold mining and smelting industries comes from the China Gold Association, and it’s in the newest 5-year plan. That means it is official policy, a national objective, to “develop deep-shaft mining” below 2,000 meters, and design and build more advanced equipment.

Recall that China is already the world’s top miner, and last year—2025—domestic gold output rose again, by about one percent over 2024. But China’s production from overseas mines jumped by 25 percent year over year.

China then has made gold mining, both here in China and abroad, a national security objective, even though China’s goals to achieve self-sufficiency in gold seem to be already met.

There’s more to this, then, than simply their need to get away from the US dollar in their trading systems. China is the world’s largest manufacturing economy, and modern manufacturing uses a lot of gold.

Gold is a strong conductor of electricity, and doesn’t rust or corrode. That makes gold critical in electronics and telecommunications. Gold plating enhances signal transmission, so is used for building circuit boards, semiconductors, electrical switches, and smartphones.

Gold is also stable at high temperatures and under stress and is used across aerospace and defense industries. Satellites, radars, and avionics.

It’s also in medicine and biotechnology. Gold does not react with bodily fluids and is used in pacemakers and other devices that are implanted. Dental equipment, surgical tools—these surfaces are electroplated with gold before touching patients.

In automotive, first thought is flashy trim and expensive touches. But gold is used in cars’ electronics.

Gold is also reflective and non-reactive, which makes it ideal for scientific research applications—microscopes, lasers, spectroscopy equipment.

It is also a key component in renewable energy technologies, along with silver and platinum, which by the way are two other metals that China is scooping up from everywhere they can be found. Gold improves the efficiency of energy transmission, so they’re commonly used in solar power, and in the manufacture of wind turbines.

These are all broad industrial sectors—electronics, telecommunications, defense, aerospace, radars, satellites, medicine, new energy. And the supply chains for all this equipment run through gold mines across the world.

So this is another example of how those supply chains that make modern life even possible, and which will power the technologies of the rest of this century, run through China, and countries friendly with China in the Global Majority countries.

This is mainly a de-dollarization story, and the world’s central banks getting away from even their own fiat currencies to buy gold. But for China it’s also an industrial supply chain story.

Be Good.

Resources and links:

Tether and US stablecoins are dead. Just Bitcoin, Gold, and CBDC remain.

Ranked: Central Banks Buying and Selling Gold in 2026
https://www.visualcapitalist.com/ranked-central-banks-buying-and-selling-gold-in-2026/

US assets and gold are being sold offshore as the world scrambles to afford higher oil prices
https://www.msn.com/en-us/money/markets/us-assets-and-gold-are-being-sold-offshore-as-the-world-scrambles-to-afford-higher-oil-prices/ar-AA20kDGS

Crypto Firm Tether Buys 1-2 Tons of Gold Per Week
https://www.blanchardgold.com/market-news/crypto-firm-tether-buys-1-2-tons-of-gold-per-week/

Bloomberg, China Ramps Up Gold Buying as Middle East War Dents Prices
https://www.bloomberg.com/news/articles/2026-04-07/china-s-pboc-keeps-up-gold-buying-spree-as-iran-war-dents-prices

Gold Prices Dip, but China's Central Bank Continues 17-Month Gold Buying Streak
https://www.asiae.co.kr/en/article/world-general/2026040816155954995.

China extends gold buying streak in March despite price decline
https://www.chinadaily.com.cn/a/202604/07/WS69d4ce4ea310d6866eb420aa.html

China's gold output up 1.09% in 2025 amid shift to investment-grade assets
https://global.chinadaily.com.cn/a/202602/05/WS698410d8a310d6866eb37a79.html

China eyes gold production surge amid de-dollarisation drive, aiming to hedge global risks
https://www.scmp.com/economy/china-economy/article/3342532/china-eyes-gold-production-surge-amid-de-dollarisation-drive-aiming-hedge-global-risks

Top Gold Producing Countries (2024)
https://www.voronoiapp.com/wealth/-Top-Gold-Producing-Countries-2024-4501

Ranked: The Countries Buying (and Selling) the Most Gold Since 2020
https://www.visualcapitalist.com/ranked-the-countries-buying-and-selling-the-most-gold-since-2020/

China gold market update: A notable rise in gold reserves
https://www.gold.org/goldhub/gold-focus/2026/05/china-gold-market-update-notable-rise-gold-reserves

Tether is accumulating gold at a pace that rivals central banks:

Gold Plating in Industry: Unexpected Yet Essential Uses
https://arabartmetal.com/industrial-uses-of-gold-plating-you-probably-didnt-know/

The Role of Precious Metals in the Green Transition
https://esgold.com/the-role-of-precious-metals-in-the-green-transition/

China wants custody of the world's gold: great news for gold bulls, bad news for the US dollar

Tether Supports Freeze of More Than $344 Million in USD₮ in Coordination with OFAC and U.S. Law Enforcement
https://tether.io/news/tether-supports-freeze-of-more-than-344-million-in-usdt-in-coordination-with-ofac-and-u-s-law-enforcement/

OFAC Updates Central Bank of Iran Designation Following Record $344 Million Tether Seizure amid Strait of Hormuz Toll Controversy
https://www.chainalysis.com/blog/central-bank-of-iran-designation-ofac-update-april-2026/

Bessent says US seized nearly $500M in Iranian crypto as Operation Economic Fury sends regime into ‘crisis’
https://www.foxbusiness.com/media/bessent-says-us-seized-nearly-500m-iranian-crypto-operation-economic-fury-sends-regime-crisis

The US just seized $344 million in crypto from Iran — and it's a preview of how sanctions warfare works in 2026
https://www.binance.com/en/square/post/318759455947378

China has monopolies on supply chains and manufacturing of industrial drones.

Drones are suddenly and widely in use by non-NATO countries across the world, and wreak havoc on weapons platforms and fixed targets worth hundreds of millions of dollars.

The War Department is scrambling to close the gap with China, and is looking for suppliers for thousands of suicide drones.

To clear the way for US companies, Washington has banned new imports of Chinese drones, which are popular in American small businesses, heavy industry, and in fire and police departments.

But even if the Pentagon can eventually buy and deploy drones at low cost, drones cannot be defended against at low cost.

Report:

Good morning.

China has monopolies on the manufacturing of drones, and on the supply chains for drones. That’s because China, before anyone else, was building drones for industrial and commercial markets. That’s where the demand is. There will always be a lot more people who use drones for peaceful means and ends, compared to the population of people who want them for war. The civilian market is also where cost and quality matter. The Pentagon is indifferent to cost; money is no object. That point of view is not prevalent in businesses.

And here we are taking just a handful of examples, how small businesses are using drones in industry, and even to create new industries. Here operators are using drones to feed fish in offshore farms. In South Florida alone, there are a dozen companies that use drones to power-wash roofs and buildings 40 stories high. Those drones cost $6,000 - $15,000 each to buy from Chinese factories—so they’re not cheap—but they replace a whole crew of guys dangling from cables, off the sides of buildings. Cleanings can be done more often, and obviously more safely. Empower Field is where the Denver Broncos play, and they’re not hurting for money, and they use drones there to clean the stadium.

That’s a new industry. It didn’t exist even just five years ago. Drones are heavily used now in construction, and in mining. Mining companies are using drones to do surveying work, in blast management, and in search and rescue of trapped miners.

We know that drones are already in heavy use by hobbyists and videographers, but when affordable tools become available, industry and business people are clever in asking how they can be used in their own trades, to do their jobs better, and less expensively, and safer.

Chinese companies are way ahead of everyone else on drones, because those are the markets that Chinese companies build for: civilian users. Militaries across the world have learned the hard way that drones are also ruthlessly effective in warfare, at low cost. The Pentagon and other Western militaries are trying to catch up, and to dominate with drones in the same way they did in the past, with other transformative technologies. But the Chinese are already there in drones, and getting away from China won’t happen fast, and won’t happen cheap.

China has a strong hold on everything in this industry, from end-to-end. This Ukrainian unit was taking apart a Russian FPV quadcopter. The batteries, the motors, and the brain came from China, and it “could not have been built without” Chinese parts. Here’s a money quote: “(China) has already won World War III because everything is in its hands”. That won’t change soon, and it won’t change later:

Our group has done several reports on Chinese drones, and the problems they are posing for other countries, and ironically even for China itself. The Chinese have strict export bans on these technologies, which restrict their intended use as weapons. And in the case of Russia and Ukraine, both sides are dependent on getting Chinese parts for their drones.

The Pentagon has a $1 billion plan to break China’s grip on the industry, called “Drone Dominance. “Unleashing American Drone Dominance” was an executive order from last June, and the idea is to build drones that are completely domestic, and not reliant on parts from foreign countries. A week later the Secretary of War shared this on X, which became one of the worst-ratioed videos in the history of the internet:

And this program is another example of political rhetoric, which just falls apart in the face of objective reality. There is no “American drone dominance” to unleash. It doesn’t exist. China dominates the drone industry. Chinese companies build 90% of the world’s drones, and even drone makers outside China source their parts from here, for assembly elsewhere.

For each and every component, there is no getting away from China:

Brushless motors—China controls at least 90% of the motors used in drones. Antennas—there are companies outside China who build them, but they cost a lot more, and Chinese-made antennas work smoothly with other Chinese components.

Next is the camera. There are Japanese and American companies of sensory equipment, but assembly of the whole camera is a Chinese industry. Precision lenses – those are also all China.

Batteries for drones is the same as every other battery—China owns the entire supply chain.

Flight Stacks illustrate the problem, even where non-Chinese alternatives are available. The technical barriers to entry are low, but US suppliers cannot compete on price, because there is no demand, and thus no reason to mass-produce them.

Drones are not complex; they’re simple. Technically anyone can build them. The China problem is the economies of scale on the manufacturing side, and the supply chains that feed the factories. China’s cost advantages are total, may as well say: The Chinese build quadcopters for civilian users across the world; an American company using non-Chinese components cannot build one for under $15,000, over three times as much. There is, again, a Chinese monopoly on batteries and motors. The batteries come from minerals on the critical supply lists, and Chinese companies monopolize the supply chains for most of them.

Getting new mines opened, and then the infrastructure scaled up for mass production would take at least ten years. That’s the supply chain problem. Then there’s the demand side: DJI is the largest producer in the world for commercial drones, and DJI and a handful of other Chinese companies have 80% market share in the United States. Their drones are high quality, high performance, and don’t cost much.

Nature photographers, YouTubers, and other content producers are the ones most people think of first, when we imagine who the buyers for drones are. But they’re big in real estate, civil engineering and surveying, inspection, and search and rescue operations by first responders. And there we see, again, that there is a far bigger market for people using drones to save people, instead of blowing them up.

American drone companies cannot compete against DJI and Autel on price or quality, so the Pentagon is a godsend for US companies. Now they finally have a customer who doesn’t care about cost, and is probably indifferent as to the quality too. That’s not true of municipal governments, usually anyway, and certainly not in industry. The military is the only client.

The Pentagon promised to buy 340,000 first-person- view drones over the course of several years. It hopes that order size is sufficiently large that the US supply chain will grow, competitors will come in, and the cost will fall. If that does happen, it will be the first time, in the history of the universe, that Pentagon contractors’ prices fall over time. $2,300 is the cost for a high-quality right now, from DJI. So the intended audience for that paragraph is someone who doesn’t know, for example, that the Pentagon pays $90,000 for bolts and screws and fasteners that cost a hundred bucks at Home Depot:

Then there’s a simple problem of politics. It will take years for American companies to learn how to produce the raw materials for these parts at all, let alone manufacture them at scale, and every presidential administration has an end date. There will be a new war secretary in January of 2029, at the latest, and the drone program itself is only funded through next year, 2027. The War Department is trying to build an industry that already exists—the current industry is already high quality and low cost.

So, the only way forward is to get DJI and Autel and the other Chinese drone makers completely out of the way, so US companies can compete. That was a relief to Skydio, and to a handful of others. This is Blake Resnick, age 25, whose company builds drones for police departments. BRINC knows they would have a lot more sales as soon as DJI drones are banned. He can sell a lot more drones to police departments who are happy with the DJI drones they’re using now.

And when the FCC did announce the ban, drone operators across the United States were furious. Immediately they began stocking up on DJI drones and parts. These are American small business owners who will be put out of business, because American drones cannot compete. They cost more, they don’t work as well, and now that they’re building for the Pentagon there’s no reason to make their products attractive to industrial or small-business users. Companies are buying drones, batteries and parts to push out the day they’ll be out of business. 43% of pilots – these are Americans – say the effect of the ban will be extremely negative and threatens their survival. 85% said their business would last for just two years or less.

There are simply no alternatives for these thousands of small companies across the United States. Now Chinese companies are banned from selling new models in the American market, and the Pentagon is buying up drones for military and weapons testing. Thousands of those higher-cost American drones are being bought for the US military, by the Department of Government Efficiency:

The jokes write themselves sometimes. The strategy there is to spur production of small attack drones, and scale the US industrial base to build suicide drones. Again—there is no industrial market for that. There is no business case for a one-way drone, where a good day is launching a drone that costs thousands of dollars, that doesn’t come back.

War Secretary: It’s a “new era of cheap and disposable drones.” But the only buyers in the world for “disposable” drones are militaries. And if it’s the American military, they won’t be cheap.

The Pentagon announced an event fair, where up to a dozen companies will be picked to supply 1,000 drones each, for delivery in a few months. The risk to that, of course, is that drone models from different companies will function differently, and users need to be trained to do that safely every time. They will be outfitted with explosives, after all. And another risk is that the Pentagon will buy thousands of units that are obsolete by the time they get delivered to the field.

The War Department has a lot of problems, then, when it comes to going into the drone business. The only way they can get a dozen American companies competing for contracts to build suicide drones, it to deliberately bankrupt thousands of companies across the United States who use drones in their business. And to tell hundreds of local governments and police and fire departments across the country that they cannot buy affordable drones to catch bad guys, or put out fires. That is the cost, American population-wide; that is the cost to society.

But the Pentagon has got another problem, even if they do manage to build a domestic drone industry, where they are again the only client. And that is that they will not, ever, have a monopoly on that industry outside the United States. It’s already too late for that--the idea that the United States can be the first to get this technology figured out and deployed to the battlefield. This is a mature industry, right now, and drones are in wide use, right now, by military units in the fight, right now.

That poses yet another problem: even if the Pentagon can eventually buy drones at a low cost, drones cannot be defended against at low cost.

That was a real failure of imagination, by Washington. We watched Russia and Ukraine use tens of thousands of low-cost drones to attack each other, and destroy armored vehicles and equipment that are a hundred times more costly than the drone itself. But for some reason nobody thought that Iran might be watching too.

Iran used low-cost drones to blow up American naval bases, and radars that cost hundreds of millions of dollars each. Aircraft totaling a billion or so more. And when Iran says that no ships are going through the Hormuz without their green light first, it’s with the implication that one of their drones costing a few thousand dollars could be sent toward a ship costing a few hundred million dollars, with another few hundred million dollars’ worth of crude oil in the tanks.

Nobody is even close to solving that problem yet. In the first four days of the War on Iran, the Pentagon sent up $5.7 billion worth of interceptors to shoot down very-low-cost Iranian ballistics and drones. Just in the first four days. One Patriot missile costs millions of dollars each and takes years to build, while drones are mass-produced and cost a thousand times less.

The good news, such as it is, is that some companies are hoping to build interceptor missiles that only cost tens of thousands of dollars each, instead of hundreds of thousands. The so-called Department of Government Efficiency might see that as a win these days, but we’ve just moved the decimal point over one spot. An Iranian drone costs a few thousand dollars, and these new interceptors—which haven’t been built yet—will hopefully cost just ten to twenty times that, plus remember that usually two or more interceptors are fired against a single inbound.

So we’re back to the same problem as before. Iran, in the case today, wins these engagements no matter what happens. If their drone is intercepted, it is at the cost of twenty times what Iran paid to launch their drone. If the drone is not intercepted, it may go on to blow up a headquarters building, or a radar system, or a supertanker.

That’s the real lesson, and that’s the real problem posed by drones overall. They cannot be stopped. Iran proved it. The Pentagon’s budget is a trillion dollars. Iran’s military spending for the past year was just one fiftieth of that--$23 billion. Iran doesn’t have nuclear weapons, or aircraft carriers, or stealth bombers. Those things aren’t important.

That’s the quote from the very beginning. Iran is friendly with China, Iran builds a lot of drones. And that is all that matters. In end, this could be very good news. Instead of merely transforming modern warfare, drones may just end modern warfare completely.

Be good.

Resources and links:

How are Drones Revolutionizing the Mining and Surveillance Industry
https://karkhana.io/how-are-drones-revolutionizing-the-mining-and-surveillance-industry/

Drones and laser scanning revolutionize blast monitoring with enhanced safety and precision
https://www.miningdoc.tech/2025/09/25/drones-and-laser-scanning-revolutionize-blast-monitoring-with-enhanced-safety-and-precision/

DJI still dominates the 2025 drone market — and new data proves it
https://www.thedronegirl.com/2025/11/06/2025-drone-market-dji/

Drones Can Help Mining Companies Rescue Their Workers After a Mine Collapse
https://dronearticles.com/drones-can-help-mining-companies-rescue-their-workers-after-a-mine-collapse/

The U.S. Wants to Break China’s Drone Dominance. Here’s Where It Will Struggle.
https://www.wsj.com/politics/national-security/the-u-s-wants-to-break-chinas-drone-dominance-heres-where-it-will-struggle-39e69e18

America Downs Cheap Drones With Million-Dollar Missiles. A Fix Is In the Works.
https://www.wsj.com/world/america-downs-cheap-drones-with-million-dollar-missiles-a-fix-is-in-the-works-2afff48a

At the Pentagon, DOGE Mission to Cut Costs Includes Buying Drones
https://www.wsj.com/politics/national-security/at-the-pentagon-doge-shifts-from-cutting-programs-to-buying-drones-9efc1861

Drone Makers Looking to Steer Clear of China Fear Beijing’s Wrath
https://www.wsj.com/world/asia/drone-makers-looking-to-steer-clear-of-china-fear-beijings-wrath-8fea8508

U.S. Bans New China-Made Drones, Sparking Outrage Among Pilots
https://www.wsj.com/politics/national-security/u-s-bans-new-china-made-drones-sparking-outrage-among-pilots-1624e32a

China is restricting export of drones that can be used for military purposes and some drone features
https://apnews.com/article/china-drones-export-restrictions-eb7acb88b84d97cf5fc1cbafdb650d43

China optimizes export control measures for drones, bans export intended for military purposes
https://www.globaltimes.cn/page/202407/1317107.shtml

America's farmers and first responders love Chinese drones. And that's about to be a big problem.

DJI drones used to feed fish
https://www.facebook.com/reel/1116979861490174

VIRAL MOMENT: Michael Waltz Confronts Air Force Officials With Staggeringly Expensive Components

DJI still dominates the 2025 drone market — and new data proves it
https://www.thedronegirl.com/2025/11/06/2025-drone-market-dji/

Drones Can Help Mining Companies Rescue Their Workers After a Mine Collapse
https://dronearticles.com/drones-can-help-mining-companies-rescue-their-workers-after-a-mine-collapse/

The Pentagon wants to build millions of drones without Chinese parts. It's off to a bad start.

Iranian strikes on bases used by US caused $800m in damage, new analysis shows
https://www.bbc.com/news/articles/cddq7j48p35o

Iranian Strikes Have Destroyed $2.7 Billion Worth of High Value U.S. Anti-Missile Radars
https://militarywatchmagazine.com/article/iranian-strikes-destroyed-antimissile-radars

Attack On US Navy Fifth Fleet Headquarters In Bahrain
https://www.military.com/feature/2026/02/28/attack-us-navy-fifth-fleet-headquarters-bahrain.html

Footage Confirms Iranian Drone Strike Took Out U.S. Army’s Most High Value Air Defence Radar From THAAD System
https://militarywatchmagazine.com/article/iranian-drone-destroy-radar-thaad

Attack on US radar plane at Saudi base raises concern over Iran’s capabilities
https://www.theguardian.com/world/2026/mar/31/destruction-us-radar-plane-saudi-base-raises-surveillance-concerns

UNLEASHING AMERICAN DRONE DOMINANCE
https://www.whitehouse.gov/presidential-actions/2025/06/unleashing-american-drone-dominance/

Unleashing U.S. Military Drone Dominance

This 25-Year-Old Founder Wants To Kick Chinese Drones Out Of American Skies

https://www.forbes.com/sites/zoyahasan/2025/12/03/this-25-year-old-founder-wants-to-kick-chinese-drones-out-of-american-skies

In just three decades, China's shipbuilding industry went from zero, to today building more vessels than the rest of the world combined.

The White House, the War Department, and leading lawmakers have promised billions of dollars in new investment, and enacted policies to rebuild American shipbuilding and pull business awaay from China.

But China's dominance in the industry continues to boom, and the growth is even accelerating.

The War on Iran has sharply pushed up demand for ships from the energy industry, and Chinese shipyards alone have the capacity to take new orders for VLCC's and LR ships.

Report:

Good morning.

In 1985, China’s shipbuilding industry didn’t exist. It is now the biggest in the world, and is larger than the rest of the world, combined.

These were the largest shipyards in 2024, and Chinese shipbuilding companies own seven of the top 10 spots. China’s largest shipbuilder built more vessels in 2024—in just one year—than the entire US shipbuilding industry built in the past 80 years.

Last year the White House issued new strategies to “restore America’s maritime dominance”, and to rebuild the maritime industrial base in the United States. Lots of new investment was promised for the expansion of commercial shipbuilding, and for the military, and to beef up supply chains, ship repair, and to build new ports and shipyards.

All that is going to be expensive, and so the Trump Administration announced high fees on any Chinese-owned or Chinese-built ships making port visits in the United States. This is from October, and those high fees were expected to bring in over $3 billion this year—in 2026 -- from just the top 10 ocean shipping companies. Those funds would go to helping pay to revive US shipbuilding.

Non-Chinese operators, of ships built in China, would also be charged under a different formula. Those fees add up to millions of dollars for each ship heading to the US, if it either is owned by a Chinese company, or was built by one, so shipping companies started shifting their delivery schedules and logistics around.

In this report, we detailed how the shipping companies responded. Their first idea was to shift cargo to non-Chinese ships wherever possible, but those ships filled up, fast, and so costs their went up, anyway. The delivery times to the US also went up.

Then Chinese regulators retaliated, and announced high port fees for any US ships heading to ports here. China had one problem, which is that the US shipbuilding industry doesn’t really exist at all. It’s not possible to charge port fees based on whether the ship was built in the US, because none of them were.

The United States is 0.1% of global shipbuilding, which means that American shipbuilders are one one-thousandth of the world market. Here’s how that looks on a chart, of one thousand dots. It’s 50 across by 20 high. The Japanese shipbuilding industry is over 130 times bigger than the United States’. China’s is bigger by over 500 times:

So China instead targeted ships with US owners. These are Wall Street firms, trading companies, and entities in offshore jurisdictions holding equity in ships that are flagged in other countries.

That directive, from China, was dated 10 October, and was written to hit American investment firms and shell companies with billions of dollars of fees, on any of their ships coming this way. Exactly one month later, the Trump Administration announced that the policy would be scrapped for one year, on both sides. 10 November, implementation of the Section 301 policy would be suspended for one year, and Chinese retaliatory measures would also be removed.

At year-end, we were able to look back and see what effect, if any, all those policy moves actually had on the market. And it wasn’t much. China’s shipbuilding order book is in orange, and the entire rest of the world is in gray.

In April of 2025, the new fees were proposed which would come into effect by October, but orders to Chinese shipyards went up again, anyway.

For full-year 2025, China saw a slight drop in market share, of 4.6%. China continued to have the top share in 16 out of 18 major vessel types, and 2025 was the 16^th year in a row that China led the world in vessel completions, new orders, and work in progress. Looking at that, right there, another way—in 1985, China didn’t have a shipbuilding industry. By 2009—just 25 years later, China was building more ships than anybody.

And now the first quarter of 2026 is done, and new orders for Chinese ships doubled, year over year. Now China has an 84.9% share of the global market. South Korea is at 12.8. Japan at 1.4. Looking at THAT another way, if we did this chart again after Q1, we need 849 red dots for China. The Koreans dropped by more than half, Japan gets only 14 dots, instead of 131:

Lots of those new orders in the first quarter came from the oil industry. Chinese shipyards are benefiting from the US-Israeli war on Iran. There are two blockades now at the Strait of Hormuz, and shipping companies need to buy a lot of new ships. Very large crude carriers (VLCCs) can haul 2 million barrels of oil. Out of Switzerland Advantage Tankers out of Switzerland previously contracted solely with South Korea, but placed a new order for 2 VLCC’s from China. Mercuria Energy ordered four crude carriers, and 2 long-range product tankers. A group out of Singapore ordered 8 VLCC’s. Just those three companies are buying a total of 15 tanker ships.

This is the most recent plan from the White House, and it runs 35 pages. It’s a new “Maritime Golden Age”, which will expand commercial shipbuilding and work with allied countries to pull of that business away from China. But those oil tanker orders from Mercuria was for six ships—four VLCC’s and two LR2’s. They will take delivery by 2029, for all-in contract price of $650 million. The order for the other Swiss group was for two ships; one will be delivered in Q2 of 2028, and the other in 2029. Singapore will get their ships from 2028 to 2030.

China’s shipyards are online, right now. They also have enormous capacity and can scale up to meet giant new, and sudden, demand from the oil industry. China’s so-called “overcapacity” that Washington and European politicians are always on about means, in this case, that they can build ships that nobody else can, not even the big shipyards in Korea and Japan.

Some senators wrote a letter to Trump that dropped before his big visit, urging the President to “stand strong” on shipbuilding, and to hold China accountable and reverse the losses felt over the past twenty years by the American shipbuilding industry. “To level the playing field and deliver for American workers and shipyards.”

But we don’t have a shipbuilding industry. We don’t have American workers and shipyards that make commercial ships. They’re either building for the Pentagon, or not at all. That’s what that single tiny dot means at the top left corner of that chart. Fewer merchant ships are built in the United States, than in China, or in South Korea, or in Japan.

Or in Vietnam, or the Philippines, or Taiwan, or Italy, or Germany.

Be Good.

Resources and links:

US port fees, and $3 billion in costs, loom for owners of Chinese-built ships
https://www.reuters.com/world/china/us-port-fees-3-billion-costs-loom-owners-chinese-built-ships-2025-10-07/

With U.S. port fees on Chinese-built ships coming, ocean freight carriers scramble to avoid surprise financial hit
https://www.cnbc.com/2025/10/10/ocean-freight-carriers-port-fees-china-shipbuilding-vessels.html

US senators urge Trump to 'stand strong' on shipbuilding in talks with Xi
https://www.reuters.com/world/us/us-senators-urge-trump-stand-strong-shipbuilding-talks-with-xi-2026-05-11/

China retaliates against U.S. port fees with new charges on American ships
https://www.cnbc.com/2025/10/10/china-retaliates-against-us-port-fees-with-charges-on-american-ships.html

China tightens its grip on global shipbuilding, grabbing 85% of new orders
https://www.scmp.com/economy/china-economy/article/3353147/china-tightens-its-grip-global-shipbuilding-grabbing-85-new-orders

Senators Baldwin, Kelly, Young, Scott Call on Trump to Stand Up to China and Prioritize U.s. Shipbuilding at Summit With President Xi
https://urbanmilwaukee.com/pressrelease/senators-baldwin-kelly-young-scott-call-on-trump-to-stand-up-to-china-and-prioritize-u-s-shipbuilding-at-summit-with-president-xi/

China navigates US threats to anchor global shipbuilding dominance in 2025
https://www.scmp.com/economy/global-economy/article/3342091/china-navigates-us-threats-anchor-global-shipbuilding-dominance-2025

RESTORING AMERICA’S MARITIME DOMINANCE
https://www.whitehouse.gov/presidential-actions/2025/04/restoring-americas-maritime-dominance/

Maritime Golden Age
https://www.whitehouse.gov/maritimemight/

China Dominates the Shipbuilding Industry
https://www.csis.org/analysis/china-dominates-shipbuilding-industry

U.S. policies target China's shipbuilding dominance
https://www.linkedin.com/posts/csis_new-us-policies-aimed-at-curtailing-china-activity-7385661079961628672-AqML

China’s shipyards secure wave of oil tanker orders as Iran war drives demand
https://www.scmp.com/economy/global-economy/article/3350872/chinas-shipyards-secure-wave-oil-tanker-orders-iran-war-drives-demand

Fact Sheet: President Donald J. Trump Strikes Deal on Economic and Trade Relations with China
https://www.whitehouse.gov/fact-sheets/2025/11/fact-sheet-president-donald-j-trump-strikes-deal-on-economic-and-trade-relations-with-china/

US-China Port Fee Truce: One-Year Suspension Commencing 10 November 2025
http://north-standard.com/insights-and-resources/resources/news/us-china-port-fee-truce

The Shipping Mess, Part 1: Global fleets shift routes, raise costs, slow deliveries to US markets

The Shipping Mess, Part 2: New Chinese regulations may be targeting Wall Street, US investors

The Pentagon is racing to rebuild munitions stocks, which have been drained to feed wars in Ukraine, Iran, Gaza, and Lebanon.

The War Department is seeking a record $1.5 trillion budget, and new weapons suppliers recruited from the civilian sector.

The Pentagon's strategy is to attract smaller companies to build for the defense industry, by offering longer-term contracts, with guaranteed high volumes of orders.

China's dominance of the rare earth supply chains mean that the problem is not merely a ack of manufacturing, but also of mining and refining.

Vast reserves of raw materials reserves are found outside China, but those are typically found in countries closely allied with the Chinese, instead of Washington.

Report:

Good morning.

The Pentagon is overhauling the procurement process for weapons manufacturing. And top executives from Ford Motor Company and GM are in talks to build equipment for the Department of War. The wars in Ukraine and the Middle East have burned through years of future production, and the Pentagon needs to backstop the contractors they are using now and find more suppliers who can shift from manufacturing for civilian sectors, and do defense work instead.

None of this can happen fast enough, as far as the Department of War is concerned. The production of munitions, and strategic and tactical platforms of all kinds needs to happen as soon as possible. Pentagon officials say that “bolstering weapons production” is a matter of national security.

Oshkosh is another company that is in discussions with the Pentagon, and they have a “chief growth officer” who is exploring how Oshkosh manufacturing capacity can be brought to bear “in a way that matches (their) core capability”. Most of Oshkosh’s business is in nondefense, and right away we’ve got some questions: Oshkosh is famously one of the tiny handful of companies that has a monopoly on the manufacturing of fire trucks, and their business model is to slow down production of equipment, so that order backlogs go up, so they can charge high prices.

Last April, members of Congress wrote to the CEO’s of companies in the fire truck industry, including Oshkosh Corporation. The production delays for the fire trucks seem to come from the backlogs, totaling billions of dollars. In Oshkosh’s case, the backlog of orders is $4 billion, which is up 4 times in just 4 years:

Josh Hawley is a conservative Republican and Andy Kim is a liberal Democrat, and good luck getting them to agree on anything, but both are saying here that the profit-maximizing practices of fire equipment manufacturers “reduce readiness for fire stations and put American lives at risk.”

This April, cities and towns across the United States filed lawsuits under Antitrust laws, against Oshkosh Corp and the other two companies, who collectively control 70 to 80% of the total American market.

Pete Hegseth is the Defense Secretary, or War Secretary or whatever we’re calling him now, and says that military manufacturing is back on a war footing, and the Pentagon will “leverage all available commercial solutions and technology to ensure warfighters maintain a decisive advantage.”

So we’re left to wonder just how they think Oshkosh is likely to help with any of that. It is literally their business model to let cities and towns in the United States burn to the ground, so they can make more money. That’s what the Congress said. That’s what those lawsuits say. The Executive Branch is theoretically independent and co-equal to Legislative and Judicial, but it is still okay to read about what’s going on over in those other places. Oshkosh execs are just fine with endangering the lives of first responders, at the fire department just down the street from their factories, and in the neighborhoods they live in. It’s obvious why Oshkosh would love to run that same business model at the federal level that they’re running on municipal governments in North America; it’s harder to understand what’s in it for the Pentagon.

The Department of War wants the auto industry to help with building vehicles, munitions, and hardware faster and less expensively than how they do things now. During World War II, car companies helped build the “arsenal of democracy”, and switched from cars to planes. Difference between then, and now, is that the machine tools and supply chains that went into building bombers were already in Detroit, and already set up in those factories. So what the Pentagon is suggesting isn’t going to work, at least not soon, unless the equipment the Department of War wants to buy is something similar to the products coming out of those factories now, like pickup trucks or sedans.

The objective now is to rebuild “the arsenal of freedom”. This report runs almost 50 pages and spells out the new strategy to expand the industrial base—Get more companies building weapons and gear, come up with better ideas, work faster, deliver results better:

If you’re looking for a great example of bureaucracy-speak, lots of word salads that run on forever without really saying anything at all, then I cannot recommend this document enough. But I wanted to find out just why, if the Pentagon is opening up the Military Industrial Complex to new competition, and streamlining the order process, to emphasize “quick, low-cost deals”—then why is everything about to cost a lot more.

This is from war.gov—no kidding; that’s really the URL now—and the War Department’s 2027 budget request is for $1.5 trillion dollars. It’s the biggest in history. Secretary of War says here that previous administrations “underinvested in our military”, and now that Washington is under new management, they’re changing the game.

This chart is from 2024, back when the Biden Administration was “underinvesting in the military”, and when defense budget was the same as the next 14 countries combined. For next year the Pentagon wants a 42% bump, which will supercharge the Military Industrial base, expand production, and build a Golden Dome missile defense system, along with some drones.

In order to make all that go, they need a lot of companies building weapons who aren’t doing so now. And the Pentagon needs to offer long-term contracts to get civilian companies interested in doing that. Smaller companies need incentives to invest in new supply chains and capacity.

The War Department is committing to buy far more weapons than in the past, so that smaller companies don’t have to worry anymore about big fluctuations in future orders. This goes back to the monopsony problem—the defense industry has a bunch of suppliers, but only one buyer, and a new president or a new Congress can come in and decide there may be better uses for that $1.5 trillion.

That’s why it’s crucial to sign long-term contracts that will survive the Trump Administration, is how the thinking goes. That is what “stabilize demand signals” means there: get big projects under contract now, which cannot be undone later. Sign deals for longer-term, then hope that compels companies to more invest in their own capacity, but get busy immediately. Because for the Pentagon, the crisis is immediate, and long-term. Just in the past six weeks, they launched missiles and dropped bombs that will take at least five years to replace.

Carmakers are a logical first place to look—they have economies of scale, and deep engineering and manufacturing expertise. But it’s here that China enters the conversation. The whole world now knows the Pentagon doesn’t have enough munitions, and the whole world also knows that automakers’ supply chains go through China. Ford Motor Company needs Chinese rare earth metals to build civilian cars, for families, and was one of the first companies approved to buy metals from China following the deal between Trump and Xi.

Ford was pleased that some of their suppliers were approved, under a special Chinese import license that lasts for 12 months, for magnets that are crucial in powertrain, steering systems, transmissions, and sensors. A shortage of any rare earth element, or in any of those magnets, means the vehicle doesn’t get built. At the time, Ford was approved, but German, Japanese, and South Korean automakers had not been.

Vehicles don’t work without rare earth metals and magnets, and Ford Motor needs Chinese magnets to keep their factories open. But General Motors is a little bit further along on the magnets sourcing problem. GM committed to buy more expensive magnets from new American factories, even from manufacturers who are new to the industry. So GM might be able to build vehicles for the War Department, without Chinese magnets. But the problem comes here, if you want to protect those vehicles from people who are shooting at them. Tungsten is used for that, and China and Vietnam own the supply chains for Tungsten.

This is from the US Geological Survey. Top line is tungsten mining, in the United States, which is zero, and has been for a long time. Bottom line—net important reliance is over 50%. In 2024, the price for Tungsten concentrate was $250 per ton.

Here is where tungsten comes from. In 2024, 81,000 tons of tungsten were mined, with 80% of that coming from China. China also has more than half of the world’s proven reserves. Global mining production, by country—and here again we see a lot of countries who are a lot more friendly with China, than with the Pentagon. China plus Vietnam is over 90% of global tungsten supply:

China classifies tungsten as a dual-use material, and has cut off exports to any company using tungsten to build weapons. Now there are hot wars in Ukraine, Iran, Gaza, Lebanon, and the prices paid for tungsten back in 2024 were the happy times for NATO weapons makers.

Now they can’t get any, and so it doesn’t matter how big those Pentagon budgets get, or how long-term those contracts are.

None of those missiles and munitions can possibly be replaced, unless and until dozens of new mines and refineries are built and come online, which will take decades. The Pentagon needs a lot of new equipment and vehicles, and fast. Ford and GM can do build a lot of equipment and vehicles, and fast, but without tungsten can’t make them useful to the Pentagon. And as soon as any American company becomes a dual-use manufacturer, China will just add it to their export-restricted lists, and cut them off of everything else they need to make anything.

Be Good.

Resources and links:

Did a Private Equity Fire Truck Roll-Up Worsen the L.A. Fires?

BIG by Matt Stoller

Did a Private Equity Fire Truck Roll-Up Worsen the L.A. Fires?

Today’s piece is written by antitrust lawyer Basel Musharbash…

Read more

a year ago · 713 likes · 27 comments · Basel Musharbash

Chinese factories build fire trucks for $400,000 in six weeks. In the US it's $2 million in 4 years

Antitrust suits against fire truck manufacturers will be centralized in Wisconsin federal court
https://www.wpr.org/news/antitrust-suits-fire-truck-manufacturers-centralized-wisconsin-federal-court

Senator Hawley letter to fire truck executives
https://www.hawley.senate.gov/wp-content/uploads/2025/04/Hawley-Letter-to-Firetruck-Executives.pdf

Wall Street Journal, Pentagon Approaches Automakers, Manufacturers to Boost Weapons Production
https://www.wsj.com/politics/national-security/pentagon-approaches-automakers-manufacturers-to-boost-weapons-production-19538557

Ranked: The 15 Largest Defense Budgets in the World
https://www.visualcapitalist.com/largest-defense-budgets-in-the-world/

war.gov, $1.5 Trillion Budget Request Prioritizes Service Members, Modernization
https://www.war.gov/News/News-Stories/Article/Article/4465551/15-trillion-budget-request-prioritizes-service-members-modernization/

New York Times, Pentagon Seeks Help From Ford and G.M.
https://www.nytimes.com/2026/04/16/business/pentagon-ford-general-motors-defense-production.html

Reuters, How U.S. Defense Industry Dodged a Rare-Earth Shortage After China’s Curbs
https://www.reuters.com/business/autos-transportation/ford-suppliers-receive-chinas-new-streamlined-rare-earth-licences-2025-12-10/

Ford Suppliers Receive China’s New Streamlined Rare Earth Licences
https://discoveryalert.com.au/global-automotive-transformation-supply-chain-2025/

Acquisition Transformation Strategy, Rebuilding the Arsenal of Freedom
https://media.defense.gov/2025/Nov/10/2003819441/-1/-1/1/ACQUISITION-TRANSFORMATION-STRATEGY.PDF

Tungsten in Military Use
https://www.samaterials.com/content/tungsten-in-military-use.html

Tungsten Supply Crunch: How China’s Export Restrictions Rattled Global Markets
https://theoregongroup.com/commodities/tungsten/tungsten-supply-crunch-how-chinas-export-restrictions-rattled-global-markets-guest-post-by-brian-hendrich/

US Geological Survey: Tungsten
https://pubs.usgs.gov/periodicals/mcs2025/mcs2025-tungsten.pdf

WSJ, GM’s Rare-Earth Gamble Pays Off as China Tightens Magnet Exports
https://www.wsj.com/business/autos/gms-rare-earth-gamble-pays-off-as-china-tightens-magnet-exports-b115ef72

Tungsten breaks records as China export curbs, military demand boost investment
https://www.reuters.com/world/asia-pacific/tungsten-breaks-records-china-export-curbs-military-demand-boost-investment-2026-04-29/

China is the world's largest importer of crude oil, with energy supply chains that run through countries under heavy sanctions by Western governments.

This year, military actions in Venezuela and in the Persian Gulf were believed to shut off China's supplies of discounted crude, and that shortages would result in China, with lower prices in North America.

But the opposite happened. China's economy continues to operate with high levels of crude surplus, while Western markets are seeing severe shortages and sharp price increases.

Over the past decade, China has invested hundreds of billions of dollars into new energy projects across the world, via the Belt and Road Initiative. Those projects, and the associated logistics and transport systems, are now mature, and today supply China with massive volumes of energy, minerals, metals, and food.

The BRI investments have also forged a powerful economic and diplomatic bloc of countries who are immune from Western sanctions and even military threats, while their intra-bloc trade grows at double-digit rates every year.

Report:

Good morning.

We now are seeing in real time the results of a decade of Chinese Belt and Road Investments across the world. As a result, China’s economy and industrial sectors are far less vulnerable to the supply shocks that are hitting the rest of the world today, and very strong economic and diplomatic ties have formed between China and the Global Majority countries.

None of this was supposed to happen, that right there, and oil industry insiders are trying to understand how China, which is the world’s largest importer of energy, is running at operational surpluses for crude oil. Countries everywhere are racing around for new supplies now that the Hormuz is closed, and energy prices are rising, fast, which is destroying demand. But Chinese policymakers have not made radical moves to slash consumption, which is in stark contrast to other economies here in Asia, Australia, and in Europe.

The Chinese oil industry is not transparent, and Western analysts are just making educated guesses, and they admit as much. They study satellite photos, talk to people here, and make some assumptions. For example, only Russia and China really know, how much oil trade they’re doing.

Analysts suspect that China’s imports of crude oil overall have fallen, perhaps by 25% since before the War on Iran. That alone would be sufficient to make a lot more oil available in markets everywhere else. But analysts also believe that Chinese inventories of oil have not changed either—stocks aren’t being drawn down, so they wonder if Chinese oil demand is significantly lower than thought, and why that might be.

It gets even more confusing, when we learn that Chinese oil majors are net sellers of crude in European and Asian markets. That means that China would be in surplus, while the rest of the world is running severe shortages. That would explain why the world is not yet at $150 or $200 on benchmark oil prices, like many of these analysts assumed we would be by now.

If Chinese imports have dropped by 3.5 million bpd, that would equal Japan’s total oil demand, and twice the supply now going through the pipelines around the blockades in the Strait of Hormuz.

So that alone would be a huge factor in rebalancing the global market, and helps to explain how the big premiums that oil trading companies were getting when the war began, have since dropped to almost zero. In other words, China’s oil industry surpluses are wiping out the arbitrage opportunities for commodities traders:

China has a lot of crude oil in storage. Last year China was buying a million barrels per day to put into storage. That buying at the time kept oil prices higher than they would have been otherwise. Now it’s the opposite—the Chinese crude surpluses could keep a lid on prices by drawing down from their reserves of over a billion barrels.

But here the analysts are confused again, because Chinese commercial inventories are not falling; they are somehow still growing. China is not drawing down its stockpiles of strategic reserves. Beijing briefly banned exports of jet fuel and other refined products, but now they are selling again, so the only conclusion is that China’s domestic markets are fully supplied.

None of that that was supposed to happen, and oil traders are trying to figure out how we got here.

Because this is the second time, in a short time, that the analysts have been proven very wrong about China’s oil supply and demand profiles. After the US’s lightning raid in Venezuela, it was just conventional wisdom that it would be a huge problem for China’s energy security:

Fortunately for Beijing, the thinking went, they could shift their buys to Iran. Venezuela was gone, and China’s refineries were then dependent on Iran. “It would be extremely difficult for China to replace the 1.3 million bpd of Iranian crude.”

Quick point here, that only Iran and China have any idea how much Iranian oil China is still getting; it may actually be higher today than before the war started.

But taking stock of things we know, just so far: Venezuelan oil would be going to be refined in the US, or at least through US trading firms, and that would raise the oil price in China, who previously was getting discounted oil from Venezuela. But it was in the United States that oil prices rose, after the raid. Crude prices rose over 20% in US markets in the two months after the capture of Maduro:

And immediately after the war on Iran started, prices went up everywhere except here. The United States up big. Europe up big. And those prices would be far higher were it not from drawdowns from stockpiles there. At least 10 million barrels per day of supply are gone from the market, and in order to keep planes in the air and trucks and cars on the road, countries are hitting their stockpiles, again everywhere except here. 500 million barrels of strategic reserves worldwide burned through already.

And even were the war to end right now, countries will prioritize building those reserves back up again. Australia is 80% reliant on energy imports and will spend over $7 billion on stockpiles after the war ends. The EU is also looking to overhaul their policies for reserves. Here is another big assumption, from Goldman Sachs: assuming oil cargoes are glowing again at normal levels in two or three weeks, the world will have lost about a quarter of its oil inventories. If it’s later, the reserve situation gets worse.

So we’re back to the question, as to why the rest of the world is running short of crude today, and why the rest of the world is draining their energy stocks today, and why China is not -- even though nobody is more dependent on imports than China, on a volume basis, and even though China’s supply chains through Venezuela and Iran are turned off.

And we’re also back to China’s Belt and Road Initiative Investments, which began in 2013, and how those are paying off today. The green part of that chart is energy, and every year China’s global investments in energy projects have been larger than in any other category. That chart is helpful in another way—transport has declined on a percentage basis, as seaports and railroad projects were completed and came online.

For energy, we’ll look just at two countries, and how China’s BRI investments in energy have quietly overhauled global oil markets. Nigeria has been a crude exporter for a long time, but now is also a major player in refined fuels, which are much higher-margin, which allows Nigeria to retain more of the energy value chain in their own economy. The biggest refinery there was a $20 billion project, primarily from Chinese engineers and contractors. There is another refinery expansion coming.

For years, Nigeria was looking for investors, and only China stepped up. China offers credit lines, and gets projects done on time and on budget:

Next up is Brazil, which is the biggest oil producer in South and Central America. The war in the Persian Gulf has been a boon to Venezuela, who in April exported 1.23 million barrels a day in April, the highest in seven years. Iran, by the way, produces around 3 million barrels a day.

But Brazil’s crude oil production is over 4 million bpd, which is about as much as Venezuela and Iran combined. Brazil’s oil exports in April hit a record high. And China gets about half of everything coming out of the ground in Brazil. China’s imports of Brazil crude are up five times in 10 years.

Brazil’s soybean farmers have already famously put the American soybean industry out of business, but meanwhile Brazil has also become a key supplier for crude. Chinese cumulative investment in Brazil is over $78 billion, and last year another $6 billion went over. Brazil is far removed from the Caribbean and the Persian Gulf, trade between Brazil and China is booming, both countries are in BRICS, and the implications for international relations are obvious.

In Nigeria, it’s the same story. Nigeria is the biggest country in Africa. The population is around 250 million, and when the Nigerians wanted to move up the value chain in petrochemicals and refined fuels, nobody would invest there except China. Cumulatively, China invested $28 billion in energy projects in Nigeria, along with other large investments in the Nigerian mining sector. Now those investments are paying off, for both sides.

Nigeria-China Bilateral Trade: Nigerian Imports v Exports

Bilateral trade is growing at double-digit rates—Nigeria exports raw materials and energy to China, and imports manufactured products in over 200 industrial categories, all growing at fast rates. Nigeria is also a BRICS country. And there is no need to even bother asking, who Nigeria is more friendly with, today—the Western bloc or the new BRICS economic bloc.

These massive investments, over time. Hundreds and hundreds of billions of dollars, into developing the economies in countries that Western investors didn’t want to touch, have yielded gigantic surpluses for China, enormous stockpiles of metals and energy and everything else China’s factory sectors need to keep that trade going.

But the investments have also yielded for China a lot of good will across the world. There’s no easy way to put a number on how much that is worth, but it is a big number.

Be good.

Resources and links:

Fueling a continent: how China’s engineering prowess built Africa’s biggest oil refinery
https://www.scmp.com/news/china/diplomacy/article/3352256/fuelling-continent-how-chinas-engineering-prowess-built-africas-biggest-oil-refinery

Chinese oil imports boom, with giant volumes going to strategic reserves. How much? Nobody knows.

New Map of the Belt and Road Initiative
https://www.clingendael.org/publication/new-map-belt-and-road-initiative

Latin America’s Largest Economy Sets Export Record on Oil Price Surge
https://www.bloomberg.com/news/articles/2026-05-07/latin-america-s-largest-economy-sets-export-record

Oil supply shock to worsen as inventories fall further even if conflict ends
https://www.reuters.com/business/energy/oil-supply-shock-worsen-inventories-fall-further-even-if-conflict-ends-2026-05-06

After Venezuela blow, Iran supply risks test China’s oil strategy
https://www.aa.com.tr/en/energy/general/after-venezuela-blow-iran-supply-risks-test-china-s-oil-strategy/55314

China's Invisible Hand Is Rebalancing the Oil Market
https://www.bloomberg.com/opinion/articles/2026-05-08/iran-war-china-s-invisible-hand-is-rebalancing-the-oil-market

US Action Threatens Venezuela-China Oil Flows, Debt Repayment, and Investments
https://www.energypolicy.columbia.edu/venezuela-china-oil-ties-severely-impacted-by-us-action/

Can China rely on domestic oil after Iran, Venezuela shocks?
https://www.dw.com/en/can-china-rely-on-domestic-oil-after-iran-venezuela-shocks/a-75516569

Brazil’s oil exports and exploration cast a shadow on its green ambitions
https://dialogue.earth/en/business/brazils-oil-exports-and-exploration-cast-a-shadow-on-its-green-ambitions/

China – Nigeria Bilateral Trade Profile
https://oec.world/en/profile/bilateral-country/chn/partner/nga

Chinese BRI Investments and Construction Contracts Smash New Records in the First Half of 2025
https://chinaglobalsouth.com/2025/07/21/china-bri-2025-investment-surge/

Iran crude oil production
https://tradingeconomics.com/iran/crude-oil-production

Venezuela Lands Billions in Oil Deals as Industry Rushes Back
https://oilprice.com/Energy/Crude-Oil/Venezuela-Lands-Billions-in-Oil-Deals-as-Industry-Rushes-Back.html

The supply chains for nuclear energy, end-to-end, now run through China and Russia.

The BRICS countries dominate the mining and enrichment of uranium into reactor fuel, and North American and European utilities rely on imports of that fuel to power their economies.

China today is building more reactors than the rest of the world, combined, and while new plant construction has stalled across North America and Europe, China can develop 50 reactors simultaneously.

Russia and China are also the world's leading exporters of reactors, which are electrifying new power grids across Asia, Africa, and South America.

Report:

Good morning.

One of our obsessions on this channel, is learning where stuff comes from, and then asking how that informs global economics, and diplomacy. And we keep learning that most of the things that make modern life possible in North America and Western Europe, come from countries that are not in North America or Western Europe. They come from countries who are far more friendly with China and Russia.

We also find it curious that our policymakers and public officials go out of their way to offend China and Russia, along with the BRICS and the Global Majority countries. But today, those are the natural resource economies, and with the most modern and efficient manufacturing centers, and with the global logistics that move everything around

They can also stop everything from moving. Two years ago, we learned last year that traffic through the Suez Canal can be turned off by militias in Yemen, and for over a year everyone had to go around. Two months ago, we learned that nothing gets through the Strait of Hormuz without being first green-lighted by Iran. This is all to say that things are much more fragile to the Western world than most common people probably assumed. But we might have expected that our prime ministers and presidents and cabinet members would have been better informed.

But no. This is where nuclear power plants in the United States get their fuel from, by country, in 2023. 27% of the reactor fuel came from domestic sources. Russia was 24%. Said another way, Russian uranium generates a quarter of all the electricity from nuclear plants in the United States.

The war in Ukraine kicked off in 2022, and two years later Congress and President Biden passed a law called the “Prohibiting Russian Uranium Imports Act.” Ninety days after Biden signed the law, imports of Russian uranium into the US would be banned.

Here’s something we’ve seen a few times—yet another industry that declined in the United States, and is now at about zero.

The United States imports over 90% of the uranium it needs—so the United States is still in the refining business, but is refining uranium that is imported from elsewhere. But Russia is way ahead on enrichment too, at 44% of the world total. The blue line on the chart shows domestic production of uranium oxide, going from a peak in 1980 to flatlining a decade ago:

Obviously then, there are some real-world problems with that import ban, if the US is almost out of the enrichment business, and Russia is almost as much as the rest of the world combined. So, Congress put a waiver into the law. That runs through 2027, and enables utilities to continue buying from Russia if “no viable alternative sources” exist or if importing the uranium is “in the national interest”.

Having the lights go out across the United States would be contrary to the national interest, so American utilities are granted waivers to keep buying Russian uranium until new capacity can be built at scale. That won’t happen fast—the first new enrichment capacity since 1954 came online and only recently started some deliveries.

1954 was a long time ago. Global power demand since went straight up, and it didn’t occur to anyone in the United States to build a bit more uranium enrichment capacity at home, let alone build out an end-to-end supply chain. Nobody else thought to do so in Europe either—and today the fuel for nuclear power plants come from the BRICS countries, plus Kazakhstan, who by the way is a neighbor—a friendly neighbor—to both Russia and China.

That’s the reality. The uranium is the raw material, which is enriched to become reactor fuel. And without that enriched uranium, much of global supply of which comes from Russia, nuclear plants cannot run. Nothing about that is complicated, and we might suppose it might give our political leadership some pause, if not outright humility.

But this is a press release from the UK, from the government of the United Kingdom. Bullet point one: “UK to build the first high-tech nuclear fuel facility in Europe to shut Putin’s Russia out of the global market.” The UK aims to be “the first country in Europe to produced advanced nuclear fuel, a market currently dominated by Russia.” We’ll pause right there to point out that Russia also is a European nation. The objective is to “help isolate Russia from global energy markets” and boost British energy security.

New fuel will come online five years from now, they hope, and if they can export the fuel, they will reduce other countries’ dependency on Russian exports.

The UK Secretary of State for Energy Security: We stood up to Putin on oil and gas and refuse to be held ransom on nuclear fuel. We’ll pause again to point out that didn’t happen. The Brits are still buying uranium, and the Russians are still selling. Nobody is being held ransom, even though there is a war on.

Here’s the Prime Minister who doesn’t care for Putin much, and says that Russia has been the only provider for too long, and this marks the latest step in getting them out of the energy market entirely:

There is a large disconnect here between political rhetoric and objective reality.

Here’s where the world’s uranium is. The UK just announced plans to start enriching some of their own, by 2031. But their power needs are immediate, and now. Fifteen percent of the UK’s electricity comes from nuclear, and most of that capacity will close down in coming years. 7800 megawatts of power come from 36 reactors that will be decommissioned, and only two plants are under construction now, which will generate just 3,260 megawatts. They’ll be at least 4,500 megawatts short:

The UK’s nuclear power capacity today is below where it was in 1977. That was a long time ago too. So, the nuclear power industry in the UK is in decline, and will soon be in very steep decline:

Meanwhile, here is nuclear power plant construction across the world, along with the date they will come online. Most of the new reactors will be in Asia, and just a small handful of new builds in the next six years will be in countries that are unambiguously more friendly to the US and Europe. Of the plants coming online in 2026, with just two, Slovakia and South Korea as Western. Online in 2027: just one. For 2028 all of the new reactors will be in China, India, Iran, Russia, Turkey—so zero. 2029: there’s one from the the UK, and in 2030, just one again, and just the UK again. For 2031 and 2032, one plant in South Korea will come online. All of the others will be in the BRICS and Global Majority nations.

So the UK will have those two nuclear plants, and will need fuel for around 3400 megawatts, while decommissioning other plants that total even more. Enriched uranium demand will fall sharply, in the UK. But there will be lots of new demand from other countries, mostly in Asia, and so Russia could simply close the books on their business in the UK and walk away, right now.

That process is already well underway in other energy markets. Russia built new natural gas pipelines to carry energy that previously went West to Europe, and now they’re coming East, to China and Asia. Same for Russian crude. Asia is where the most of the world’s factories are, Asia is where most of the world’s population is, and Russia is making more money than ever by selling to their new customers here. All of which make that UK press release sohard to figure out. Were those officials behind closed doors, saying some of these things, then making policy changes and investments to bullet-proof their energy supply chains, I get it. But until 2031, at the earliest, they will still need lots of Russian uranium. So why say those other things, until 2031, at the earliest?

When scrolling that list of the new nuclear plants coming online, we see China a lot. China is building more than the rest of the world, combined. Over the past decade, China increased nuclear power plant construction, while the utilities in the Western world of the world slowed down new builds, and are shutting down more plants than are being replaced.

And this is an important point—countries that build plants are always learning new things. China is the only country that never stopped building, and China has learned to build new plants less expensively, than plants build decades ago. China has a deep pool of people, with deep experience, whereas other countries do not. The Chinese can build 50 reactors simultaneously, and will be the world’s largest producer of nuclear power by 2030, and will double their power capacity by 2040.

This analyst makes the same point, in a different way. A country that builds one plant every 20 years operates in fits and starts, the system atrophies, and people forget how to build them. It takes a long time to go through permitting and construction in Europe and North America—the national-level agencies, then state and local governments get involved. Then come financing and the inevitable lawsuits. But in China everything happens much faster. China has never canceled a project after national regulators approved it, so developers and projects managers can start right away in lining up the engineers and materials to build. In the US, then, there are huge delays and cost overruns; the last two plants were Vogtle One and Two, in Georgia. The delay was seven years and was $21 billion over budget.

The cost of capital is far lower in China; equity plus loans run about 4% in China, and are at least twice that in the United States and Europe. That is typically the largest single driver of the final cost to build, over time.

China is building a lot of reactors at home and is exporting their reactors to other countries. The analysis here explores why the Chinese are not MORE successful in their nuclear plant exports, and points out that Russian reactors are more widely deployed, at least so far. China is building reactors for Pakistan, but other deals in the UK and in Argentina fell apart. In the case of Argentina, the Chinese company walked away when asked to finance 85% of the total costs.

In the UK, Boris Johnson shut down the project because of China’s involvement in the project, and as of now the UK has not moved forward on new construction at that location at all. Meaning, that when the Chinese were pushed out, there was nobody in line to replace them.

The points we are emphasizing are that Russia, China, and Kazakhstan and a small handful of other countries friendly to them dominate the supply chains for the mining and enrichment of uranium. China dominates the industry for new nuclear power plant construction, and are competing against Russia for new export markets for nuclear reactors.

The raw materials chains, and the uranium enrichment industry, and the hundreds of thousands of nuclear plant engineers and operators who are the only ones today who can bring new projects in on time and on budget: Now this entire industry, end-to-end, is Russia and China.

Be Good.

Resources and links:
Nuclear Power in the United Kingdom
https://world-nuclear.org/information-library/country-profiles/countries-t-z/united-kingdom

UK first in Europe to invest in next generation of nuclear fuel
https://www.gov.uk/government/news/uk-first-in-europe-to-invest-in-next-generation-of-nuclear-fuel

How Houthi attacks on one of the world’s main maritime trade routes have impacted international trade
https://interactive.aljazeera.com/aje/2024/mapping-red-sea-shipping-attacks/

Russia’s $55bn pipeline gamble on China’s demand for gas
https://ig.ft.com/gazprom-pipeline-power-of-siberia/

Plans For New Reactors Worldwide
https://world-nuclear.org/information-library/current-and-future-generation/plans-for-new-reactors-worldwide

Why China Came Up Short in Nuclear Exports
https://neutronbytes.com/2026/02/26/why-chima-came-up-short-in-nuclear-exports/

China to nearly double nuclear power capacity by 2040 in rapid build-up
https://www.scmp.com/economy/china-economy/article/3314794/china-nearly-double-nuclear-power-capacity-2040-rapid-build

As the Hormuz crisis exposes ‘fragile’ global supply chains, how will China respond?
https://www.scmp.com/economy/china-economy/article/3350753/hormuz-crisis-exposes-fragile-global-supply-chains-how-will-china-respond

China Says It Can Now Build 50 Nuclear Reactors at Once. What About the United States?
https://www.zmescience.com/science/news-science/china-says-it-can-now-build-50-nuclear-reactors-at-once-what-about-the-united-states/

China Is Rapidly Building Nuclear Power Plants as the Rest of the World Stalls
https://financialpost.com/pmn/business-pmn/china-is-rapidly-building-nuclear-power-plants-as-the-rest-of-the-world-stalls

中国核电：本公司平均债务成本3%-4%，长期借款普遍采用浮动利率计息
https://news.qq.com/rain/a/20240423A08FU100

China’s vast nuclear power sector now able to build 50 reactors at a time
https://www.scmp.com/economy/china-economy/article/3350847/chinas-vast-nuclear-power-sector-now-able-build-50-reactors-time

Enriched Uranium Fuels Russia’s War Machine. But the US Still Imports It
https://bellona.org/news/nuclear-issues/2025-03-enriched-uranium-fuels-russias-war-machine-but-the-u-s-still-imports-it

How Much Does the U.S. Depend on Russian Uranium?
https://elements.visualcapitalist.com/how-much-does-the-u-s-depend-on-russian-uranium/

China’s vast nuclear power sector now able to build 50 reactors at a time
https://www.scmp.com/economy/china-economy/article/3350847/chinas-vast-nuclear-power-sector-now-able-build-50-reactors-time

Ban on Russian uranium aims to revive American supply
https://www.reuters.com/business/energy/ban-russian-uranium-aims-revive-american-supply-2024-06-04/

Savvy trading companies are making billions in risk-free profits, as dislocations in oil markets ripple across the world.

Real-world buyers of oil are paying high premiums bring in new supply, while futures traders have wagered--wrongly so far--that prices would soon fall as supply resumes.

The shortages were first felt in East Asia, in major refining hubs in Singapore, Japan, Korea, and India. Spot prices rocketed immediately following the closure of the Strait of Hormuz.

But prices were suppressed in North America, and particularly on NYMEX futures markets for WTI.

We explain the mechanics of an arbitrage trade, and how commodities traders earn billions in profits.

Report:

Good morning.

Previously we pointed out that there was a very large disconnect across different energy markets. First there was a big difference between what oil futures traders were doing, compared to what oil consumers were paying for oil in the real world, where ships need to move and planes need to fly.

For the first couple of weeks of the war on Iran, oil traded in US markets in particular seemed far out of line with the real-world price of oil was at the time. There was also a dislocation—the oil was in the wrong place. At the time, oil was in surplus in the United States and Canada, and ironically in China, but in severe shortage almost everywhere else.

That entire situation is ripe with opportunity, for companies and institutions who can operate on these trading exchanges, and who can physically move oil from well-supplied markets to the ones desperate for supply; to buyers who will pay big premiums to get it. This is a top analyst who writes for Bloomberg, who explains that the oil market is global, and how much a barrel of oil is worth depends very much on who is answering the question, and from where.

Immediately the price for Brent crude went vertical; Brent is the reference index for Europe. Meanwhile the WTI index, West Texas Intermediate, did not move nearly as fast or as high, until later:

There are two markets. The physical is the real-world market, and the paper market is speculators buying and selling oil contracts to be settled later. Physical reflects supply and demand today, and how easily barrels and ships can be moved around, and how fast.

The paper market is theoretically infinite in size when the contracts are created, then as the contracts get closer to expiration, they either expire because they’re out-of-the-money, or the paper prices converge to real-world physical supply and demand. For example, the physical market lost over 10 million barrels of real-world oil because of the closure of the Strait of Hormuz, but the paper market traded an extra million barrels. That surplus million barrels don’t exist in the real world, and so the contracts will expire with one side or the other losing their premiums.

The physical world is different. Airlines, for example, either pay up for energy, or keep planes on the ground, or a combination of both. So the premiums paid for physical oil, today, blew out to record highs. Saudi Arabia is using a pipeline to move oil and ship from different ports, bypassing the Strait of Hormuz. But the volumes through the pipeline are far below what ships can carry.

Saudi took advantage, and was charging premiums of about $28 per barrel, compared to the paper contract. Just before the war Saudi Arabia was selling their oil at a discount, of 65 cents. Physical barrels just aren’t there.

Then comes the transportation problem. Logistics used to be taken for granted. Now the shipping costs for a barrel of oil are shooting higher. Transport costs pre-war were $1 a barrel. Now they’re $25:

Insurance is expensive, assuming buyers can get it at all. Those extra costs do not show up on paper oil trading screens because nobody has to buy it yet, but as soon as paper becomes physical, those costs become real. He points out here that these are two markets, generally functioning as they should: physical market is still telling us the price for the next 30 days, the paper market is trying to figure out the price after 60 days.

The dislocation, we can say, is getting fixed, and this is how. Oil shortages appeared right away in East Asian markets—like in Japan, Korea, Singapore. And right away refineries here in East Asia were paying whatever they had to, higher than $175 a barrel. Then those demand and price pressures moved to Europe.

After that it was just a matter of time before supertankers were headed to the United States. In the opening few weeks of the war, prices in the US did NOT move as much as -- almost anywhere --else; now the ships are filling up and hauling the oil away, and shortages are hitting even in North American markets. For example, no Asian airlines yet have needed to shut down because of fuel prices, but Spirit Airlines is gone, and the clock is ticking on a handful of others there too.

This all represents a massive arbitrage opportunity. The prices on trading screens are completely divorced from the prices paid by real-world buyers and sellers to move energy around. Then we saw North American oil markets still in surplus—temporarily; briefly—while rich countries in Asia and elsewhere were in shortage.

It’s a bonanza for commodities traders, who operate in both the physical and paper markets, and have the logistics to move oil from one place to another. Vitol is a commodities trader, and lost a lot of money in the first days of the war when prices moved violently against them. They also have ships are stuck behind two blockades now, and cannot get through the Strait of Hormuz. Since then, Vitol has recovered all those losses, and have made profits of $2 billion.

Mercuria reports their return on equity is at the high end of its normal range, implying that their profits just so far are $2.3 billion. These companies are taking physical oil, moving them, and pocketing record-high premiums.

This is a beautiful example of how, in a nuts-and-bolts way, this kind of trade works. Again, this was widely understood, weeks ago, that the paper barrels in the United States were way out-of-line with what was happening in the real world, everywhere else. The question is, what can anyone do about it?

If you saw this chart oil of oil futures from 13 April, you would think that the market was pricing in a lot more supply coming online. The price dropped at the open, even though that was when the US Navy’s blockade of the Iranian Navy began. It made no sense.

That is what the commodities traders also saw, and what they did. North Sea crude price—that’s physical—was $148.87 per barrel, and the training companies placed these bids on the US exchange, for West Texas Intermediate for delivery in May. The May WTI contract was trading at $96 per barrel. The June contract was trading at $90 a barrel. That is called “backwardation”, when lower prices are expected in the future. That $6 per barrel backwardation is also highly unusual, far higher than normal. And if prices continue to move higher—and they have been—a lot of traders for the June contract are in trouble. But for that day, the physical crude markets were $50 a barrel over the prices for May. That situation then is a “reverse cash-and-carry” arbitrage. The futures price is deeply discounted compared to physical, today.

Here is the trade—buy the May 2026 futures contract, on the WTI:

In May, take physical delivery. Then transport the barrels from Cushing, Oklahoma to ports, and load them onto tankers heading to Europe. Then sell those barrels into the physical market. The net spread would be about $40, before logistics and financing of around $8-15 per barrel.

The other advantage for these companies, is that while the crude is on the ocean, heading to markets, they can still shop for and hit other bids, then send the ship in a different direction. These profits are locked in almost everywhere.

Everyone in the energy markets knew at the time, that even were the war to end today, it will take a long time for new oil barrels to get delivered to markets. Everyone in the Persian Gulf needs to turn their wells back on and everyone else needs to get ships turned around.

And so when politicians tell us that oil prices will “drop like a rock” as soon as the war is over—it’s true, in a way. On trading screens, and on oil contracts three months out, that is probably true. But in the physical world, it will take a lot longer.

Be Good.

Resources and links:

So What Is the Real Oil Price Right Now?
https://www.bloomberg.com/opinion/articles/2026-04-18/iran-war-what-is-the-real-oil-price-right-now

WHY WHO’S F/AROUND IN THE OIL FUTURES MARKET MIGHT FIND OUT IN 7 DAYS
https://justdario.com/2026/04/why-whos-f-around-in-the-oil-futures-market-might-find-out-in-7-days/

Commodity Traders Reap Billions in Profit as War Upends Markets
https://www.bloomberg.com/news/articles/2026-04-21/commodity-traders-reap-billions-in-profit-as-war-upends-markets

Vitol Made About $2 Billion in First Quarter Despite War Losses
https://www.bloomberg.com/news/articles/2026-04-19/vitol-made-about-2-billion-in-first-quarter-despite-war-losses

$140, and going higher: That's the real price of oil, right now. Oil traders will be wiped out.

More Airline Bankruptcies May Be Coming — JetBlue And Frontier Face The Highest Risk
https://viewfromthewing.com/more-airline-bankruptcies-may-be-coming-jetblue-and-frontier-face-the-highest-risk/

Bloomberg, Fuel Tankers U-Turn to Asia as War Worsens Supply Crunch
https://www.bloomberg.com/news/articles/2026-03-09/fuel-cargoes-redirecting-to-asia-with-supply-crunch-worsening

Reuters, Trump says gas prices will drop as soon as Iran war is over
https://www.reuters.com/business/energy/trump-says-gas-prices-will-drop-soon-iran-war-is-over-2026-04-30/