Musk Rat Love, Remember the LA mo’, Promising The Rare Earth
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We have before us the opportunity to forge for ourselves and for future generations a new world order. This is Multipolarity, charting the rise of the new multipolar world order. Coming up this week:

The big divorce has finally hit. Like a country rock record written by the WWE, the Trump-Musk split has been its own kind of kino. But beyond two hot-headed men who secretly still love each other very much, could it be that this marks the schism between tech and MAGA?

Meanwhile, that escalated quickly. As LA smoldered over the weekend, Trump punched the nuclear button, demanding to send in squadrons of Marines. Whether they storm the beaches of the I-110 is perhaps secondary to the constitutional question. Who holds the keys to law and order in a divided America?

Finally, right now China is squeezing its rare earth metals. Always wear gloves if you do that at home, but if you do it on a geopolitical level, just get ready for some serious blowback. But first... Muskrat Love

It's been a busy week in America. The first of the stories is the great divorce, or at least split, between Elon Musk and Donald Trump, the two sides of MAGA. Basically, I think this has been a long time coming, but the triggering point has been what has been termed in American politics as the Big Beautiful Bill, which is a spending bill that's going through Congress at the moment.

And it's ticking a lot of the boxes on anti-immigration and so on, but it's full of pork, effectively, I mean, as these things always are in Congress. You can't really get anything passed through Congress without greasing a few pans.

Republicans are about for that as Democrats. They want their palms greased and then they'll put in the stuff that the White House wants. Congress is kind of a giant grift at this stage, which is kind of sad. I don't think that's why the founders originally allocated spending review powers to Congress, but that's what it's turned into. So the bill's being pushed through at the moment, I believe, and Elon Musk said this is an absolute disaster.

He obviously got brought into the administration as the Doge CEO, as it were. That's the Department of Government Efficiency. And his job was basically to gut all the waste in government, to go into the government departments, figure out what was wasting all the money, and tear it out. Treat it like a startup. Treat it like basically how he treated Twitter when he first bought it.

And Musk was kind of infuriated because, you know, he's claiming that the big, beautiful bill basically offsets all of the Doge savings or most of them. I'm not sure what the exact claim is, but a lot of them, if not all of them.

And so he's kind of like, well, what was the point of all that? I spent six months working on this thing. And the idea was to bring spending down because spending is kind of out of control and there are debt issues. I'll talk about that in a moment. And now you're going and you're passing this bill through Congress that is just full of pork and full of spending on probably largely wasteful, wasteful things.

So he kind of flipped out and him and Trump got in a kind of flame war online, escalated quickly, as the kids say. And the coup de grace was Musk saying that the Epstein files weren't being released because Trump was involved with them. So I think Musk has since come back and kind of said, oh, sorry about that.

We're at the moment in the American political game where you just casually drop stuff like that, and I guess you forget about it the next day. But on the more substantial issues, the Musk-Trump, if not divorce, brief breakup highlights two things, really, and they're two things that aren't really going away. The first is kind of a split in the MAGA movement itself between the real populists, represented by people like Steve Bannon and so on,

who are mainly concerned with kind of working class issues, quite anti-Wall Street, very hard on immigration, that kind of thing, law and order, that sort of thing. And they tend to be more experienced politically. They tend to have more of a sense of how DC works and so on. A lot of them have experience either previously in the first Trump administration or they're young people who've come up working at state government level or maybe they even worked in the first Trump administration in a junior role.

The side that Elon represents, and he's not the only one, there's people in Congress like Thomas Massey, the Congressman, who wears a public debt badge everywhere he goes. These people are focused on a number of different things, but one of them is definitely the government debt in the United States. And look, the thing to say, first of all, about this divide is that in a more abstract sense, everyone's in the same tent. It's just a matter of priorities.

And while the MAGA people will always tend to win these fights, both because they carry the real torch. Americans didn't really vote about the public debt. They did vote about immigration. They did vote against the kind of hardcore MAGA issues. Not only that, not only are they the sophisticated political operators, but they are more numerous and they, you know, carried the election in a sense.

Musk could go up on stage and support Trump, give everyone a good show, open his Twitter to advertise, and all that's really important. But at the end of the day, even in a country as large as America, politics is still politics. It's about rallies. It's about personal connections. Not door-knocking, not quite door-knocking, but you know.

a sort of door knocking. But the issue is that the Doge guys really feel like they have a point. Interest rates in the United States are very high at the moment. I think the 10-year is yielding over 4.5%. I think it's 4.7%. That's extremely high. And there are major issues in the debt markets that are talked about occasionally in the press, but not as regularly as you'd think. Later in the episode, we'll talk about some of the economic problems which might make this worse.

And in that situation, borrowing more is actually not the best idea.

And so you've got this situation where the politically savvy people are saying, these are the priorities that we were voted for. We have to pass through the bloated bill, the big bloated bill or the big beautiful bill, however you see it. We have to do that because we have to get these other priorities over the line and we have to get them over the line before the midterms in case we lose one of the other two branches of government or both of them. Oh, sorry, one other branch, the other branches of court, the two houses, I should say.

So that's the political calculation going on. And then Musk and the kind of could almost think of them as the economists. They're not quite, but, you know, they're kind of sounding the alarm in the background. And they're saying, guys, the economics of this make no sense. And if you keep going on this, probably within the period of the Trump administration, you guys could face a fiscal crisis of some sort.

And so it's this weird moment. I mean, I talked to some people I know around the Trump administration and it is kind of really divided. Yes, of course, the MAGA people will always win.

But there's these kind of concerns like, okay, it wasn't actually all about Musk's ego. It probably was a little bit about Musk's ego, but it wasn't all about Musk's ego. What these guys are saying is actually true. So I'd say that the falling out was not as superficial as people think, nor is it reducible to the simple split in the MAGA movement, although that's very important. It also has this component that the minority party in the MAGA movement is

is actually coming along making an economic and fiscal point at a moment in American history when the government is probably one of the weakest it's been at least since the American Civil War, maybe World War I, in terms of its fiscal position. So it's a very interesting moment. I think that's the most important and interesting point about this is that there is very much a coalition that brought Donald Trump to power. There is that MAGA movement, as you said, that

led by people like Steve Bannon, I suppose people like Tucker Carlson as well. And then there's the more libertarian tech bro, say acceleration. I mean, it's not accelerationism. That means something different. But this group that, you know, wants to deregulate and supercharge the US economy and is concerned with things like the fiscal basics, right?

They might be encapsulated by people like Elon Musk, but also Peter Thiel, Marc Andreessen, and all of that kind of Silicon Valley venture capitalist nexus. The interesting thing is that there's a third party as well, which is much less popular within the general US population, but still has a significant base.

but is extremely powerful within the US Congress, which is what you might call the rhinos, the Republicans in names only, the kind of centrist Republicans who want tax cuts for wealthier people and corporations and very neoconservative abroad and relatively socially liberal at home. As I say, they have increasingly less influence among the average voter, but they still have...

tremendous power it seems from afar for me anyway within the Congress itself. I think that the best way to sum up the difference between the MAGA America first Republicans and the tech bro supercharged the economy Republicans was an interview that I saw between Tucker Carlson and Ben Shapiro a couple of years ago now I think and Ben Shapiro was talking to Tucker Carlson about

the way he wanted to protect workers. And, you know, he said that self-driving cars are going to be a thing of the future, Shapiro claimed.

Would you pass a law against self-driving trucks? Because they would put a lot of Americans out of work. And Tucker Carlson said, in a heartbeat, I would. In a heartbeat. He said, like, driving is one of the key employers of blue-collar Americans, of working-class American men. He said, if you introduce self-driving cars, that'll put whole swathes of the economy out of work. It'll destroy families. It'll cause havoc.

He said, of course, in a heartbeat, I would protect it. But of course, the Elon Musk's of the world would say, no, no, no, no, no. We've got to do this. We've got to push the economy forward. We've got to grow. We've got to compete. And there's very much a conflict there between those socially conservative Republicans who have come to reject the workings of people like Mises and Hayek, who have come to reject freedmanism and monetarism, who have shifted very much to the interests of the working class and

Of course, you know, the working class in the Western world tend to be more conservative, tend to be more patriotic.

But now it seems that those Republicans who are patriotic are really also focusing on some of the economic interests of these people who would like to be protected, for instance, from the harsh winds of the global economy. They would like to be protected against competition from countries like Vietnam and Cambodia who have much lower unit labor costs.

They would also like to be protected against the sweep of technology that, you know, they would like to keep their driving jobs from self-driving vehicles. They would like to keep their supermarket cashier jobs from self-service checkouts and so on and so forth.

And they're really directly at odds, you know, as far as that's concerned with people like Elon Musk. They're truly irreconcilable when it comes to that. But they're together within the same coalition when it comes to other matters, I suppose, like patriotism and anti-wokeness, if you like. When it comes to cultural matters and social matters, they're very much aligned. But if you get them onto the economy...

If you get them onto things like immigration, for example, Bannon, and I think probably Carlson as well, would like to cut all immigration. Whereas Musk would like to focus just on illegal immigration. Musk would like to be able to continue importing oceans of cheap Indian and Chinese and Vietnamese engineers and mathematicians and coders.

Whereas people like Bannon and Carlson would very much like to restrict that so that they could drive up the wages of middle class Americans. And I think this really is a very strong dividing line between the two clusters. And while I think you're 100% right in saying, Philip, that...

The MAGA crowd is more powerful both in terms of their numbers and in terms of their knowledge and savvy when it comes to politics. I mean, Bannon, whatever you think about him, is a hugely savvy operator. I think he's something like an American MAGA Alistair Campbell for those who know who Alistair Campbell is. But the thing that we shouldn't underestimate is, first of all,

Musk was really very important when it came to getting Trump into power, like Musk by liberating Twitter from the speech restrictions that were in place under the previous administration of Twitter, by opening up the Twitter files and exposing some of the abuse of power that took place, and also by funding Twitter.

Donald Trump to the extent that he did which meant not just that money which was tremendously important in and of itself But it also opened the way for other moneyed individuals to pile money into the Trump campaign I think that you know we might have seen a different outcome and the other point to bear in mind Of course is that the Musk side of things? Probably has more pull with the standard establishment Republicans who are still in Congress and

So, you know, I think this, you know, as hilarious and ridiculous and really indecorous as it was, this Trump-Musk falling out might be the harbinger of a bigger split within the coalition that took Trump to power. Remember the L.A. Moe.

Well, the other thing that happened in America this week, within a few days of the maybe not so great divorce, was an outbreak of massive riots in Los Angeles, which may or may not spread to other cities, although it looks like it probably won't, at least at the time of recording. I suppose the initial response, and when I first saw it, I think I probably had the same response to most people. Oh, what's new? The first Trump administration was full of riots.

Riots were almost a consistent part of the first Trump administration, mainly the Black Lives Matter riots. But after watching the L.A. riots and the response, even on the first night, it became clear that these riots looked a lot different and they were being treated a lot different.

In terms of how they looked a lot different, I didn't see any made-up flags, like flags that were invented in the last five years, let's just say. Black Lives Matter flags, Pride flags, all these kind of, like, make-your-own-flag kind of thing. There were Mexican flags everywhere. The Mexican flag is not a made-up flag. It's a flag of a fairly well-established country that's almost as old, if not as old, as the United States in some shape or form, that's had territorial disputes with the United States, let's not say.

forget, not recently, but certainly in the formative period of the United States that existed. And the current issues that America has with Mexico, which have to do with migration flows and with illegal contraband, mostly drugs and criminality, are actually not all that dissimilar to the problems that you'd see in a country elsewhere in the world that has border issues with one of its neighbors.

So considering all that, waving around a foreign flag at a riot is interesting. If we saw that elsewhere in the world, let me just say, we'd think that something big was about to kick off. We'd say, okay, ethnic Russians in the Donbass are waving flags around. Someone's going to get shot.

And that's usually what happens when you see that kind of thing going on. Well, thankfully so far there hasn't been an outbreak of actual war or some sort of civil war or anything like that. But the reaction to the riots has been far more aggressive than anything we saw in the first Trump administration. That's immediately obvious if you look at the videos of the riots.

In the first Trump administration, when there were riots, remember they were usually in blue cities. They were usually in Democrat-controlled cities. And of course, cities and states usually control their own law enforcement. Pretty much what happened with the original riots was that the law enforcement were told to keep a relatively light touch. So they'd try kind of crowd control techniques like hettling or something like that. They'd try and keep the protest riots quiet.

in a certain section of the city. If they got really out of control, they might deploy tear gas, they might try and push them out of a certain part of the city. Not this time. This time, they're using munitions like rubber bullets, which you would usually see in a quasi-conflict zone. So just to take an example that I know,

you'd regularly see rubber bullets deployed in Northern Ireland, in Belfast. And the reason that you deploy rubber bullets in a crowd control situation up in Belfast is if you don't, someone might get shot, actually. Somebody might pull out a gun. Somebody might throw a mold of cocktail at somebody. Like there's a serious risk of a bunch of people being killed, not least police officers. So when you're deploying less than lethal munitions like rubber bullets,

It's escalated. You also saw snipers on roofs, which obviously they're not there to shoot protesters. But I think basically if anything gets out of hand, if a protester actually gets close to killing a police officer or something, they might get shot in a situation like that. And then came the, shall we say, constitutional gray areas. So, yeah.

I think if these protests or riots had started off and it had become clear that the governor of California, Gavin Newsom, was ultimately in control of how they were handled, it would have looked very similar to the first Trump administration. It would have been a relatively light touch. But that hasn't been the response of the federal government. The federal government has taken control of the National Guard from the state of California and deployed them.

That has not been done, as far as I know, since Selma, since the federal government intervened to stop racial segregation in the Deep South, which was an enormously controversial move at the time and remains a controversial move today. And they also, the federal government has also so far deployed, I think, 500 Marines, right?

who they are giving the powers of arrest, which is a big deal, giving military forces the power of arrest. And they've also, reports say that they're allowed to use military drones. Those will not be drones to kill people, but surveillance drones. That is the beginning of a militarization of the situation in Los Angeles. These things raise constitutional issues. There's no doubt about that.

Will the Trump administration get away with them? Yes, they ultimately will, just like the Democrat administration got away with it in Salma. And eventually these things will be normalized if they keep getting deployed. It really is a question of will. We can talk about this more. The other notable development is that Gavin Newsom, the governor of California, there's no other real way to put it. The guy seems to be losing it on Twitter.

He keeps saying that Trump's going to arrest him. And Trump and some of the Trump people are making jokes about arresting Gavin Newsom. And I can't really see whether Gavin Newsom is genuinely scared of getting arrested or he thinks that by coming out and saying he's going to get arrested, that he's convincing the public that Trump administration's bad enough

But ultimately, he kind of looks like he's having a meltdown and it looks like he's completely lost control over the state and the federal government has had to take over responsibilities. And that's how voters will see it. Gavin Newsom is, of course, tipped to be the

most likely candidate in 2028. So the current situation in LA, unless Gavin Newsom is able to make a giant comeback, is probably going to destroy the presidential ambitions of the current governor of California. But I don't want to make it out that it's all politics and it's all show and tell. The measures that the Trump administration has taken in response to these riots are highly unusual.

And they show that Trump's Justice Department and the Pentagon is very willing to use fairly extreme force in getting through their program. And that's probably why liberals like Gavin Newsom, who've been saying for eight years that Trump was going to start using heavy-handed techniques...

And I think they have basically come to realize that that was mostly theater from their point of view, but they've just kind of learned to keep saying it. Suddenly their theater is becoming reality and it's actually, it's kind of putting them off equilibrium. That'll be my reading of it. I can't say that I know enough about American politics as you and regular listeners will know. I try to avoid it. So I can't say I know enough about American politics to say,

know who's in the right and who's in the wrong between Trump and Newsom, to know the constitutional ins and outs of the actions that both have taken, or to know really who's going to win the political upside to this. What I am interested in, though, is the much bigger picture implications of this. And I think two spring immediately to mind. The first is the strains, increasing strains, that the polarization of politics in America has

are putting on the political fabric of the nation itself, the constitutional fabric of the nation itself. There are other arrangements that a group of 50 states, 50 political entities like you have in the US could take

rather than a federal republic. I mean, there could be a much stronger, more centralized government of the sort that one might find in the United Kingdom, for example, or even Russia. Or they could be much looser. They could become something like a confederation, the sort of thing that you saw in the pre-Bismarckian German era, where you had the North German Confederation, kind of between the Napoleonic era and the First Reich era.

And I wonder whether given the US is really in a kind of a revolutionary state at the moment, as is its wont every 80 to 100 years.

We're seeing that both in terms of the policy and the sorts of people that are getting in power and the changes that are being made to the makeup of the public administration of America or the attempts to change it the attempts to change foreign policy It's really quite transformative but at the same time there are real and serious and big and

disagreements between various camps within America broadly speaking between the blue states and the red states at the end of the Biden administration you did see the first red states starting to kind of just say no to the federal government no we're not going to do this we're just not and I think both you and I fully expected that process to continue once Trump was in power and we see here a big conflict between

between California and the federal government, between the authority of the governor and the authority of the president. And, you know, maybe this will blow over this time, but I think it bodes ill for the ability of the U.S. to hold together in its current form. I think it's the sort of thing that might cause hearts to harden in other blue states, you know, for when there's another conflict in the future. You know, even if...

Newsom rolls over in this sense and allows Trump to inverted commas, you know re-establish Control and order over the state I think that the experience of California this time will be something that as I say hardens hearts in other blue states The other thing that I find interesting is that a couple of weeks ago three weeks ago now I think on multi polarity we each did some voice recorded essays and

You did one, Philip, on China, and I did one on the American-Mexican conflict and the way that the U.S. is increasingly being careless and insensitive in its relationship with Mexico. And that's important because Mexico, you know, the fact that Mexico is quiescent and weak.

is a huge strategic advantage to the U.S. It means that the U.S. doesn't have to maintain a standing army on the other side of the Rio Grande to make sure that its southern border is secure, for example. You know, it can focus all its energy on building a large navy to control the oceans. But it's being increasingly insensitive. And people forget that it's easy to forget the implications of having 40% of the population

in Texas and California as Hispanics and the vast majority of those Mexican. In New Mexico itself, half of the population is Hispanic and the vast majority is Mexican. In Arizona and Nevada, it's about 30%, about a third. In Colorado, it's about a quarter. So all of these states have really big Hispanic and predominantly Mexican ethnic populations.

And you've got to remember that all of those states, 150 years ago, 160 years ago, were actually Mexican, right? Now, on the other side of the border, you have these extremely powerful, shockingly well-equipped, shockingly organized drug cartels. And they operate on both sides of the border. How difficult would it be to start for a country like Mexico to

or like say China or Russia who had an incentive to meddle to start using some of the social unrest in the United States and in the southern states and start using some of the tools that the Mexican drug cartels perhaps provide both in terms of their manpower and their know-how

to really start destabilizing the southern states of America. Like, seriously start destabilizing. Like, turn them into a genuine hinterland with inter-ethnic conflict and also social instability and violence.

And I think these are two big issue questions that I have because I can't have been alone seeing those kind of Mexican flags being held aloft by a couple of pretty tough looking people. This wasn't all middle class revolutionary LARPing that is Antifa, right? There was something more than that going on, I think. Now at present, it still looks way less organized than the kind of color revolutions that you see everywhere.

The attempt that you saw in Georgia, for example, that you saw in Ukraine in the past or wherever, much less organized than that. You know, the CIA and USAID obviously isn't behind this one because the organization, the funding wasn't good enough.

But how difficult would it be to pump some money, get some people organized, maybe use the drug cartels to do a bit of violence? How difficult would that be? So, yeah, those are my two questions. First of all, it's like the potential for outside meddling, especially as the U.S. goes into increasing conflict with Mexico, both in terms of the drug problem and in terms of issues like migration and remittances.

some of the corporate conflicts with regard to GM foods and measures that the Mexicans have taken to reduce obesity. And then also the kind of constitutional makeup of the United States, the longer-term viability of the U.S. in its current form. Could we imagine a situation where we see a switch because of these conflicts? I mean, these are the kind of conflicts that we saw in the build-up to the U.S. Civil War, for example. Now, I don't think we've seen anything like the caning of civil war

Senator Sumner in the US Senate yet but how far off are we from something like that? Yeah maybe not that far off I listened to your essay on the Mexican thing and I thought it was very good and I recommend readers go back or listeners go back and listen to it because it kind of highlights the downsides

of an increased conflict between the United States and Mexico. And they're very real. Thinking in terms of like, well, we'll just go in and bomb them. It never works out that way. And although I think conflict with the drug cartels would be far more winnable than, for example, the Iraq war, it would not be as simple as some people might make you believe.

That said, a conflict with Mexico might end up being inevitable. I've taught this since the first Trump administration. I know some people in America who've worked around law enforcement, FBI, that kind of thing. And, you know, I've talked to them about the situation on the border. And it really is responsible for an awful lot of the problems in the country. People have to understand it's not just about immigration. It's about security.

Trafficking of just about everything you can imagine really rims stuff and a lot of the problems that you'll see in cities in America, especially in the south and in the west, a lot of the issues that you'll see there you can trace back to that border.

Federal law enforcement like the Federal Bureau of Investigations, like Alcohol, Tobacco and Firearms, these federal institutions are very, very sensitive to this and they're very aware. And they've been pushing, I think, for about 20 years to up the scale here and basically to start treating the cartels as effectively paramilitary, at very least paramilitary organizations.

and beginning to break relations with the Mexican government. You can imagine what that means. It probably won't mean a Mexican-American war per se, but it could mean military intervention in Mexico.

Again, if I were watching any other country and I saw the images that we saw from that riot, I'd say, oh, it's about to happen. And maybe it is about to happen. Maybe people always think with America there's more kind of bark than bite when it comes to American politics and things are always a bit more extreme there and everything looks like it's about to kick off at any moment. Yeah, I've always thought that.

would break down someday. And someday all that stuff that in other parts of the world signals the beginning of some sort of a conflict actually signals the beginning of that conflict. I think this is as good an instance as any to say that might be becoming the case. And of course, that speaks to the second thing that you raised, which is the constitutional nature of the United States.

First thing I'd say about that is it hasn't been constant over time. There's an illusion of consistency with the American constitutional order. America's been through multiple republics, probably four or five at this stage. Unlike the French, they haven't renamed it every time. But the constitutional orders are all noticeably different. There's been a real feeling in the air that the constitutional order in America was going to change again in the coming years and that it was going to become more centralized in D.C.,

and probably a lot less small-L liberal in its application of power. I do not mean liberal as in Democratic Party. I mean a little bit more hard-edged in its assertion of power. And it's not just the Republicans that are doing this. The Democrats have been at this for a number of years as well, definitely going back to the Obama administration.

There's been increasingly aggressive use of federal powers like the power of investigating people for tax. That happened a lot under the Obama administration. People who the Obama administration didn't like were targeted with IRS investigations. That

That's the beginning. And then it ratchets it up. It ratchets it up. And then suddenly you're in a situation where the Trump administration seems on the brink of declaring martial law in an American city that's effectively controlled by his potential or the Republican Party's potential representative in the upcoming election. Well, as they say, that escalated quickly.

But that's where this is going. And I wonder if this isn't the beginning of all that. Now, we don't want to make any predictions. We'll see. Maybe it calms down in the next few weeks. But it feels to me like a bunch of norms have been crossed here. It hasn't been crossed since the last shift in America's constitutional order, which was during the civil rights period, which...

When I said the Selma intervention, that was the beginning of what some people would refer to as a new constitutional order in America, one based on the civil rights legislation that was passed at the time, which fundamentally changed the way that American political power was exercised and the way that the courts functioned and everything. So we could be seeing another one of those silent shifts of the constitutional order in America.

America is very good at covering its tracks with these constitutional shifts. You won't hear about a declaration of a fifth or sixth republic or something like that, as you might hear in a country like France. You won't hear that. It'll be quiet, but the, well, it won't be quiet, but it won't be advertised. But if you understand how the system of power in the United States currently operates, and you start to see it operate in a fundamentally different way in the next few years, you'll know that we're in a new world.

Hello there, Andy Collingwood here. I'm interrupting this podcast to remind everybody that once a month, Multipolarity does a premium episode that's only available to premium listeners. And to become a premium listener, you have to go to Patreon, type in Multipolarity the podcast, and then pay us five pounds, dollars, or euros a month. In exchange for that, you will receive all the past premium episodes, all the future premium episodes, and

and have the happy feeling that you're supporting us, you're showing us your love, and you're helping us put all of this together. So that's Multipolarity, the podcast, on Patreon. Five dollars, pounds, euros a month. Cancel any time, but no one ever does because it's very popular and it's worth the wonger. Now, back to the episode. Promising the rare earth.

Yeah, today is Tuesday the 10th of June and as recording the United States of America and China are in the second day of trade talks in London. And I wonder whether we are starting to get the inklings of the first Chinese victory, China's first victory within these trade talks. Why do I say that? Well, regular listeners will know because

We were one of the first podcasts of any sort to report on this and suggest the importance of it. The Chinese in the last couple of years have been slowly ratcheting up export controls on critical minerals, especially rare earth minerals. So that's minerals like samarium and...

and terbium and luteinium and scandium and other unusual sounding rare earth elements and metals and especially the rare earth magnets that they produce. This is something that the Chinese have been restricting for a while but from April this year in response to US tariffs the Chinese really clamped down on the export demanding that every exporter

apply for a special license to be able to export these things. Now why are these important? I think it's well known why they're important. You can't make a whole range of high-tech goods without them. You also need them even for basic things like making cars and semiconductors and basic computer electronics and motors and all of that, but crucially

They're also very important when it comes to military equipment. So that's the kind of high-tech stuff like your F-35 stealth fighter jet and your cruise missiles and your radar systems. But it's also things like even night vision goggles, for example. They all need these rare earth metals. And the issue is that China controls something like 90% of

of rare earth metals processing in the whole world. And 100% all of them of the heavy rare earth processors. So they really have a stranglehold when it comes to this stuff. And this stuff is also...

absolutely of paramount importance to the modern world essentially you know like you can't have the modern world you can't have smartphones and then cars and computer chips and general electronics without these things now the reason I think that China might be on the verge of some kind of victory here is that in recent days there have been a lot of complaints and murmurings of

from the US side about the Chinese slow walking kind of relaxation of these rare earth metals export restrictions. People will remember to great hoopla that the Americans and Chinese agreed both of them as part of the Geneva talks which preceded the current London talks to walk back some of their

restrictions. So the US, you know, lower tariffs, so did the Chinese. And apparently the Chinese also agreed to relax some of their rare earths restrictions as well. The Americans are now accusing them of slow rolling this.

And at the same time, a number of stories have emerged that these restrictions are really starting to bite now in things like the car industry in the US. And one can assume they're not saying it, but one can assume also the defense industry as well, because that's not something that you advertise. You don't say like, hey, look,

all of America's enemies. We can't produce Tomahawk missiles and HIMARS missiles anymore because of the Chinese, you know, you just don't say that sort of thing. But if the car industry is starting to struggle and the US administration led by Donald Trump, but also several other members, senior members of the administration is starting to scream blue murder about these restrictions and the Chinese slow rolling them.

You can sure as heck bet that this is something that's a big issue for big strategic sectors in the US, right? And indeed, it seems that a lot of the news coverage of the Sino-American negotiations in London at the moment focus indeed on this rare earths issue.

So I wonder if the Chinese are about to extract some concessions. I mean, if we see, for example, the US walking back on some of the microchip and semiconductor wafer restrictions that they've placed on China, you know, they've said that companies can't sell to China microchips below X nanometers, right? They can't sell this, they can't sell that.

And they've really tried to hobble China's high-tech development. If you start seeing the US starting to walk back some of those, it suggests that the pain caused by the rare earths restrictions is forcing the Americans to rethink

their microchip and semiconductor wafer restrictions, and they're exchanging one for the other essentially. And that would mean that the Chinese have won that particular round. They've forced, in the game of mercy, they've forced the US to squeal first. Well, I think the first thing to say is we've been warning about this since we started the podcast.

And anyone who's followed the podcast since we started it, when we were constantly talking about how China has the power to do this, we can now show that we were not just trying to attack the Biden administration. We've been pretty consistent on this and we've constantly said, look, China has the power to do these type of restrictions.

They're totally different from trying to impose restrictions on, for example, the export of Russian oil. They don't work like that. If you control the supply of something, you can restrict it. Not perfectly, but you can restrict it an awful lot, just as the Arab countries did in 1973 in response to the Americans backing the war in the Middle East at the time, launched between the Israelis and the Egyptians and so on. These kind of embargoes work.

If you hit something as important in the supply chains as these rare earth metals, other things that aren't rare earth metals like gallium, germanium, byproducts of metals processing that you just can't get online quickly unless you want to create a giant zinc industry or a giant aluminium, aluminum as Americans say, industry, you can't get that off the ground immediately.

And so there's a fairly limited supply in the short to medium term. And it takes a long time to get everything back online. Well, we said it. It's here. And we can't speculate on the outcome of the talks. They'll probably be done by the time the podcast is out, which is kind of annoying. But as you say, why?

What happens after the talks, if the United States reneges on a lot of its penalties on China, you'll know that they lost. What I can definitely say as of today is the pressure is absolutely enormous on America now. As you say, they're not fully admitting how bad the situation is. So the media is reporting that the situation's pretty bad, but it's probably a lot worse than that. And that's the impression that I get today.

as well. So I think this will really show the limits of America's capacity to wage and win a trade war against China. By the end of all this, the relative economic power of the United States of America will be

extremely clear for all to see. We've been saying it the whole time, it'll become clear and hopefully at that point the Trump administration and others in America start to realize that a new strategy is needed and that trying to be aggressive and bully other countries when you are coming from an economically weak position is a bad idea. The second thing related piece of news that we got this week

is the Chinese export data came out. And Chinese exports overall, this isn't just the inputs, these rare earth inputs, these gallium, germanium inputs. This is all exports. This is stuff on the shelf. They fell 35% in May after the beginning of the trade war, which is the largest decline since 2020, since the partial shutdown of global trade during the pandemic.

Well, a couple of things about this. First of all, unless those numbers bounce back pretty much immediately in June this month, maybe next month, maybe August, inflation is now probably baked into the system.

That 35% of goods lost are goods that aren't going to show up on the shelf. They're inputs that aren't going to show up for the manufacturing process in America. And this is exactly what happened during the pandemic. And what we saw was the initial burst of inflation. There were two. There was the one from the pandemic that was the main impact on the US inflation, right? And then there was the one from the Ukraine war, which gave Europe a double whammy.

America is almost certain to see another wave of inflation now. Again, unless those numbers bounce back very, very quickly. But that would require a complete normalization of trade once again. We'll see. But my bet is they're probably facing down at least some inflation now. The other thing to point out in that is that the export data for Europe from China was up, up about 20%.

there are more Chinese exports coming to Europe. Some of that is probably Americans trying to work around the restrictions and tariffs that have been put in place.

But whatever it is, it means Europe is not being starved of goods. America's being starved of goods. And what that means is that we're seeing the first time where Europe is going to be exempt from a round of inflation while America's going to be subject to it. Usually, it's America that suffers less in this current relationship because Europe is put out front to take all the heavy blows of the war in Ukraine, LNG, all this kind of thing. But unless this trade war holds up...

Unless this trade war has went down, I should say, very quickly, America is going to get a punch in the face and Europe isn't because they haven't severed trades with China in the same way. And that's going to have enormous implications. I said earlier in the show that the US interest rates are very high right now. I think 4.7% on a 10-year treasury. European interest rates are substantially less than that. They're two percentage points less, maybe a little more, maybe 2.3%, something like that.

And we're already seeing the impact of that. And it's US companies, for example, raising money in European debt markets simply because the interest rate's half.

and go and calculate a compound interest rate over 10 years on some corporate borrowing or something, and you'll be shocked at how much of the principal it costs. The spread between European and American could end up being 60% of the principal, something like that, depending on the maturity of the loan. So these are huge numbers that you're talking. As I said, the US corporates are already dipping into Euro markets to borrow cheaper.

Now, this ties into my comment that Europe's always the one that takes the whack first. That's been pretty much one of the legs on the stool that props up the US dollar hegemony in a sense. There's the reserve currency component of the US dollar hegemony, and then there's the capital markets domination. And the capital markets domination is basically done through the US dollar having the lowest interest rates of the major currencies.

That's pretty much how the trick is done. Anytime anyone comes to you and says, oh, it's because of European regulations and America has much less onerous restrictions on X, Y, Z, forget about all that. That might be true at the margin, but the real driver of international lending in US dollars is simply a lower interest rate. That's, again, the strong dollar policy that the United States has pursued for a very long time, probably since 1973 when they closed the gold standard.

There's no magic beans here. We talked at the top of the show about Elon Musk being frustrated with the fact that the US government just can't rein in its spending. Okay, well that's going to put upward pressure on those interest rates anyway. The fact that foreign borrowing markets for US treasury bonds are already kind of seizing up, that's going to put upward pressure. Now feed some inflation into the system that's higher in America and lower in Europe, interest rates are up again.

How big does that spread get? It's currently just over 2%. If it gets to 4%, the US capital markets are getting hammered. And the longer that higher borrowing rate stays in place, the more hollowed out Wall Street, in effect, is going to become. And the more the center of gravity of capital markets globally are going to be dispersed throughout the world. We won't even start talking about Chinese lending.

With instruments like Panda bonds and Dim Sum bonds and so on, China have lower interest rates today than either the United States or Europe. So what we're seeing in real time is a speed running of the decline in US dollar hegemony. And it's been accelerated massively by the inflationary policies that the Trump administration is pursuing in its attempt to engage in a trade war.

As I said, by the time this comes out, we'll probably know if the Trump administration has cried uncle and removed most of the remaining restrictions on China. If it has, hopefully the result that I just said can be mitigated. It can't be prevented. The US borrowing rate is going to remain higher, but it can be mitigated somewhat, at which point the administration is going to have to think up a new strategy for its pretty much entire economic strategy.

If the Trump administration is not willing to drop the remaining restrictions, or conversely, if the Chinese just say, we're not that interested, you guys picked a fight, we're going to let you live with it for two years and see how much damage it does to your economy, that's another possibility. If either of those two things happen, then I think inflation is pretty much guaranteed in the pipeline and...

potentially, I mean, depending on how long these restrictions on rare earth metals and so on go on for, a real destruction of the high-end manufacturing sector in the United States.