Where Stuff Comes From – Afghanistan, Rare Earths, and China

In this week’s Where Stuff Comes From Briefing: How and why Rare Earth Elements and Afghanistan are a massive opportunity for whoever seizes it (re: China).

Cheers,

Max

What to Read and Watch About Rare Earths, Afghanistan and China: 

1. Afghanistan’s Mineral Resources Are a Lost Opportunity and a Threat
2. China Has A Big Plan For Afghanistan And It’s Worth Billions
3. China’s Behind-the-Scenes Maneuvering in Afghanistan – China Unscripted

With the larger backdrop of the United States’ controversial and clumsy departure from Afghanistan, this week I am going to give some of the ‘Where Stuff Comes From’ context to what is unfolding. 

This newsletter explores a few second-order Stuff Chain implications of the United State’s abrupt exodus. I will save my opinion about how the United States and Coalition Forces are pulling out and the domestic United States politics of the war in Afghanistan for another (offline) forum.  

What I will say is that how the United States is handling Afghanistan at this moment in time will have long-term implications on how nearly every business in America develops its Stuff Chain strategy. As we’ll see, there is a substantial amount of economic and mineralogical opportunity in Afghanistan that China is swooping in to take advantage of.

A disclaimer before we dive in: Geopolitics remains enormously complex (obviously). This is just one thread (albeit what I conclude to be one of the most fundamental ones) of the larger conversation around the end of the war in Afghanistan. I want to make it clear that I do not want to overshadow the enormity of the human rights situation unfolding on the ground. As an American, I pray that all of the Americans and those who supported our military now trapped on the ground behind enemy lines make it out safely and securely. 

One more thing — My deepest gratitude for those who serve/served and continue to sacrifice in defense of the United States of America. Thank you to our troops past and present for your service and sacrifices. 

Okay, now let’s dive in.

Did You Know That Afghanistan Borders China? 

The image below shows the 48-mile stretch border between wore torn Afghanistan and China’s genocide-filled Xianjing province. The remote area of Afghanistan, known as the Wakhan Corridor, is renowned for its rough and rugged terrain of high altitudes, snow, and lots of mountains.

Carved out of an 1895 negotiation between the former Russian Empire and Britain, here are a few bullet points for why this region is so strategically important today:

• Wakhan was a key corridor along the Silk Road used to facilitate trade between Rome (and the rest of the West) and China (and other parts of the East). Now, China is eying the area as a natural evolution of its modern attempt at reinvigorating the might of the Silk Road, the One Belt One Road Initiative. (Read More Here)
• Wakhan has been a key exodus route for Uyghurs Muslims looking to flee China’s genocide of their culture and people. Some of those who flee into Afghanistan radicalize and join Islamic terrorist groups in Afghanistan and elsewhere around the world. Some of these fighters and larger terrorist groups are focused on striking back against the Chinese Communist’s Parties genocide of Uyghur Muslims in Xianjing. (Read More Here) 

For the above and many other reasons, it’s clear that China has an interest in what happens next in Afghanistan.  

Recapping Rare Earth Elements

Let’s recap the key points about rare earth elements:

1. Rare earth elements (REE’s) are a group of 17 elements with unique magnetic, optical, and electronic properties. Used to produce magnets in computer hard drives, electric motors, speakers, high-speed trains, and many other modern technological marvels, these elements run the high-tech world. 
2. Geopolitically, China controls most (>80%) of the world’s production of REE products. Even though there’s a medium-sized mine in Australia and a few small mines scattered in other countries, nearly all of the raw minerals from those non-Chinese mines are sent to China for processing into metals, magnets, and other products. (Read More Here, Page 132)
3. China has a history and stated strategy of using its singular control of the rare earth stuff chain to threaten and coerce adversaries. Circa 1970 as China began to let some of the outside worlds in, Deng Xiaoping stated China’s REE strategy clearly: “the Middle East has oil, China has rare earths.” Not so long ago, in 2010, China strangled Japan’s access to REE’s to escalate a maritime incident between the two nations. (Read More Here)
4. ***At the time of writing this newsletter (August 2021), my assessment is that the United States economy could not operate if China cut off supplies of REE minerals, metals, and products. Software companies would quickly run out of cloud computing resources. Hardware companies would be at production standstills. Small businesses in all sectors including tourism, retail, and services would stall out as the SaaS companies that they rely on for their business systems suffocate from the absence of scalable cloud server hardware.***
5. Elon Musk said on Joe Rogan a few months ago that “if you don’t make stuff, there is no stuff.”… More so, our current understanding of physics tells us that we can’t go willy nilly alchemically morphing elements: an atom of carbon is an atom carbon and an atom of neodymium (the most well-known REE) is an atom of neodymium. The only way we can make more neodymium is to mine it or recycle it. 

With that out of the way, let’s discuss what I think is a blown opportunity for the United States and a new massive threat to our national security and stuff-chain resiliency. 

Afghanistan’s Mineral Endowment

Four years ago, right around the time I started to think about Where Stuff Comes From, I grabbed drinks with a friend who served as a combat medic in Afghanistan. He told me that he thought that America was not at war against terror or for oil… but that we went into and were still present in Afghanistan because of its rich deposits of lithium and other minerals. 

 Boy, does this conversation resonate like a gong in a steel room today?

For the last half-century, the middle east and oil have been almost impossible to talk about independent of one another. But the middle east — and Afghanistan in particular — is extremely rich in other technologically important minerals, including rare earth elements.  

Estimates place Afghanistan’s untapped mineral wealth at roughly 1-3 trillion US dollars. Back in 2011, using geological imaging technology and on-the-ground geologists, the Department of Defense and the United States Geological Survey confirmed the low end of these estimates (Read More Here). For a country with a nominal GDP of ~ 20 billion US dollars, that’s quite a mineral endowment to kickstart economic opportunity.

Reuters published a solid easy-to-digest summary of the mineral resources that lay beneath the surface of Afghanistan that you can dig into here. Here are the highlights:

• 1.6 billion barrels of crude oil, 16 trillion cubic feet of natural gas, and another 500 million barrels of natural gas liquids.
• Between 30 million and 60 million tonnes of copper
• 2.2 billion tonnes of steelmaking raw material iron ore
• 1.4 million tonnes of rare earth minerals
• Scattered but abundant deposits of other industrial and technological important minerals, including aluminum and tin. 

Over the last 20 years, the United States spent 2 trillion US dollars on our war effort in Afghanistan. At a time when the United State’s ability to provide security and human flourishing for its citizens is dependent on our ability as individuals, entrepreneurs, business owners, and leaders to secure resilient and reliable supply chains, the implications of Afghanistan’s mineral wealth remain an open question.

The Chinese Communist Party And The Taliban

With the United States pulling out and divesting from Afghanistan, watch out for China to make swift inroads and investments into Afghanistan. The Chinese Communist Party sees a massive opportunity to benefit from Afghan mineral wealth (from rare earth minerals to precious metals and oil) over the coming decade. 

Already, the Chinese government is building relationships with the Taliban. This quote from a blog post from the Rand Corporation summarizes the result of China’s Taliban courtship:

“With a Taliban takeover looming, China received some good news two weeks ago: Taliban spokesman Suhail Shaheen said in an interview that “China is a friendly country and we welcome it for reconstruction and developing Afghanistan…if [the Chinese] have investments, of course, we will ensure their safety.” Moreover, on the sensitive issue of whether the Taliban might support alleged Uyghur militants against China in neighboring Xinjiang, Shaheen noted, “We care about the oppression of Muslims, be it in Palestine, in Myanmar, or in China, and we care about the oppression of non-Muslims anywhere in the world. But what we are not going to do is interfere in China’s internal affairs.” These words were clearly intended to please Beijing, which appears to be starting off on exactly the right foot with the Taliban should the group regain control over Afghanistan.” 

https://www.rand.org/blog/2021/07/china-and-the-taliban-begin-their-romance.html?

There’s a long game being played when it comes to Afghanistan’s (and the Taliban’s) role in global supply chains moving into the next decade. Unfortunately, it appears that the last 20 years in Afghanistan are a testament that the capacity for long-term human flourishing in the United States is consistently impaled by a domestic bureaucratic abyss (when it comes to mining and minerals processing) and blown foreign investment, policy, and relationship-building opportunities abroad. 

Conclusion

Americans — individuals, business owners, corporate leaders, engineers, policymakers from all walks of life and industries — need to start to ask Where Does Our Stuff Come From? 

When we uncover that the answer undermines our ability to flourish beyond the next four-month financial cycle to a forty-eight-month political rotation, we as individuals need to make the difficult, painful but necessary, just, and strategic decisions to course correct. 

To wrap up, rare earth elements and other critical minerals are extremely important to our high-tech economy. These materials do not come from snapping our fingers, a Star Trek replicator, or “hacking” a Minecraft server. And yet, these minerals and the products derived from them, are physical underpinnings of why our species continues to enjoy more and more abundance and human flourishing. 

 As we make decisions as consumers and business people, let us do everything that we can to ensure that the Stuff Chains that enable our flourishing remain free, fair, intact, and accessible by consciously investigating where the stuff we use comes from.

Want More Insights Like These?

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This Meditation on ‘Where Stuff Comes From’ breaks down why you need to immediately dive into where your stuff comes from. This meditation will help you to navigate the rapidly changing geopolitical, business, and human rights environment that we face today. Read this meditation and follow these weekly newsletters to gain the confidence that you need to avoid being caught flat-footed, unprepared, and reflecting retrospectively: “Well, I guess THAT’S where that stuff comes from.” 

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P.S… As this newsletter grows, I am continuing to experiment with the format. Moving forward, thanks to feedback from readers, we will keep the newsletter more focused and explore one Where Stuff Comes From thread per week.