Chris’ note: If you’re focused on the US-China trade war, you’re missing the big picture.
That’s the latest from Crisis Investing chief analyst Nick Giambruno, who says the trade war is just a sideshow of a much bigger issue.
And this issue, which Nick says will soon reach a tipping point, is “arguably the biggest idea of our time… one that will define our generation.”
With a statement like that, I had to get Nick on the phone for more.
Below, Nick tells me what’s really going on with China and the US… and how you can make a fortune as tensions rise…
Chris Reilly, managing editor, Casey Daily Dispatch: Nick, you recently said that the current US-China trade war is a sideshow… a distraction, more or less, from a much bigger story…
Nick Giambruno, chief analyst, Crisis Investing: That’s right, Chris. People are getting tunnel vision on this trade war issue.
They’re not stepping back and seeing the big picture.
Right now, the mainstream media have people actually believing that if the US and China can come to an agreement, it will be back to business as usual.
This conventional thinking is wrong.
Even if they cobble together some trade agreement, this is far from the end of tensions between the US and China.
Chris: How so?
Nick Giambruno: This is all about China’s overall rise to power… and how the world (specifically the US) is going to deal with it.
I don’t think that many Americans or westerners are aware that China used to be the No. 1 power in the world for many years in the past. China’s rise is a natural thing given its size, population, economy, and history.
And it’s on pace to be the world’s dominant power once again.
If you look at the trajectory of China’s growth, it’s on track to have an economy that’s not just equal to the US’… but double the US’ by 2030.
Lee Kuan Yew, the former leader of Singapore, and someone who understands China’s role and history, says that it’s not possible to pretend that China is just another big player… China is the biggest player in the history of the world.
Chris, I believe this is going to define our lives much like World War II defined that generation’s lives.
It’s the big event for the people alive today.
Chris: And it sounds like it’s happening quicker than most people realize…
How do you see this all playing out?
Nick Giambruno: Either the US is going to accept being No. 2. Or, it’s going to go into some sort of shooting war, which is what happens historically when an established power challenges a rising power.
There was a study at Harvard about this dynamic (called “Thucydides’ Trap”) throughout all of human history. Out of 16 prominent examples, 12 of them (75%) resulted in a war.
Unless the US and China can find a way to resolve this peacefully and amicably, war seems to be an almost inevitable outcome.
No one knows how soon that will happen. But I would argue that this will come to a head sooner rather than later. If the US wants to knock China down a peg, it’s not going to wait until China’s too big and strong. This is just basic strategy. If you have an opponent that you want to attack, it’s to your advantage to do it as soon as possible.
Now, this isn’t a good thing. It’s a terrible thing. But nonetheless, it’s the reality right now. And the US’ opportunity to act is very narrow.
And in the meantime, there’s a serious investing angle.
Chris: What’s that?
Nick Giambruno: As tensions rise between China and the US, it’s a near-certainty that rare earth elements (REEs) will come into play.
REEs are 17 elements mostly clumped together at the end of the periodic table. All of them are absolutely crucial to modern civilization.
They’re used to make key components for advanced electronics like iPhones, electric cars, flat-screen TVs, computers, sophisticated military equipment, and more.
The problem for the US is that China has a virtual monopoly on this industry.
China produces around 90% of global REE supplies. It also produces nearly all of the world’s more valuable heavy rare earths.
The US is totally dependent on China for rare earths. And if tensions rise, China may choose to play the “REE card” – meaning it’ll abruptly cut off REE supplies.
Chris: Interesting… Has it done that before?
Nick Giambruno: It sure did… and it triggered one of the most spectacular booms in recent memory.
Back in 2010, a Chinese fishing vessel was sailing in disputed waters when it ran into some Japanese coast guard patrol boats. This happened in waters claimed by both Japan and China.
The Japanese arrested the Chinese captain. China demanded his release, but Japan refused.
Things only got worse from there. In retaliation, China abruptly cut off all REE exports to Japan. It also cut global exports by 40%.
The average price of REEs skyrocketed by over 20 times. And over the next couple of months, companies in the industry went up many times higher.
This one incident caused a veritable mania in REE stocks that lasted for nearly a year.
Chris: Got it… But what makes you think China will play this card again?
Nick Giambruno: China’s already stated loud and clear that it won’t hesitate to do it again.
One notable example was an article in the People’s Daily – the largest newspaper in China and official media of the Communist Party – which included a rarely used phrase in Chinese that translates into something like, “Don’t say we didn’t warn you.” This specific phrase carries historical significance. It was used before China and India fought a war, and also before war broke out between China and Vietnam.
This is truly unprecedented. China has never openly threatened to restrict REE supplies to the US, much less with such harsh language.
Plus, in May President Xi Jinping made an unusual visit to a state-supported complex in Ganzhou, which is known as the “Kingdom of Rare Earth” for its rich REE deposits.
It’s not every day that China’s No. 1 shows up at a dirty mine in the middle of nowhere.
The timing of the trip was no accident. It was meant to send a message to the US.
Chris: Wow… If people didn’t think this could happen before, this definitely paints a clearer picture.
Is there a way for readers to get exposure to REEs if they do take off?
Nick Giambruno: The best way to get exposure to rising REE prices is to invest in REE-related companies.
You can get an idea of what options are on the table by looking at the MVIS Global Rare Earth/Strategic Metals Index. This index includes the largest and most liquid companies involved in REEs.
The companies on this index must generate at least 50% of their revenues from rare earth and strategic metals. Or they have to run mining projects that have the potential to generate at least 50% of their revenues from these sources.
This index doesn’t include every single REE company in the world, but it does include most of them and gives us an idea of the options out there.
It’s a great place to start your research.
Chris: Great stuff. Thanks, Nick.
Nick Giambruno: My pleasure.
Chris’ note: For a more specific way to profit off REEs, Nick just recommended an explosive play… and it’s your ticket to riding US-China tensions higher. Right now, it’s still under his buy-up-to price… but it might not be for much longer.
Crisis Investing subscribers can access this pick here. If you’re not a subscriber, you can access this recommendation by signing up today. Learn how – and see another massive opportunity on Nick’s radar – by watching this video.