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Can the US Break China's Grip on Rare Earths? · What's Your Problem?

0:15
Speaker 1: Pushkin. Today's show is about rare earth elements, which suddenly
0:23
Speaker 1: in the past year or so have become very big news.
0:27
Speaker 1: Rare earths have in fact been a big deal for
0:30
Speaker 1: decades because you need small amounts of various rare earth
0:34
Speaker 1: elements for basically anything with an on off switch for laptops, phones,
0:40
Speaker 1: electric vehicles, drones, missiles. I don't actually know if missiles
0:45
Speaker 1: have an on off switch, but you do need rare
0:47
Speaker 1: earth for missiles. And we suddenly started to hear more
0:51
Speaker 1: about rare earth's last April because the day after President
0:56
Speaker 1: Trump announced new high tariffs on China, China said, okay, fast,
1:01
Speaker 1: the way it's going to be, We're gonna make it
1:03
Speaker 1: very hard for you to buy stuff made with rare earths.
1:07
Speaker 1: And China can do that because they have choke hold
1:09
Speaker 1: on the global supply of the essential components made with
1:13
Speaker 1: rare earths, the magnets and other things that go into
1:16
Speaker 1: our cars and iPhones and missiles. This raises some very
1:20
Speaker 1: important questions like how did China get a choke hold
1:24
Speaker 1: on rare earths, and more urgently, what's the US gonna
1:29
Speaker 1: do about it? I'm Jacob Goldstein and this is what's
1:43
Speaker 1: your problem? My guest today is David Abraham. He's the
1:46
Speaker 1: author of the book The Elements of Power, Gadgets, Guns,
1:50
Speaker 1: and the Struggle for a Sustainable Future in the Rare
1:53
Speaker 1: Metal Age. David started out as a commodities trader back
1:57
Speaker 1: in the aughts, and then he went to Asia to
1:59
Speaker 1: do research and got interested in rare earth's back in
2:03
Speaker 1: twenty ten. The fundamental problem David is addressing is this,
2:08
Speaker 1: what should the US do about China's chokehold on the
2:12
Speaker 1: rare earth supply chain. As you'll hear, he thinks the
2:16
Speaker 1: current US strategy could wind up costing billions of dollars
2:19
Speaker 1: without solving the problem, and he has a big idea
2:22
Speaker 1: for what we should do instead. Before we get to
2:26
Speaker 1: the interview, I should say the thing people always say
2:29
Speaker 1: about rare earth elements. They're not actually that rare in
2:33
Speaker 1: the sense that they're found in many parts of the world.
2:37
Speaker 1: There are seventeen rare earth elements, and the reason they're
2:40
Speaker 1: called rare earths is that they're found in very small
2:43
Speaker 1: amounts mixed in with other elements. So it takes a
2:47
Speaker 1: lot of work and a lot to know how to
2:49
Speaker 1: mine and refine them. If you go back in history,
2:52
Speaker 1: you see that the US dominated production of rare earth
2:56
Speaker 1: through the nineteen seventies. After that things started to shift
3:00
Speaker 1: to China to start. I asked David how that happened.
3:04
Speaker 2: So they start producing these materials because they needed hardcore.
3:09
Speaker 2: See it was the nineteen eighties or early nineteen nineties.
3:12
Speaker 2: They were able to mine this stuff up and send
3:15
Speaker 2: it out and at the time they're making Christmas lights
3:18
Speaker 2: and T shirts. They're not thinking about larger developed products.
3:24
Speaker 3: If you will.
3:25
Speaker 2: But they slowly start to realize as their ambitions start
3:27
Speaker 2: to increase that they want to be able to make cars,
3:31
Speaker 2: and they see these materials as really critical to the
3:35
Speaker 2: manufacturer of these products. So what they start to do
3:39
Speaker 2: over time is start to develop those industries. Because in
3:43
Speaker 2: the West, people don't want to dig up. They don't
3:46
Speaker 2: want to dig up earth. No one wants to mind
3:50
Speaker 2: in their backyard. People don't want processing, and for most part,
3:53
Speaker 2: people who graduate college or high school want to be
3:56
Speaker 2: going into more comfortable jobs. And so the Chinese raise
3:59
Speaker 2: their hand and basically say, hey, listen, we'll do this work.
4:02
Speaker 2: We need the money, and we're starting to see that
4:04
Speaker 2: these materials are critical to the products that we want
4:06
Speaker 2: to make in the future. So over success of five
4:09
Speaker 2: year plans, which is how Beijing looks at its economy
4:13
Speaker 2: and how it wants to go forward, it starts to
4:16
Speaker 2: figure out that they want to develop these materials at
4:20
Speaker 2: the heart of a high tech society that is slowly
4:25
Speaker 2: starting to go from military to green technologies to high technologies,
4:29
Speaker 2: and they want to make everything within their country.
4:32
Speaker 3: So it was a.
4:33
Speaker 2: Slow process, and it wasn't something that China woke up
4:37
Speaker 2: and was secretly doing. These plans were out there for
4:41
Speaker 2: the world to see, and it was fine when people
4:43
Speaker 2: were thinking, Okay, well I just got my iPhone, I
4:46
Speaker 2: don't really have to worry about things. They didn't think
4:49
Speaker 2: about where the material was because people were thinking just
4:52
Speaker 2: like it's a grape or wheat, as long as the
4:55
Speaker 2: market can supply it, then we're fine. It wasn't until
5:00
Speaker 2: people started to wake up and realize, wow, these materials
5:02
Speaker 2: are very important to the world that we really have
5:06
Speaker 2: to understand where the supplies are coming from.
5:09
Speaker 3: So it seems to be a more of a wake
5:10
Speaker 3: up call. Now.
5:11
Speaker 1: I mean, you said something interesting there, like the market
5:14
Speaker 1: will supply it, right, which was the basic worldview of
5:22
Speaker 1: most people, most elites, say in the US certainly at
5:26
Speaker 1: the end of the twentieth and the beginning of the
5:28
Speaker 1: twenty first centuries, right, like a belief in trade and
5:32
Speaker 1: in markets, and in many ways it was justified. I know,
5:35
Speaker 1: it's an unpopular view now largely or at least less
5:40
Speaker 1: popular than it was. But it did work pretty well
5:43
Speaker 1: in many ways, right Like we did get more and
5:45
Speaker 1: more stuff, the world was getting more efficient, manufactured goods
5:48
Speaker 1: did get cheaper and better. So in many ways it
5:52
Speaker 1: did work. And China over that time, through the twentieth
5:57
Speaker 1: century into the twenty first century went up the value chain,
6:00
Speaker 1: right as you say, they started out just mining and
6:03
Speaker 1: sending the raw minerals out, and then they started refining.
6:07
Speaker 1: Right then they started manufacturing the basic components. And now
6:10
Speaker 1: we're to the point where clearly they are making the
6:13
Speaker 1: best electric vehicles, say, and the only reason we don't
6:16
Speaker 1: have them here is because of tariffs, right, because we've
6:18
Speaker 1: kind of moved away from the free trade beliefs that
6:23
Speaker 1: we had. So, as you say, there was this wake
6:26
Speaker 1: up call that you mentioned, and there's this very clear
6:28
Speaker 1: moment when that happened. Right, it's not some gradual thing.
6:31
Speaker 1: It's in twenty ten, and there was this territorial dispute
6:36
Speaker 1: between China and Japan over some islands that kind of
6:40
Speaker 1: classic territorial dispute. These are our islands, know, these are
6:43
Speaker 1: our islands. And the upshot for our story is that
6:48
Speaker 1: China stops sending what rare earth's basically to Japan. And
6:54
Speaker 1: as it happens, you happen to be in Japan working
6:58
Speaker 1: at that moment. So what was the effect of that
7:03
Speaker 1: on the Japanese market and what was it like for
7:04
Speaker 1: you as an observer.
7:06
Speaker 3: I was based in.
7:06
Speaker 2: Their Ministry of Economy, Trade and Industry, so I was
7:09
Speaker 2: one of two foreigners, the other being a translator, and
7:13
Speaker 2: so it was a fascinating experience to be there because
7:15
Speaker 2: Japan relied on these materials. They had this just in
7:19
Speaker 2: time manufacturing that the materials just had to arrive. Japan
7:23
Speaker 2: has refined them in ways at that time China could
7:26
Speaker 2: not do upgrade them, put them into an optical drive
7:29
Speaker 2: that they would send back to China to put into
7:31
Speaker 2: a computer. And so what happened was Japan's manufacturing lines stopped,
7:39
Speaker 2: slowed down, and Japan was woken up to wow, we
7:43
Speaker 2: have a reliance on China for materials, and China may
7:47
Speaker 2: not be a strong supply huh.
7:50
Speaker 1: So suddenly Japan is like, oh, all these things that
7:52
Speaker 1: we make cars, speakers, you know, components, high end components
7:58
Speaker 1: that go into electronics that are ultimately assembled elsewhere. All
8:02
Speaker 1: of a sudden, we can't make those things now because
8:05
Speaker 1: China stopped sending us rare earths.
8:07
Speaker 2: And these are such small things, their value is so
8:12
Speaker 2: low you wouldn't think much about it. It's just like
8:14
Speaker 2: yeast did for bread. If you don't have yeast, then
8:16
Speaker 2: you can't make bread. And so these materials didn't have
8:20
Speaker 2: a lot of value. Japan didn't think much about the
8:23
Speaker 2: supply lines, and then lo and behold, they're stuck. And
8:26
Speaker 2: so what happened really over the month the two months,
8:30
Speaker 2: is that China started seeing that, hey, they're not getting
8:33
Speaker 2: their equipment from Japan to be able to make their computers.
8:38
Speaker 2: And so really the fact that one country makes these
8:43
Speaker 2: and has, as some people say, a choke hoal, is
8:46
Speaker 2: it challenge for those who are depending But there are
8:49
Speaker 2: some reciprocal relationships.
8:51
Speaker 1: Yeah, I mean that's in a way part of the
8:53
Speaker 1: happy story of trade, right is it is an interdependent relationship, right,
8:57
Speaker 1: and China's like, oh, we're not sending the rarest to Japan. Now,
9:01
Speaker 1: Japan's not sending the components to us that we need
9:03
Speaker 1: to put into the finished product that we're going to export.
9:06
Speaker 1: So their leverage is limited perhaps in that way.
9:10
Speaker 2: Exactly, And that was the case in twenty ten. Now
9:14
Speaker 2: what's happened over time is that China has gotten really
9:18
Speaker 2: good at everything, so that they're making cars that Ford
9:24
Speaker 2: is saying is far stronger than the cars that we
9:27
Speaker 2: can make. So when you have a country that can
9:31
Speaker 2: produce end to end within its borders, that set of
9:36
Speaker 2: interdependencies where you have leverage becomes less so and so
9:42
Speaker 2: over those fifteen years from twenty ten when we were,
9:45
Speaker 2: you know, talking about Japan, China's ability to produce in
9:51
Speaker 2: areas that used to be Japan's strengths has now increased,
9:56
Speaker 2: and they're less reliant externally.
9:58
Speaker 1: And so therefore they can use rare earths more effectively
10:03
Speaker 1: as a choke point as a piece of leverage in
10:06
Speaker 1: their negotiations with certainly the US.
10:10
Speaker 2: They're more formidable partner than previously for sure.
10:15
Speaker 1: So you're in Japan and twenty ten you see this
10:20
Speaker 1: and is that what makes you decide to write this book?
10:23
Speaker 1: Like you were early, you were into rearsts before it
10:25
Speaker 1: was cool.
10:28
Speaker 3: I was in twenty ten.
10:30
Speaker 2: I had, you know, my career before that, I been
10:33
Speaker 2: in commodity trading, which is mostly oil, gas, coal, big
10:37
Speaker 2: ticket items. And then I had worked in the US
10:41
Speaker 2: government and working on international trade issues, and so everything
10:46
Speaker 2: kind of came together while I was in Japan, and
10:48
Speaker 2: I was fascinated that the economy of one country, or
10:53
Speaker 2: at least certain supply lines, could shut down because of
10:56
Speaker 2: materials that people never heard anything about.
11:00
Speaker 3: So I wanted to understand, is.
11:03
Speaker 2: The world is becoming more reliant on a green technologies
11:10
Speaker 2: and everyone starts to have a smartphone in their hands,
11:13
Speaker 2: reminding you back in twenty ten, not everyone had them
11:16
Speaker 2: and their technology you couldn't make now skype calls or
11:20
Speaker 2: video calls around the world, and so technology was going
11:24
Speaker 2: was spreading around, And the question is what happened when
11:27
Speaker 2: we become a high tech in green society. We're going
11:29
Speaker 2: to be dependent on materials that people have not thought
11:32
Speaker 2: much about, almost like the switch to internal combustion engines,
11:37
Speaker 2: reliant on oil and gas. And if we don't get
11:40
Speaker 2: the systems. Right, we're going to be in a situation
11:43
Speaker 2: where one country can really dictate because they're focused on
11:48
Speaker 2: the material supply. And lo and behold, the moment that
11:51
Speaker 2: I had anticipated when I started writing about these papers
11:54
Speaker 2: in twenty eleven twenty twelve has now arrived. And so
11:58
Speaker 2: we're stock thinking about, oh, no, how do we supply
12:02
Speaker 2: these materials? And in many cases we're already behind and
12:07
Speaker 2: we have to think differently than where are these material goes?
12:11
Speaker 1: So you write this book in twenty fifteen, not that
12:18
Speaker 1: much happens in the world.
12:19
Speaker 3: Right.
12:20
Speaker 1: I hope it was well received and people told you
12:22
Speaker 1: they liked it or whatever, But it's not like everybody
12:25
Speaker 1: in Congress is like, oh my god, we got to
12:27
Speaker 1: deal with this. Right. The sort of status quote seems
12:30
Speaker 1: to persist for a decade after you write the book.
12:33
Speaker 1: It seems like really until last year, until twenty twenty five.
12:37
Speaker 3: Right.
12:38
Speaker 1: There is again, as in twenty ten, there's this very
12:40
Speaker 1: specific moment, and that comes in April when President Trump
12:43
Speaker 1: announces these very high tariffs on China, and was it.
12:49
Speaker 1: The next day China's like, okay, if you're going to
12:51
Speaker 1: do that, we're not going to let you buy rare
12:54
Speaker 1: earth or the stuff made with rare earth? Is that
12:55
Speaker 1: about what happened? And then we're like, oh my god,
12:57
Speaker 1: that's very that's a very good comeback China.
13:02
Speaker 2: That's what's happening at the high visible level. Yeah, I
13:06
Speaker 2: think you had something back in twenty twenty that got
13:09
Speaker 2: people more interested and where the stuff come from, and
13:13
Speaker 2: that's COVID And so at that time people were concerned
13:17
Speaker 2: about masks. And then people were realizing it takes a
13:20
Speaker 2: while to get material or things to the United States,
13:25
Speaker 2: and if there is a challenge, then what do we do?
13:28
Speaker 3: And there was a boat stuck in a canal.
13:30
Speaker 1: At one point, people talked more generally about just in
13:34
Speaker 1: time delivery and lean manufacturing. Right, this idea that you're
13:38
Speaker 1: so optimized you don't have any inventory on hand, that
13:41
Speaker 1: that can be more costly than it appears when there's
13:44
Speaker 1: any kind of disruption. Right, So people started thinking differently,
13:47
Speaker 1: perhaps about about supply chains at that time.
13:51
Speaker 2: And so there was there was started to be some
13:54
Speaker 2: smarter people who were connecting the dots. So back in
13:57
Speaker 2: if I go back to twenty eighteen Congress, I was
14:00
Speaker 2: invited to speak in Congress three times on this subject.
14:04
Speaker 2: On a wide variety of minerals. There just weren't people
14:08
Speaker 2: focused in that. But starting in twenty twenty, that's when
14:12
Speaker 2: there were smart people starting to get involved in some way,
14:16
Speaker 2: identifying this as a challenge. And at that time I
14:18
Speaker 2: had been in the space for ten years and talking
14:21
Speaker 2: about it, and I was like, I was wondering what was.
14:24
Speaker 3: Where it was going to go.
14:26
Speaker 2: But though some of those initiatives started to bear fruit,
14:29
Speaker 2: there are a number of you know, smart people who've
14:31
Speaker 2: been in the space since that time, and so there
14:36
Speaker 2: were starting to be questions asked, you know, where are
14:38
Speaker 2: we getting our critical minerals?
14:39
Speaker 3: Where are where it is coming from?
14:41
Speaker 2: And you're right that the real public display of oh
14:46
Speaker 2: no rare earth was when we started a trade war
14:52
Speaker 2: that we may have not fully appreciated the ramifications and
14:58
Speaker 2: the connections that we might have sparked.
15:02
Speaker 1: So what was it like for you that there was
15:05
Speaker 1: just one day last April when China said they were
15:10
Speaker 1: going to limit our access to rare earths and things
15:13
Speaker 1: made with rare earths in retaliation for the high tariffs
15:17
Speaker 1: that President Trump had suggested, Like, what was your day
15:21
Speaker 1: like that day?
15:22
Speaker 2: My first thought was, this is not good. Yes, and
15:27
Speaker 2: that there becomes this confidence that we have in the
15:31
Speaker 2: US that we can do things fast. And my concern was,
15:36
Speaker 2: we're going to have this confidence that we can do
15:39
Speaker 2: things fast in this space.
15:41
Speaker 3: And my day was.
15:43
Speaker 2: Trying to explain to people what these materials were and
15:46
Speaker 2: why they were important, because I don't think people fully
15:51
Speaker 2: understand that, and I don't think people fully understand that.
15:55
Speaker 3: Today that.
15:58
Speaker 2: What we are good at is the development of technology,
16:02
Speaker 2: the development of AI. What we are not good at
16:06
Speaker 2: is the fastening of mineral to metals or powarders and
16:11
Speaker 2: then turning that into a product.
16:15
Speaker 1: I was reading your book, I thought of what does
16:20
Speaker 1: it say on the back of the iPhone? Is it
16:21
Speaker 1: designed in California? Made in China?
16:24
Speaker 3: Yeah.
16:24
Speaker 2: What's fascinated about Apple right now is there a lot
16:26
Speaker 2: of companies that in the US are in production and
16:29
Speaker 2: they're concerned about supplies of.
16:32
Speaker 3: Rare earth.
16:33
Speaker 2: Apple faces no such restrictions because they're producing in China.
16:39
Speaker 2: So there's what we have understand is that there's In
16:42
Speaker 2: twenty eleven, if we flashed back when Japan didn't have
16:46
Speaker 2: access to rare earth, two things happened. One people in
16:51
Speaker 2: Japan said, how do we make products without these rare earths,
16:54
Speaker 2: which makes sense, but counterintuitively, a lot of Japanese companies
16:57
Speaker 2: went into China because they said, we got to be
17:01
Speaker 2: where the materials are.
17:02
Speaker 3: Right.
17:03
Speaker 1: If there's an export restriction, one way of getting around
17:06
Speaker 1: it is move the factory to the country where the
17:09
Speaker 1: stuff is to begin with. Right.
17:11
Speaker 2: So that I mean, that's a complete solution that we have.
17:15
Speaker 2: We can bank our economy that China will continue to
17:19
Speaker 2: export products to us that we can label as you know,
17:23
Speaker 2: apple or whatever, but we're totally reliant on them for
17:27
Speaker 2: the production.
17:28
Speaker 1: So what is the state of play now with respect
17:31
Speaker 1: to China and the US and rare earths.
17:35
Speaker 2: So China has over the past year put on a
17:40
Speaker 2: number of restrictions. They put on some licensing restrictions, and
17:45
Speaker 2: then the government later in the year basically said, hey, we're.
17:49
Speaker 3: Going to start to ask for.
17:52
Speaker 2: An application for any rare earth that is mined in
17:56
Speaker 2: our country or is using our technology. And what we've
17:59
Speaker 2: noticed is there are two things. One is it's important
18:03
Speaker 2: to separate the material in the products. So the material
18:05
Speaker 2: is a rare earth powder. The product is a magnet
18:09
Speaker 2: that goes into a motor. And what we've seen is
18:12
Speaker 2: that China has allowed the export of magnets, which goes
18:16
Speaker 2: into motors, but has been less willing to export the materials.
18:23
Speaker 2: And that's important because what the administration elsewhere wants to
18:27
Speaker 2: do is to develop the industries that rely on the materials,
18:30
Speaker 2: and those aren't coming out.
18:31
Speaker 1: The strategy from China's point of view is, yes, you
18:34
Speaker 1: can buy the magnets that you need, but you cannot
18:37
Speaker 1: buy the raw materials. And the reason they are doing
18:41
Speaker 1: that is because they don't want us to develop the
18:44
Speaker 1: industry to build the magnets. They want to keep a
18:46
Speaker 1: lock on that. Is that the inference they.
18:49
Speaker 2: Have said from twenty ten since when I'm in this space,
18:54
Speaker 2: we want to use Chinese resources for Chinese products. Why
18:57
Speaker 2: should we go through the environmental challenges? Why do we
19:01
Speaker 2: have to do anything just to export that so another
19:04
Speaker 2: country can benefit.
19:05
Speaker 1: Yeah, I mean that's the classic kind of mercantilist thing, right,
19:09
Speaker 1: like why should we cut down trees in New England
19:13
Speaker 1: just to send them to England to be made into ships? Right?
19:16
Speaker 2: Yes, So it's an argument that's been used from the US,
19:19
Speaker 2: from the natural gas industries through through lumber.
19:23
Speaker 3: It's it's not uncommon.
19:25
Speaker 1: Yeah, and just to be clear, this this dispute and
19:29
Speaker 1: what China has done with rarest over the past year, like,
19:32
Speaker 1: has it had a clear effect on for manufacturers? I
19:38
Speaker 1: mean in military domains elsewhere is there stuff that is
19:40
Speaker 1: not being made now or that is more expensive now,
19:43
Speaker 1: or that is performing worse now because of this trade
19:46
Speaker 1: dispute and China's kind of use of rare earths.
19:49
Speaker 3: People are scrambling for material.
19:50
Speaker 2: They're paying higher prices for material, so they don't Yes,
19:55
Speaker 2: there are supply lines that get slowed down. It's not
19:58
Speaker 2: like companies really want to come come out and say, hey,
20:03
Speaker 2: you know we're not going to make X, Y or
20:05
Speaker 2: Z because of we're not able to get the material
20:09
Speaker 2: necessarily want to, but you do hear leaders of automobile
20:14
Speaker 2: manufacturers saying, hey, we're not being able to produce. And
20:16
Speaker 2: it's not just here India, Japan. There are a number
20:21
Speaker 2: of places where the material is not getting out. And
20:24
Speaker 2: so what the challenge is is we don't fully appreciate
20:27
Speaker 2: is that that material that we need in the US
20:31
Speaker 2: is turned into a magna that's then sent to the US.
20:36
Speaker 2: We don't always get the raw material. So whether the
20:39
Speaker 2: US is restricted or Japan is restricted, our supply lines
20:43
Speaker 2: are impacted, and so there's too much of a focus.
20:47
Speaker 2: What I feel is like, oh, well, the US has
20:49
Speaker 2: to do X, Y or Z. The US has to
20:52
Speaker 2: make sure material can get that it's necessary for manufacturers
20:56
Speaker 2: to get to this economy to get to the country,
20:58
Speaker 2: But it does not matter how it gets to US
21:01
Speaker 2: as long as it does.
21:03
Speaker 1: So I mean, so does that mean it's not like
21:06
Speaker 1: the US has to have an end to end domestic
21:09
Speaker 1: economy where you go from rare earth in the ground
21:11
Speaker 1: to whatever the finished product is. We just need to
21:13
Speaker 1: have reliably good relationships with a set of countries where
21:17
Speaker 1: all those things happen. Like is the short version. All
21:20
Speaker 1: those things need to be able to happen without China.
21:24
Speaker 2: All those things need to be able to happen with
21:26
Speaker 2: the reliable system. Let me take the oil market. Now, yes,
21:31
Speaker 2: we don't need to produce all of the oil for
21:34
Speaker 2: the US economy, but what we need to do is
21:36
Speaker 2: to produce enough so that we're not reliant or beholden
21:40
Speaker 2: on one country to squeeze the market. And that's the
21:45
Speaker 2: same with most commodities. You don't have to be to
21:49
Speaker 2: be able to produce everything that you need. You just
21:52
Speaker 2: have to be able to make sure that the economy
21:54
Speaker 2: can get what it needs. And so Japan's in a
21:58
Speaker 2: situation where they're never going to be able to mine
22:00
Speaker 2: themselves to self sufficiency because they don't have the resources.
22:04
Speaker 2: So they have to work with other partners and that works,
22:09
Speaker 2: But reliant on yourself is an expensive proposition. What we
22:14
Speaker 2: haven't talked about, and I think what is There's this
22:17
Speaker 2: preconceived notion is that, oh, if we produce it in
22:20
Speaker 2: the US, then it's going to be cost competitive. And
22:23
Speaker 2: the answer to that is no, it's not going to
22:25
Speaker 2: be cost competitive. So we're our situation right now is
22:29
Speaker 2: we're trying to make rare earth in this country that
22:34
Speaker 2: are going to be more expensive than what can come
22:37
Speaker 2: out of China.
22:41
Speaker 1: We'll be back in just a minute. Hey, it's Jacob
22:51
Speaker 1: and I want to tell you that I am hosting
22:53
Speaker 1: a new show called Business History. It's about the incredible
22:57
Speaker 1: innovations and massive failures and unbelievable characters in the history
23:01
Speaker 1: of business, and I hope I think the show provides
23:05
Speaker 1: insights about how business works today. At the end of
23:08
Speaker 1: today's episode of What's Your Problem, we're going to play
23:11
Speaker 1: you a clip from Business History. It's the story behind
23:14
Speaker 1: the video game company Atari and they're surprising early hire
23:18
Speaker 1: of a young hippie named Steve Jobs. The show's called
23:21
Speaker 1: Business History. You can listen to it wherever you're listening
23:23
Speaker 1: right now, and we'll play that clip at the end
23:26
Speaker 1: of today's episode. What is the key choke point? Is
23:32
Speaker 1: it magnets? Like what percent of the of the these
23:35
Speaker 1: kind of special magnets are produced in China? Now?
23:38
Speaker 2: The challenge, so you've got more than eighty ninety percent,
23:41
Speaker 2: So the challenge is is not like this is a
23:44
Speaker 2: one this is one magnet. Yeah, it's that there's such
23:48
Speaker 2: a diversity of magnets and to be able to meet
23:52
Speaker 2: the spec of individual.
23:56
Speaker 3: Producers is the real challenge.
23:59
Speaker 2: And so that you can produce the US could need
24:03
Speaker 2: two thousand times, they could produce three thousand times, and
24:06
Speaker 2: it's still not meet the needs right because you're not
24:10
Speaker 2: producing at the right spec the right consistency. So it's
24:13
Speaker 2: not that's the real issue, because you don't want that
24:19
Speaker 2: missile to fail because the magnet got too hot and
24:25
Speaker 2: it was and all of a sudden, the missile is
24:26
Speaker 2: not going to its attendant target. That's the challenge.
24:30
Speaker 1: And you've also talked about the human capital piece, the
24:34
Speaker 1: sort of education knowledge industrial knowledge piece. It seems like
24:38
Speaker 1: that is one where China is in good shape and
24:42
Speaker 1: the US is in bad shape.
24:43
Speaker 3: Frankly, so, when.
24:46
Speaker 2: I was in some small cities in China, you know,
24:51
Speaker 2: three hundred thousand, a million, there would be these conferences
24:55
Speaker 2: discussing rare earths. And I would go into an event,
24:58
Speaker 2: and I was there. There are a few foreigners and
25:01
Speaker 2: then a thousand, fifteen hundred people in the industry, academics,
25:07
Speaker 2: industry officials, people who worked in the companies, and they're
25:11
Speaker 2: toiling in rare earths every day. Some are refining, some
25:14
Speaker 2: are producing, they're figuring out how to commercialize products. Back
25:19
Speaker 2: in twenty thirteen, we could not have a conference of
25:24
Speaker 2: that size. There would be ten fifteen people there. Max
25:28
Speaker 2: there weren't. There wasn't the industry there.
25:31
Speaker 1: I mean, even on a more general level, you've compared
25:34
Speaker 1: the number of universities in China focused on mining and
25:40
Speaker 1: refining with the number even of students in the US
25:44
Speaker 1: studying it.
25:45
Speaker 2: Right, they're just a handful of people, a handful of
25:50
Speaker 2: universities in the US studying and they're just starting up,
25:53
Speaker 2: many of them. I mean, we just don't have you
25:56
Speaker 2: didn't have the interest in mining, and you didn't have
26:00
Speaker 2: the studies because we stopped. It's something we stopped doing
26:02
Speaker 2: twenty years ago. So I've been a missing generation. And
26:05
Speaker 2: in China that's when they just started. And so you
26:11
Speaker 2: when you don't have the industry, you lose the capacity
26:15
Speaker 2: to innovate because you just have to get to the
26:17
Speaker 2: basics right. And we might have some We definitely have
26:22
Speaker 2: some incredibly smart people who are learning, but it's all
26:25
Speaker 2: of a sudden taking you know, amazing basketball players and saying, hey,
26:29
Speaker 2: you know what, it's time to play cricket. There's going
26:31
Speaker 2: to be some learning that has to get done and
26:34
Speaker 2: that's going to take time.
26:36
Speaker 1: So setting aside what you think we should do, like
26:39
Speaker 1: not the normative, Like what do you think is going
26:42
Speaker 1: to happen in the US and in the you know,
26:44
Speaker 1: world beyond China, what do you think it's going to
26:47
Speaker 1: look like? And I don't know what five years, ten years.
26:49
Speaker 1: With respect to rare earths.
26:53
Speaker 2: The question is is what gets rolled? You know, what
26:56
Speaker 2: are a country is going to be able to do
26:57
Speaker 2: or are they going to be able to focus on and
26:59
Speaker 2: what are they willing to do? Yeah, because the US
27:04
Speaker 2: it seems to have you know, four different options that
27:07
Speaker 2: are things that it could do.
27:09
Speaker 3: We continue doing what we're doing.
27:11
Speaker 2: We pick a few national champions, just like Japan realized
27:15
Speaker 2: back in twenty ten twenty eleven, we realized, Wow, this
27:18
Speaker 2: is really hard. We're not going to solve the problem.
27:20
Speaker 2: We still rely on China. Number Two, there's a big
27:24
Speaker 2: deal with China. All of a sudden, just like the
27:28
Speaker 2: nineteen eighties when we allowed Japan and Korea to come
27:31
Speaker 2: over with car manufacturers, we say, hey, we're never going
27:34
Speaker 2: to catch up with China, and China can invest in
27:37
Speaker 2: our country and let's do some big, happy day deal
27:40
Speaker 2: with China. Number Three, we get serious and realize that
27:45
Speaker 2: we need to focus on an entire supply line, that
27:48
Speaker 2: we need to focus on creating an ev market, that
27:52
Speaker 2: we need to start to create demand, and we realize
27:56
Speaker 2: that it's going to take five or ten years for
27:58
Speaker 2: us to be able to start competing more regularly with
28:01
Speaker 2: the current level of China. Or four, we spend ridiculous
28:06
Speaker 2: amounts of money, billions and billions of dollars. Yeah, without
28:12
Speaker 2: a strategy that will enable us to declare victory because
28:18
Speaker 2: we're spending on production of materials that will be stockpiled,
28:23
Speaker 2: that will be warehoused, that won't have a market because
28:27
Speaker 2: we focus so much on producing these minerals. But we're
28:32
Speaker 2: not Our defense system isn't stronger, our industrial base is smaller.
28:38
Speaker 1: So clearly, from the way you frame those options, you
28:41
Speaker 1: think option three is what the US should do. Right,
28:45
Speaker 1: don't start by thinking about rare earths, but start with
28:48
Speaker 1: what we want to produce in this country. And you
28:51
Speaker 1: say that that's eves electric vehicles, And I'm curious, why,
28:55
Speaker 1: why is it that you think we should build our
28:58
Speaker 1: rare earth strategy around electric vehicles.
29:02
Speaker 2: I'd argue it's the key to most of our industrial
29:06
Speaker 2: strength in the future. Is it's because it's the largest
29:12
Speaker 2: consumer of battery materials, it's the largest consumer of magnet materials.
29:18
Speaker 2: So we want a great robotics industry. We need a
29:23
Speaker 2: dynamic battery industry, we need a dynamic magnet industry. We
29:29
Speaker 2: want to have drones great same thing. So if you
29:33
Speaker 2: don't have the base industry, then you're undermining all the
29:37
Speaker 2: other industries or you're making them reliant on innovation in
29:41
Speaker 2: countries that you can trade with. And that is why
29:46
Speaker 2: evs are so critical, and you can say you can say,
29:51
Speaker 2: all right, well we need them to because they are
29:54
Speaker 2: a green.
29:56
Speaker 3: Product and we need to save the planet. Great.
30:01
Speaker 2: I think there's a reasonable argument to put it mildly there,
30:06
Speaker 2: But I would argue that we need a strong defense.
30:10
Speaker 2: You want to have a strong robotics industry, you need evs,
30:12
Speaker 2: otherwise you're creating niche industries. It's the same thing we
30:17
Speaker 2: complain about Department of Defense banking ten thousand dollars for
30:19
Speaker 2: a screw. They need a specialty screw. So what we
30:23
Speaker 2: need to do is make these materials, make the batteries,
30:26
Speaker 2: make the magnets, tournament the commodities so that they're coming
30:30
Speaker 2: out and they're produced at a cheap rate within this country.
30:33
Speaker 3: So we've got a dynamic system.
30:35
Speaker 1: Do you think that's going to happen?
30:39
Speaker 3: I would like that to happen.
30:41
Speaker 1: Doesn't feel likely to me.
30:43
Speaker 2: I feel there's an overrating sense in that American ingenuity
30:48
Speaker 2: can turn around and produce materials that we can all
30:52
Speaker 2: of a sudden jump ahead, as if country that all
30:56
Speaker 2: of a sudden decided not to put in landlines and
30:59
Speaker 2: when to a fully mobile back in twenty ten, They're like, oh, well,
31:02
Speaker 2: we can just jump ahead.
31:02
Speaker 3: We don't need to invest in all of those.
31:05
Speaker 2: All those was wasteful phone lines. It this is hard science.
31:12
Speaker 3: This is where you're you're you're you're.
31:14
Speaker 2: Mixing acids and heats, and we need to focus on
31:18
Speaker 2: building those people so that we can have more breakthroughs
31:22
Speaker 2: because China is not sitting back. This is something that's
31:24
Speaker 2: constantly innovating and China, Japan, all of these countries are
31:28
Speaker 2: figuring out how can we make a better product, and
31:32
Speaker 2: we're we don't have that fighting force in the material
31:36
Speaker 2: world that we once have.
31:42
Speaker 1: We'll be back in a minute with the Lightning Ground.
31:56
Speaker 1: We are going to finish with the Lightning Ground. I
32:00
Speaker 1: want to talk to you about your other job besides
32:03
Speaker 1: the rare Earth experts. You run a company called Outposts.
32:09
Speaker 1: You were the founder and CEO of Outpost, which.
32:12
Speaker 3: Is my way for founder and CEO.
32:14
Speaker 2: Back in twenty fifteen, when the book was coming out,
32:16
Speaker 2: I was living in Bali.
32:18
Speaker 3: And seeing that people were starting to work remotely.
32:21
Speaker 2: So my partner and I set up a network of
32:25
Speaker 2: properties that allowed people to work remotely. It was the
32:29
Speaker 2: dawn of the digital nomad Era and that was our focus.
32:33
Speaker 1: Are you still do you still run that company?
32:36
Speaker 2: I still run that company on a day to day
32:39
Speaker 2: not like I did.
32:41
Speaker 1: So is it right? There's two places in Bali and
32:46
Speaker 1: one in Sri Lanka that the company owns runs correct.
32:50
Speaker 3: Those are our brand and properties. Correct.
32:53
Speaker 1: And like people typically from Europe in the US who
32:58
Speaker 1: are traveling around the world working on their laptops, pay
33:00
Speaker 1: to live and work there is that basically the idea.
33:03
Speaker 2: Well, when we started in twenty fifteen, people were coders, marketers,
33:08
Speaker 2: people who could be away from others, people who have
33:11
Speaker 2: their own businesses. And then what we've seen since since
33:14
Speaker 2: COVID is a more professional set. So it could be
33:18
Speaker 2: anyone who's who's working remotely. You never know where someone
33:22
Speaker 2: is behind their screen. And so we've seen this this
33:25
Speaker 2: this change and what used to be dominated by the
33:28
Speaker 2: US the UK, all of a sudden, more people started
33:33
Speaker 2: to travel. You saw people from Mexico, Brazil, Russia, you know,
33:39
Speaker 2: elsewhere starting to fill up the spaces. And so what
33:42
Speaker 2: we've seen is a general trend that's changed.
33:46
Speaker 1: And so just very basically what is the business Just
33:48
Speaker 1: so just so it's clear.
33:50
Speaker 2: We provide spaces for people to live, work and connect
33:54
Speaker 2: with others, and the places they go.
33:56
Speaker 3: Companies call outpost.
33:58
Speaker 1: And what do what do people not understand about life
34:02
Speaker 1: as a digital nomad.
34:05
Speaker 2: That when you can have everything that you think you want,
34:10
Speaker 2: you can have cheap food, you can meet people all
34:12
Speaker 2: the time, there's always something stimulating about being in a
34:15
Speaker 2: foreign country. That alone isn't going to give you the
34:19
Speaker 2: direction you need for your life. It's not going to
34:22
Speaker 2: make you continuously happy. It's the connections that you get
34:26
Speaker 2: along the way and being able to be able to
34:30
Speaker 2: build something that you're proud of, whether they're friendships or
34:34
Speaker 2: family relationships or businesses. It's the impact you have on others,
34:38
Speaker 2: not the freedom and the self improvement that you have
34:42
Speaker 2: by being outside of your own culture.
34:45
Speaker 1: So you're saying being a digital nomad is not as
34:47
Speaker 1: fun as it looks on Instagram.
34:50
Speaker 2: It is as fun as it looks on Instagram, and
34:52
Speaker 2: in some cases more fun. But a lifestyle where you're
34:55
Speaker 2: uninhibited and you're not building, and you're just soaking up
34:59
Speaker 2: services over time, there's less meaning there. So it's a
35:05
Speaker 2: great way to spend time. Don't get me wrong saying, hey,
35:10
Speaker 2: don't spend the lifestyle. But if you're spending three four
35:13
Speaker 2: years and you're not building along the way, then you've
35:16
Speaker 2: kind of looked back and you and your pause. But
35:20
Speaker 2: for periods of time, it's a wonderful experience. You can
35:23
Speaker 2: get out of your shell. You can be challenged by
35:27
Speaker 2: things that you didn't you know, by the by the language,
35:29
Speaker 2: by the food, by the situations that you would find
35:33
Speaker 2: yourself in that you wouldn't be in your own country.
35:35
Speaker 2: And it gives you a chance to reflect on some
35:37
Speaker 2: of the certitudes that you There are certain things that
35:40
Speaker 2: you believed or core beliefs because you lived a certain
35:43
Speaker 2: way that you.
35:44
Speaker 3: Wouldn't be challenged until you're in a different country.
35:46
Speaker 2: And so as someone who's lived overseas for a long,
35:49
Speaker 2: long period of time, and that's what I love about that.
35:52
Speaker 1: Yeah, although I mean, I guess it depends. It seems
35:56
Speaker 1: like if you go and live somewhere with a bunch
35:58
Speaker 1: of other digital nomads, there is less of that than
36:02
Speaker 1: if you're like going and staying with the family of
36:04
Speaker 1: you know, people who live there are just going and
36:06
Speaker 1: living in an apartment and hanging out with people who
36:08
Speaker 1: live there. Right, It's seems like living in a Digital
36:12
Speaker 1: Nomad House would reduce the foreignness of the situation.
36:18
Speaker 3: It does, It does. There's what I would say is.
36:21
Speaker 2: That you want to be able to mix them both
36:23
Speaker 2: because you need that system and that routine, and especially
36:26
Speaker 2: when you're in a foreign country, everything is new, so
36:30
Speaker 2: you're going to forget your nine to five and when
36:33
Speaker 2: you're having a job, you have.
36:35
Speaker 3: To continue that routine.
36:37
Speaker 2: So the spaces that we offer give that routine to
36:41
Speaker 2: people and that consistency and that they're meeting other people
36:44
Speaker 2: so they feel comfortable where they are. And then from there,
36:47
Speaker 2: my hope is that people branch out and start to
36:49
Speaker 2: really get absorbed because there's too much and increasingly too
36:54
Speaker 2: much similarities. And everywhere we go you can get your
36:58
Speaker 2: Starbucks and you start to see the culture of the US,
37:02
Speaker 2: whether it's tipping.
37:04
Speaker 3: Or the service culture. It starts to spread out.
37:08
Speaker 2: And when we you're using the same online travel agents,
37:12
Speaker 2: so you have the same experiences in other places and
37:15
Speaker 2: you think everything is the same. You really have to
37:18
Speaker 2: break out and start meeting people, start learning a language,
37:21
Speaker 2: start going outside the realm, and I think that's when
37:23
Speaker 2: you start to get rewarded.
37:26
Speaker 1: Thank you for your time.
37:28
Speaker 3: I appreciate it, thank you very much.
37:37
Speaker 1: David Abraham is the author of the book The Elements
37:40
Speaker 1: of Power. It's also the founder and CEO of Outpost.
37:45
Speaker 1: Today's show was produced by Gabriel Hunter Cheng. It was
37:48
Speaker 1: edited by Lyddy Jean Kott and engineered by Sarah Brungeer.
37:52
Speaker 1: You can email us at Problem at Pushkin dot FM.
37:56
Speaker 1: I'm Jacob Goldstein and we'll be back next week with
37:58
Speaker 1: another episode of What's Your Problem. I'm Jacob Goldstein, and
38:07
Speaker 1: right now we're going to a clip of a new
38:10
Speaker 1: show that I co host. The show's called Business History.
38:14
Speaker 1: My co host is Robert Smith, and this clip is
38:16
Speaker 1: from an episode we did about how Nolan Bushnell, a
38:20
Speaker 1: stoner turned entrepreneur, created the video game company Atari and
38:25
Speaker 1: hired a young, inexperienced Steve Jobs. I really hope you
38:29
Speaker 1: like the clip, and if you want to hear more,
38:31
Speaker 1: you can find Business History wherever you're listening to this
38:34
Speaker 1: show right now, this like nineteen year old hippie kid
38:39
Speaker 1: walks in and he says he won't leave until they
38:42
Speaker 1: give him a job, and the receptionist calls the head
38:45
Speaker 1: engineer and she goes, yeah, we got a hippie kid.
38:48
Speaker 1: In the lobby says he won't leave until we hire him.
38:50
Speaker 1: Should we call the cops or let him in? And
38:53
Speaker 1: the engineer says.
38:54
Speaker 3: Bring him on in.
38:55
Speaker 4: It's nineteen seventy's a Silicon valley, and this guy wanders
38:59
Speaker 4: in and he is whenever you tell a story like this,
39:02
Speaker 4: you know who it is.
39:02
Speaker 1: It's Steve Jobs. It's Steve Job. So fun, it's so
39:05
Speaker 1: delightful and perfectly. Steve Jobs is very good at his job, yes,
39:12
Speaker 1: and very unpleasant to wrqu On. Surprising. He tells Bushnell
39:17
Speaker 1: that like everybody's soldering wrong, right, they're actually putting together
39:19
Speaker 1: the hardware, sladering the hardware. He's probably right, and bush
39:22
Speaker 1: Nell's like, yeah, he was right. He keeps calling his
39:24
Speaker 1: manager a dumb shit. Probably was not kind, not necessary.
39:28
Speaker 1: Bushell winds up putting Jobs on the night shift, partly
39:32
Speaker 1: so he won't bother so many people, and partly because
39:36
Speaker 1: he knew that Jobs like to hang out at night
39:38
Speaker 1: with his buddy Steve Wozniak, who was a great engineer,
39:42
Speaker 1: would be great to have hanging around atari And in fact,
39:45
Speaker 1: Jobs and Wozniak helped to make Breakout a great a target.
39:49
Speaker 1: Remember breaking Out of.
39:50
Speaker 4: Course you're trying to knock down the bricks in a wall.
39:53
Speaker 1: Still games like that, you got a little paddle at
39:55
Speaker 1: the bottom end. There's a moment when it goes through
39:56
Speaker 1: the wall and then goes so good. So Jobs worked
40:02
Speaker 1: at Atari for a little while and then decided he
40:04
Speaker 1: wanted to go off to India to find his guru.
40:07
Speaker 1: Perfect asked Atari to pay for the trip. Nobody ever
40:10
Speaker 1: said he lacked moxie and wound up making a deal
40:14
Speaker 1: with Atari where they pay him to go part of
40:16
Speaker 1: the way there. They had exported some games to Germany
40:19
Speaker 1: and there was some kind of problem with the games
40:20
Speaker 1: in Germany, and they're like, we'll send you to Germany
40:23
Speaker 1: to fix the games and then you can get the
40:25
Speaker 1: rest of the way to India. And you know, the
40:27
Speaker 1: Germans said Jobs was terrible to work with, but he
40:30
Speaker 1: fixed the games. I was thinking about like the link
40:33
Speaker 1: between Atarian Jobs and what did he learn there, and
40:35
Speaker 1: it felt like maybe a little overdetermined, but I do think,
40:38
Speaker 1: you know, clearly he had this profound sense of aesthetics
40:42
Speaker 1: and of delight, right, like think of the Macintosh, right,
40:45
Speaker 1: this breakthrough Apple machine in the eighties. It was round
40:49
Speaker 1: and instead of squares. It was rounded, and it cost
40:51
Speaker 1: them more money, but it was beautiful and it was
40:53
Speaker 1: fun and you were engaged with it like a game.
40:56
Speaker 4: It almost looked a little bit like an arcade game
40:58
Speaker 4: with the curves. Yeah, but more than that, I think
41:01
Speaker 4: that especially at Silicon Valley at the time when they
41:03
Speaker 4: were dealing in actual silicon Right, if you're making chips
41:06
Speaker 4: for somebody, you're thinking about the future and the computers.
41:09
Speaker 4: You're not thinking about the psychology of the customer, because
41:12
Speaker 4: the customer was another electronics company, right, And so Atari
41:16
Speaker 4: and the strength of it was really the first time
41:18
Speaker 4: where they're just like, how will a regular human being
41:21
Speaker 4: who has no training whatsoever interact with technology?
41:25
Speaker 1: Yeah? So Atari now mid seventies, they're selling all the
41:31
Speaker 1: machines they can make. They need more space, and so
41:34
Speaker 1: they rent an abandoned roller rink and they turn it
41:37
Speaker 1: into this office slash video game factory. I've been ten
41:41
Speaker 1: years older.
41:42
Speaker 4: I would have loved to have worked in a roller
41:44
Speaker 4: rink video game factory.
41:45
Speaker 1: Yes, everybody smoked weed. Yeah, there was a hot tub.
41:50
Speaker 1: There was a pool party where everybody ended up naked
41:52
Speaker 1: in the pool at Bushnell himself looked back on it
41:56
Speaker 1: later and said if that isn't a horror show for
41:59
Speaker 1: any HR person today, I don't know what is