China’s New Choke Point: Why Rare Earth Technology is the Real Economic Weapon

In the high-stakes chess game of global economics, a new move from Beijing has sent ripples across the stock market, boardrooms, and government halls. China recently announced new export curbs related to rare earth elements (REEs), the little-known but indispensable ingredients powering everything from your smartphone to the F-35 fighter jet. The knee-jerk reaction has been one of alarm, with headlines forecasting a resource war and a potential stranglehold on the world’s supply of these critical minerals.

However, focusing solely on the supply of raw materials misses the forest for the trees. The true strategic threat isn’t about China hoarding rocks; it’s about Beijing weaponizing its near-monopoly on the complex technology required to transform those rocks into high-performance components. This is a far more sophisticated and sustainable form of economic leverage.

As we unpack this geopolitical maneuver, we’ll also look at a different kind of market drama—the story of EV startup Mullen Automotive. It serves as a potent case study in speculative investing, reminding us that in the world of finance, understanding the fundamentals is just as critical as tracking global power plays.

The Great Misconception: It’s Not About the Mine

When people talk about rare earths, the conversation often begins and ends with mining. While China is a major producer of raw REEs, its true dominance lies further down the value chain. Mining the ore is just the first, and arguably least profitable, step. The real magic—and the real choke point—is in the highly complex and environmentally challenging processes of separating, refining, and processing these elements into usable metals and, ultimately, into powerful permanent magnets.

Consider the case of MP Materials, the largest rare earth producer in the Western Hemisphere. The company proudly mines rare earths at its Mountain Pass facility in California. Yet, for years, where did it send its concentrated ore for the crucial next steps? You guessed it: China. This dependency highlights a critical vulnerability in the Western supply chain. We can dig it up, but we’ve largely lost the industrial capacity and technical know-how to finish the job.

To put China’s dominance into perspective, let’s look at its share of the global market at each stage of the process.

This table illustrates the core issue. While other countries can and do mine rare earths, nearly all roads lead to China for the processing that turns them into the high-strength magnets essential for electric vehicles, wind turbines, and advanced defense systems. This is the industrial high ground that Beijing is determined to defend.

Weaponizing Know-How: The Real Goal of China’s Curbs

China’s new export controls are not a blanket ban on the minerals themselves. Instead, they are surgically precise, targeting the export of technologies for:

• Extracting and separating rare earths.
• Processing and smelting rare earth metals.
• Manufacturing high-performance magnets, specifically neodymium-iron-boron (NdFeB) and samarium-cobalt (SmCo) magnets.

This is a masterstroke of economic statecraft. A full embargo on REEs would cause prices to skyrocket, which would ironically make unprofitable Western mining and processing projects suddenly very attractive to investors. It would accelerate the very outcome China wants to avoid: the creation of a robust, independent, non-Chinese supply chain. By restricting the export of technology and expertise, Beijing achieves a more subtle and effective goal. It significantly raises the cost, timeline, and technical difficulty for the US, Europe, and their allies to rebuild their domestic processing capabilities. It’s a strategy designed to slow the competition, not stop the game entirely.

This move should be seen in the broader context of the escalating US-China tech rivalry. It is a direct, tit-for-tat response to Washington’s efforts to restrict China’s access to advanced semiconductor technology. Just as the US identified a choke point in China’s technological ambitions (high-end chips), China has identified a critical vulnerability in the West’s green energy and defense sectors. This is a clear signal that in modern economics and geopolitics, the real power lies not just in controlling resources, but in controlling the intellectual property and industrial processes that make them valuable.

From Geopolitical Tensions to Market Speculation: The Case of Mullen

While governments grapple with supply chains, a very different kind of drama unfolds daily on the stock market. Shifting our focus from the macro to the micro, let’s examine Mullen Automotive (MULN), an electric vehicle startup that has become a poster child for speculative retail trading.

Mullen’s story is less about technological prowess and more about financial engineering. The company has become notorious for its use of what the Financial Times terms “financiers of last resort.” This often involves toxic financing deals, such as convertible notes and warrants, which provide desperate companies with cash but lead to massive shareholder dilution. As these notes are converted into shares, a flood of new stock hits the market, cratering the price.

To combat the collapsing share price and avoid being delisted from the Nasdaq, Mullen has repeatedly resorted to reverse stock splits. This is a cosmetic move where a company reduces its number of outstanding shares to artificially boost the price per share, but it does nothing to change the underlying value of the company. For Mullen, this has been a recurring theme.

Let’s look at the brutal mathematics of dilution and reverse splits for a hypothetical long-term investor.

As the table shows, an investor who held 22,500 shares before these splits would be left with a single share. The value destruction is staggering. This cycle of raising cash through dilutive financing, followed by a reverse split to maintain a Nasdaq listing, has become the company’s primary business model, overshadowing its actual progress in producing and selling vehicles.

Mullen’s saga is a crucial lesson in modern investing and the power of narrative over numbers. Fueled by hype on social media platforms, it became a “meme stock,” attracting traders drawn to its volatility and promises of a short squeeze. However, for long-term investors, the story is a cautionary tale about the importance of scrutinizing a company’s financials, understanding its capital structure, and looking past ambitious press releases to see the hard reality of its business operations.

Conclusion: Navigating a Complex Financial World

The parallel stories of China’s rare earth strategy and Mullen Automotive’s market performance offer two vital insights for anyone involved in finance, trading, or business leadership. First, the global economy is increasingly being shaped by geopolitical competition over technological dominance, not just resource control. The choke points of the 21st century are found in patents, processes, and expertise. Understanding these dynamics is crucial for long-term investing and strategic planning.

Second, on the stock market, fundamentals ultimately matter. While narratives and social media can create short-term volatility, the financial health and operational viability of a company are the true determinants of long-term value. The allure of quick profits in speculative stocks can be strong, but the risks, as demonstrated by Mullen, are immense.

Whether analyzing a global superpower’s economic policy or a startup’s balance sheet, the lesson is the same: look beyond the surface. The real risks—and opportunities—are often hidden in the details.