After years of U.S. restrictions on advanced semiconductors, Beijing is fighting back by cutting off exports of the raw materials that make those chips possible: rare earths, graphite, gallium, germanium — the invisible ingredients inside motors, power electronics, defense systems, and data centers.
The move caught Washington off guard. The Treasury Secretary compared it to “pointing a bazooka at the industrial base of the entire free world.” These minerals only make up hundreds of millions of dollars worth of imports, but their strategic value is enormous. They’re woven into every emerging industry the U.S. hopes to dominate.
And that’s the point. Under China’s new export rules, foreign companies will need government approval to trade or process these materials, giving Beijing leverage over the supply chains that feed both clean energy and artificial intelligence.
In this episode, we look at the impact of China’s restrictions. And we also ask: is the AI war really an energy war?
If you zoom out, this isn’t just a chip war or a minerals dispute — it’s a systems war. America has been pouring billions into digital intelligence, while China has been focusing on the “electric stack” that brings enormous strategic economic value.
The electric stack is the vertically-integrated network of mining, refining, manufacturing, and grid infrastructure that underpins both the emerging electricity-based economy. China has spent decades mastering it.
In the second half of the episode, we unpack an essay from Packy McCormick and Sam D’Amico that argues America is playing the wrong game. Are we overestimating the value of artificial intelligence and underestimating the electric infrastructure that intelligence runs on?
Resources
- The Electric Slide by Packy McCormick & Sam D’Amico
- Mastering the Electro Tech stack by Noah Smith
- The Electrotech Revolution report from Ember
- The Electro-Industrial Stack from Andreessen Horowitz
- NYT: China’s Rare Earth Restrictions Aim to Beat the U.S. at Its Own Game
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and Katherine Hamilton. Produced and edited by Stephen Lacey. Original music and engineering by Sean Marquand.
Open Circuit is brought to you by Natural Power. Natural Power specializes in renewable energy consulting and engineering, supporting wind, solar, and battery storage projects from concept through financing. Discover how we’re creating a world powered by renewable energy at naturalpower.com.
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Transcript
Stephen Lacey: Katherine, is that a Darth Vader Bobblehead behind you?
Katherine Hamilton: Oh, my gosh. There’s a Darth Vader Bobblehead and there’s also a Pope Francis Bobblehead, because this is what happens when you live with a young person who has lots of different priorities.
Stephen Lacey: So I take it you’re not in your office right now, recording?
Katherine Hamilton: No, I’m not. I’m in my kid’s room. It was the best place for me to be today, considering the number of people that are at my house.
Stephen Lacey: Jigar, I finally get to see out the window what you look at every time we record. It’s a nice view.
Jigar Shah: It is. It’s slightly suboptimal though. Because it’s weird, I think once a week or twice a month, my neighbor has somebody who’s using a gas-powered leaf blower. So then if I have a keynote address on that moment, then it comes through hard.
Stephen Lacey: Motorized lawn equipment. I think we need to get all podcasters… There’s enough podcasters in the world now that we can unite and create a coalition against motorized lawn equipment.
Jigar Shah: We’ve already banned it, I think, in like 144 jurisdictions, right?
Stephen Lacey: Is it that much?
Jigar Shah: Oh, yeah. Yeah, it’s a thing, people really hate gas powered leaf blowers.
Katherine Hamilton: Everything we have is electric. Our shop is like the movie, Coma, where all these things are being charged. It’s just like batteries everywhere, because of all of the lawn equipment we have that’s all electric.
Stephen Lacey: Well, if you walk by my house, you’ll see me with a little push mower that squeaks.
Katherine Hamilton: Oh, just the physical push mower. Oh, God. You might as well just chew your grass down. These things are terrible.
Jigar Shah: What are you you doing? Get goats, like the rest of us.
Katherine Hamilton: Yeah, goats.
Stephen Lacey: From Latitude Media, this is Open Circuit. For years, the US has been blocking China’s access to advanced AI chips that power everything from chat GPT to missile guidance systems. And now Beijing is fighting back, cutting off exports of the minerals that make those chips possible, rare earths, graphite, gallium, germanium, the invisible building blocks of modern computing, cars, and clean energy. At first glance, it looks like another round of the chip war, but if you zoom out, it’s something deeper, a fight over who controls the electric stack, the materials, manufacturing, and infrastructure that make intelligence itself possible. So this week we’re asking, is the AI war really an energy war? Are we fighting the wrong battle, pouring money into intelligence while China builds the infrastructure that intelligence runs on?
Hey, everybody. Welcome. I am Stephen Lacey. I’m the executive editor of Latitude Media. I am joined by Katherine Hamilton and Jigar Shah. Katherine is the chair of 38 North Solutions. You were in Montreal this week. Did you solve your gopher problem before you left?
Katherine Hamilton: It turns out gophers are not in Virginia.
Stephen Lacey: So what was it?
Katherine Hamilton: It’s moles, and they’ve been doing a lot of damage. And the thing is that all they’re trying to do is eat worms and grubs and stuff. So worms and grubs are great, it’s just that they also just tear up your lawn, just generally.
Stephen Lacey: What was in Montreal?
Katherine Hamilton: Oh, I’m an advisor to MKB, which is a growth equity fund that invests in North America. Now they’re looking more into Europe as well. It’s a great fund, and it’s particularly nice, because it is growth equity, they’re looking at companies past that early stage, that I spent a lot of my time working with. And so you’re really into the place where people are starting to scale, and that’s a very fun place to be.
Stephen Lacey: Jigar Shah is an investor and former director of the DOE’s Loan programs office. Are you stockpiling germanium at your house now, Jigar?
Jigar Shah: Wait, are those flowers? No, I am not. But it is something where you could, just like a cupful of germanium to make the medicine go down. No, I think that cupful of germanium might be worth like $10 million or something. It’s crazy.
Stephen Lacey: Yeah, forget castor oil. It’s germanium. What’s got you busy these days?
Jigar Shah: Well, there’s a lot going on, right? I think that there’s a lot of markets that are back, which is interesting. And so you’re starting to see stock prices really go up in the clean tech sector, and so a lot of folks want to SPAC their companies, or do other strategic things. So that’s been interesting. But the other piece of this is that I think you’re starting to see a real fight between the White House and Chris Wright on saving projects. And so that’s been fascinating to watch, and talk to a lot of the companies who are in the middle of those fights. I actually think Chris Wright’s trying really hard to be thoughtful about which projects to save and which projects to actually support. And there are a lot of people at the White House that aren’t having it.
Stephen Lacey: So you mentioned Chris Wright, Politico had a story recently showing that there was tension inside the White House, and that they felt like Chris Wright was moving too slowly to cancel grants and loan guarantees out of DOE. I have also heard that that’s kind of old news, that there was initial frustration, but that some of that frustration has since gone away. What do you guys make of that story? Is it consistent with what you’re hearing?
Katherine Hamilton: Yes. There’s also a bunch of folks, internal to DOE, that are getting pushed out. There’s just been a lot of churn, and I think it’s just because you have different people with different ideas about the speed at which they want to move. And I think Chris Wright wants to, because he is the secretary, wants to lead the agency and show that leadership. And there are a lot of folks that have been doing their own things, because everybody was told, let’s get everything done, especially when DOGE came in. So there’s a lot of churn in the agency too, and folks are moving around or moving out.
Jigar Shah: There was always going to be a lot of companies that we gave grants to, who don’t meet their milestones, and were going to drop out. That was so predictable and par for the course. I think that some of those companies probably should have gotten more grace, given all the disruption that’s occurred this year around tariffs and stock prices, because some of the milestones that they’ve failed to reach is raising enough equity, for instance, to move forward with projects. Now, I think with a lot of the news from China and other things, I think there are people revisiting some of their decisions from six months ago, and saying, “Hey, wait, maybe we shouldn’t prematurely hurt that company when that company is providing geranium,” or whatever it is.
And then I think you also have the stuff from the Department of War, which is what happened in the old BBB, is a lot of the critical minerals focus moved from the Department of Energy to the Department of War. And they have basically one speed, which is, we’re going to put money into your company and we want to buy the output. And that hasn’t worked well, particularly for MP materials. Everyone has now come to the Department of War and told them that they don’t know how to process rare earths, and their magnets suck, and so we don’t want to buy their stuff. And so now I think they’re revisiting, maybe we do need the expertise at the Department of Energy married with the flexibility of the Department of War. So I think things are getting a little more clear, and that expertise that DOE is known for, is becoming more and more valuable.
Stephen Lacey: All right, well, let’s go to the new front in the trade war. So after years of watching Washington block access to advanced chips, Beijing just pulled its own version of that play, announcing sweeping new restrictions on the export of rare earth minerals. US Treasury secretary, Scott Bessent, said it was like pointing a bazooka at the industrial base of the entire free world. Maybe a bit hyperbolic. In economic terms, these minerals will not bring the US to its knees. They represent hundreds of millions of dollars in imports, but these minerals are now in everything, batteries, missiles, wind turbines, power, electronics, GPUs, and supply disruptions can be a big deal for these industries. So we’re going to talk about what those disruptions might be.
Under these new rules, foreign companies may need licenses from the Chinese government to trade or process these minerals, giving Beijing meaningful trading leverage. And the administration responded by threatening new tariffs, up to 100% for some imports. But one analyst told the New York Times, “If China can get around chip restrictions faster than the US can get around rare earth restrictions, that’s a big problem for the United States.” So let’s dig in. Jigar, what’s your read, broadly, on how serious the coming restrictions are? How exposed are US industries, broadly?
Jigar Shah: I think China overplayed their hand, and I think it’s uncharacteristic of China to be so stupid, but they are. Remember rare earths are not rare, they just are unprofitable to process. And China has made them unprofitable to process. So if anyone has a four-year head start, they can actually figure out how to diversify the rare earth supply chain easily. And so now, I think now that China has overplayed their hand, everybody is going to process rare earths. Because it just doesn’t matter, I mean, $200 million of rare earths are in $500 billion worth of finished goods. So if you pay four times more for those rare earths, it doesn’t move the needle on the cost of $500 billion worth of finished goods.
And so for a long time people were just like, “Ugh, do we have to pay four times more for these rare earths, to process them in an environmentally safe fashion, to treat mine workers fairly? To do all of the things that our ethics and our values tell us to do?” And now I think China has said, “Yeah, you got to go do that, because we don’t want to own this sector anymore. We want you to diversify away from us, and we are now sending you the ultimate signal to do that.” And luckily we had been working on that for four years, so we know who’s competent, who’s not, who’s got better technology. A lot of the venture capitalists have put money into this. And so it’s going to be painful for a few years, but now I think all the national security people, all of the economic security people are on board, to paying what it takes to diversify the supply chain.
Stephen Lacey: Katherine, what’s your read on the economic impact, and then specifically the clean energy industry impact?
Katherine Hamilton: Yeah, it’s interesting. I just listened to an interview with Doug Burgum, the Secretary of Interior, and he said just what Jigar said about China overplaying their hand. Just to keep in mind, they mine about 70% of the rare earths so far. They process 85% to 90% and produce over 90% of the magnets, so they do have most of the market. Mountain Pass, which was what Jigar had referred to, MP Materials, produces about 10% of the world supply, so it still just minuscule. In my meetings in Montreal, there was a motor company, and I asked them about magnets and what’s happening with China, and they said, “We’re all just waiting to make sure we can get what we need, because we are completely reliant on them.” So in June, there was a deal, there’s an export licensing regime that has some export restrictions, but it also has these forms that you have to fill out, and like Jigar said, you have to promise to do certain things, in the context of those forms.
There was just an article a couple of days ago that things are starting to heat up again. But this motor company said, “Look, we think that we understand these forms, and how to do it, and how to make sure that we can still move forward.” The output with all of our factories here is going to be far more valuable than what those rare earths are purportedly valued at, and yet the knock-on effect is massive. So that’s what we have to worry about and look for.
Stephen Lacey: So to summarize the points that you both made, we obviously see a lot of sensational headlines when China issues restrictions like this. How serious is this?
Jigar Shah: Well, it’s clearly serious, that’s why we passed the Inflation Reduction Act, and now the OBBB, right? I think it’s very serious, and we’ve always known that whether it’s in rare earth materials or whether it’s in critical minerals, broadly, whether it’s lithium or nickel or cobalt or whatever, or whether it’s in solar panel manufacturing or battery manufacturing, we have allowed China to systematically lose money in every single sector, in order to gain market share. And we all just said, “Well, we’re getting cheap stuff, so it’s okay, it’s a good trade.” But I think everyone knew, going in four years ago, that that was causing China to have leverage over the rest of the world in ways that were unhealthy, and that we needed to start planning for the day when China was going to use that leverage.
And we needed a set of technologies and companies and plans to diversify the supply chain. I think that we were on track to doing that in a slow and stable and methodical way. And I think when President Trump came in and talked about Liberation Day, and picked a fight, and made this thing escalate, we are now in a place where China has escalated on their side. And so now all of those plans, none of which even had dust on them because they had just been completed a year ago, are now being scaled up. And it’s going to be a time lag, and so it will be disruptive. But I think after that time lag, I think you will see a permanent understanding by the entire world order that diversification is our friend.
Katherine Hamilton: Yeah, and Stephen, when I talked to this motor company about that supply chain, he said, “You can’t just flip a switch. It’s going to take a couple of decades to actually put all of this infrastructure into place, which is something we have not focused on the way we should have.” So Mountain Pass is one, but there’s also potentially some more materials in Alaska. There are also, all over the world, other places you can get materials. And then we cannot forget about recycling and reprocessing, because we could use that to great effect too. I would just say Umicore, one of the world’s largest global recyclers, they’ve been doing recycling since the 1980s, profitably, of all kinds of materials. They don’t focus on rare earths, but they focus on a lot of other critical materials, and we need that infrastructure in place. And so in diversification, I think we need to look at, yes, we need to figure out where we can build a mining infrastructure, but we also need processing and we need recycling all put into place.
What we see right now happening at Department of Energy is that they’re starting to cut off some of those options, like this project with Ascend Elements was, basically they had already been awarded over 300 million for a billion dollars facility in Kentucky, and that’s manufacturing waste and end of life batteries. Let’s not cut off our hands here. Let’s try to make sure that we continue projects that are going to help us build that infrastructure, and then that’ll guarantee the end products that we’re desperately trying to build, and that we do excel in.
Stephen Lacey: Yeah. Katherine, what do you make of the Trump administration’s efforts, broadly? So they have put some grants in jeopardy for companies that are providing solutions in this space. The DOE is now putting a billion dollars into other critical minerals refining projects. The defense department is stockpiling materials, Washington’s scrambling to secure supply with allies, everywhere from Ukraine to Australia. What do these policy efforts mount to?
Katherine Hamilton: Yeah, I think it’s important to do all of that, but there doesn’t seem to be a single organizing systems approach, which would be, all right, what are all the tools we have? What is everything that we need? And then not just go at it with this whack-a-mole, that basically says anything that the Biden administration did is necessarily bad, so we’re not going to do that, we’re only going to do this.
Jigar Shah: Are you saying that they’re winging it, Katherine? Is that what you’re saying?
Katherine Hamilton: The thing is, the Biden administration did the-
Jigar Shah: Shooting from the hip, I mean, pew, pew, pew, pew.
Katherine Hamilton: Yeah, I feel like if we somehow combine some of the urgency that the Trump administration is acting with and some of the philosophical thinking that the Biden administration had, maybe we would get somewhere in a way that made sense, but right now they’re going at it haphazardly rather than in an organized way. And what that means is that China’s very organized, so it’s really going to take a lot for us to be able to compete. I think we can, but it’s like, they’ve got long range thinking, we have very short term thinking in the US. And so I think it’s going to take a lot of focus on our part, and I don’t think it’s going to be the next three years we’re going to do it.
Stephen Lacey: Jigar, what do you make of the Trump administration strategy right now and how does that compare to what was happening under the Biden administration?
Jigar Shah: So I think strategy is a strong word to use for what the Trump administration is doing. I think in general, I would say that what is working is that the Biden administration had this mandate for off-take, like on 30D tax credits from the electric vehicles, where they had to buy more domestic lithium, et cetera. And then in my opinion, I think the Biden administration completely screwed up the 30D implementation, to the point where Redwood Materials and MP Materials, and all these other people, hated them because they sort of allowed these workarounds. People didn’t actually have to buy domestically. There were phase-ins, other things. The Trump administration, with their full-on crazy, have convinced everybody who’s buying these materials in the United States that they have to buy domestically. So that is a done deal. I mean, every single automaker that I talk to, is like, “Oh, yeah, we’re buying domestically now. I’m sorry, Jigar, we didn’t listen to you two years ago, but we’re now definitely buying domestically.”
And so from that perspective, I don’t know, but I couldn’t convince everyone to buy everything domestically when I was in office. And the Trump administration has scared everybody into buying domestically, and the Chinese are dumb enough to actually pile on and support the Trump administration’s approach to scaring everybody to buy domestically. So the off-take agreements are now in place, which I think is fascinating, and it took me a long time of using logic to try to get people to sign off-take agreements, which they didn’t do. So from that perspective, I think we’re doing great. From the other perspective, I would say the communications to Wall Street and to venture capitalists has been half-hazard. So I don’t know what the actual game plan is, and I don’t know which early stage companies are going to get financing right now, given that they don’t quite know what is the plan, and what features should we be optimizing for to make sure that you’re going to support this in the future?
Because that’s the other problem, is, there’s a feeling that if you’re not in good with the right people and the right consultants and the right investors, that you may not get a grant out of the Department of Energy. I think there’s a feeling that this is arbitrary and capricious, and not really focused on the quality of the technology, which may or may not be fair. But it goes to, what’s the strategy? What am I giving you 5% of my company in ownership for? How does all of this fit together into a coherent strategy that makes investors comfortable, that they should invest heavily?
Stephen Lacey: I want to finish with a look at refining, and some of the tech approaches. So mining progress is still mostly on paper. We’ve got dozens of new mining projects and exploration and permitting, but development timelines are really long. Refining is a big bottleneck, and we could see much faster progress there. So we’re seeing investment in new tech, like Nth Cycle, electro-extraction system. We’ve got Redwood Materials run by JB Straubel, formerly CTO of Tesla. They have, I think, the largest lithium-ion battery recycling facility in the US, and they can recover up to 95% of material in the batteries. What do you guys make of progress on that front, what I think is referred to as urban mining? How do you see that shaping up? And what kind of supply can we get from urban mining applications?
Jigar Shah: You mean on the recycling side?
Stephen Lacey: Yeah.
Jigar Shah: We have great technology. So whether it’s Redwood or LiCycle, which I think completed its sale to Glencore, and now Glencore is finishing that facility in Rochester, I think we’re in this place where we have far better technology than the Chinese have, in this area. But like I said before, we had a huge problem with off-take agreements. So part of the reason why Syrah Resources, in their graphite facility in Louisiana, had such problems, that we provided a loan to, is that GM and Tesla refused to buy graphite from them. And so now they’re not refusing to buy graphite from them, and so they’re like, “Okay, I guess we should buy this stuff.”
But for a lot of people, because of the way that 30D was structured under the Biden administration, the off-take agreements didn’t have to come domestically. So our technology could be the best in the world, but unless the minerals were at a 10% discount to what they could buy from China, people were continuing to buy from China. And so I think we’ve talked a lot about the potential of urban mining, and the potential of all these things, but the other problem is that it takes a long time for these batteries to die. When you look at Redwood Materials, what they realized was, a lot of the battery packs that they were getting were actually perfectly fine. And so then they decided to build a data center in 12 days with Crusoe, with used batteries.
And they were like, “Well, why are we ripping these things apart when they still have useful life in them?” And solar panels are the same. We have these great solar panel recycling companies that we’ve built in the United States, and a lot of the companies that were going to rip out old 14% efficiency panels and put in 23% efficiency panels are like, “Ah, maybe we’ll wait an extra two years before we do that.” And so they don’t have the feedstock of solar panels to recycle.
Katherine Hamilton: Yeah, I was going to say, it’s not just off-take, it’s also feedstock. And you think about where all the materials and minerals are, they’re in everything we use single day, from tiny, tiny objects to much larger things. And being able to recycle that is really important, but you have to have the collection network set up. So you can have all of the great technology in the world. And I would say, Umicore has a massive plant in Belgium in which they’ve been doing this for decades. They need a guaranteed feedstock to be able to put in there, because then you actually get minerals that are at full value because those are infinitely recyclable. And we should be able to do that here in the US, but you need the integration of the feedstock with the technology, and the off-take, to make it all work.
Jigar Shah: And maybe you’re saying this, and maybe I’m putting words in your mouth, but I think that requires policy.
Katherine Hamilton: Yes, it does.
Jigar Shah: So what Europe has is extended producer responsibility. And so people are not allowed to just have a bunch of AA batteries in their drawer forever. You actually have to have a local place to recycle those AA batteries, and all the other small batteries, et cetera, and then Umicore has feedstock.
Stephen Lacey: How much nickel, cobalt or copper do you think we can get from that bobblehead behind you, Katherine?
Katherine Hamilton: It’s made of plastic, only plastic.
Jigar Shah: Yeah, there’s a whole new definition for couch cushion change, all sorts of AA and AAA batteries.
Katherine Hamilton: It’s your old Blackberry that’s sitting in your drawer of your bedside table. Which, by the way, I still have, just in case.
Stephen Lacey: Yes, I still have mine literally in the drawer in front of me right now.
Jigar Shah: Lord Almighty, you guys are sad.
Stephen Lacey: Let’s pull back here and look at the bigger picture. You could argue that the conflict that we’re talking about here is not just a chip war or a mineral war, it’s a systems war. If you ask American policymakers about what the 21st century tech race is all about, they might say artificial intelligence, whoever leads AI will lead the world. And what a lot of people are asking is, what if that’s just the wrong way to think about it? So over the last couple of months we’ve seen some really fantastic analysis on how China is dominating the systems that underlie the 21st century economy. And people call that system a few different things, electrotech, the electro-industrial stack or the electric stack.
In September, a team at the think tank, Ember, put together a report on the Electrotech Revolution, outlining China as the first major electrostate. Not a huge surprise to our listeners maybe, but it was a fantastic report. After that, the economics writer, Noah Smith, put out a great piece on this stack. Andreessen Horowitz’s partner, Ryan McEntush, has been writing a lot about it. And most recently, Packy McCormick and Sam D’Amico wrote this blockbuster essay, titled, The Electric Slide. And they argue that America is just playing the wrong game, pouring capital into intelligence, when China builds the infrastructure that intelligence runs on. Or as they put it, America is systematically over-emphasizing the role AI will play in the future and underestimating the role electrification will play. Katherine, what is the electric stack?
Katherine Hamilton: I feel like we should do The Electric Slide, which was 40,000 words long, by the way. Let me tell you how many plane hours were devoted to that.
Stephen Lacey: The Electric Slide essay was from Sam D’Amico and Packy McCormick. It was very long.
Katherine Hamilton: Yeah, it’s super interesting though. If you really want to get the history of everything in the world, that’s a good one.
Stephen Lacey: Yes.
Katherine Hamilton: So basically they define the electric stack as lithium-ion batteries, which is kind of the heart of this beast. Magnets and electric motors, which are kind of the muscles, power electronics, which is the nervous system, and then embedded compute, which is the brains, and AI needs all of those things. And if you think about this in very practical terms, all of these electromagnetic systems, they convert electricity into motion and heat, so like induction stoves, magnetic fields, which you can see in MRI machines, light, like LED, sound in speakers, and then back to electricity, with regenerative braking. They’re basically in everything we do.
And the huge difference, and why we’re looking at a world that is going to be completely reliant on this electric stack, is that combustion uses chemical energy to produce electricity at enormous losses, and a lot less ability to control, whereas electromagnetic systems are very efficient and precise. And those are going to be the underpinning, and are the underpinnings. And if you talk to this motor manufacturing company, he’s like, “Motors are in everything.” And that’s just one piece of the electric stack. So it’s a big piece of where we’re going, and AI needs all of it.
Stephen Lacey: Jigar, what do you make of the argument that America is playing the wrong game?
Jigar Shah: Well, I think that it depends on the assumptions that you’re making around the game. I think all of those battery technologies, all of those technologies that Katherine outlined, were invented in the United States. So it’s not like we didn’t actually know that the electricity was valuable, we clearly spent the money to invent all of it. I think for some time, as we discussed earlier, we decided we didn’t want to make any of it, and we wanted to outsource our pollution, and whatever it is that we were outsourcing, to China. And we allowed them to get really good at manufacturing all of these things at scale, and we imported a lot of it back. So I think if you look at the next five breakthroughs of technology, they’re still here in the United States. So getting to 1,000 units of density for lithium-ion batteries is things that we can do and China can’t do.
So there are lots of things that we can still do to be competitive in this space. I think the underlying argument around the electrostate versus the petrostate, I think, that’s obvious to anyone who listens to this podcast, it is very clear that we rely on once-through fuels, right? All of that work to bring out oil or natural gas or coal out of the ground, and then you burn it, and then you got to do it all over again. And so figuring out how you make a solar panel or a wind turbine, or something, which, yeah, maybe you import it once, but then it lasts for 40 years, and it sits there, is something that is clearly superior, but more importantly, it is clearly winning. So when you look at the first half of 2025, we added about 390 terawatt hours of growth in electricity demand. And for the first time ever, it was nuclear, solar and wind that met 100% of that demand growth.
And so from that perspective, I think you’re starting to see that our technologies here are scaled up enough that you could actually see them being relevant. I think for a lot of our tenure, we were getting to 70% of growth or 80% of growth or 90% growth, but now we’re at fully 100% of growth every year. So I don’t think that China is way far ahead of us. I think if you look at the production capacity they have now, depending on the sector you’re talking about, you’re probably talking about 20% of the production capacity needed in 2040. So the rest of that could be built up in China or it could be built up in many other countries around the world. But it is very clear that China picked up on this trend, and the importance of it, before everybody else did.
Katherine Hamilton: Yeah, and they followed this playbook for a really long time. So people think of China as full of IP theft and cheap labor, and actually they’ve had a very patient strategy. They iterate. They iterate rapidly in really vertical and horizontal integrated companies with integrated ecosystems. Take, for example, Tesla went to China to build their plant, and what that did in China, was to say, “Oh, we should all be doing that too. And we’re going to take some of that technology and iterate and iterate and iterate, and we’re going to get really good at it too.” Their performance has been very good, their pricing has been good too, but it’s a system that they have and that they’ve been able to take and iterate on. So they have had a long time to do it.
I don’t think they’re the only ones who can do it. And in fact, Tesla is a good case study for that, the Model 3. Again, Tesla, in 2024, had made $97.7 billion. BYD, from China, made $107 billion. So they’re a little bit ahead, but not that far ahead. And if we start taking some of those lessons and some of those integration techniques, maybe we can start also making sure that we have enough here to do, and we can be productive.
Stephen Lacey: It seems like what China recognized was how interlinked a lot of these technologies in the electric stack are. So as Sam D’Amico described it, manufacturing a specific product is getting a lot more complicated, but the stack itself, you can manufacture a lot of the same products in the same location. So it’s why a company like BYD can make electric passenger cars, batteries, electronic components for mobile phones, solar systems, electric monorail systems. There’s enough commonality among those technologies that it can make sense for a large manufacturer to take them all on. And that seems pretty unique when we look at this set of technologies. Do you buy that, Jigar?
Jigar Shah: Yeah, there is a common set of technologies that the United States was extraordinary at, and we continue to export, whether it’s in natural gas combined cycle plants, that China really can’t make, or whether it’s in sort of compressors, and lots of other things that we did. And that was all in the the seventies, and we still have that entire supply chain and still export it. And I think China’s realized that this next set of technologies, which is part of the electrostate, right, have a similar level of synergy between all of them. And China, frankly, has been quite clear about stealing technology on purpose that actually figured out how to do all of it. And I just want to make sure we’re crystal clear that all of this technology is stolen, right? Please don’t suggest for a moment that any of it’s not stolen. And I could show you from all of the grants that the Trump administration canceled, that those technologies also have 50 companies in China that have stolen that technology, that are now trying to copy it.
So it is all stolen, yes. And China decided that every single thing they were going to vertically integrate. So that goes back to rare earths, that we were talking about before, all the way through to the mining of all of these things, all the way through to the integration into monorails, which then they practiced on internally. Because they built a lot of electric trains and they built a lot of the technologies in-house, so they could see how that worked and they could feed the loop back into manufacturing, and say, “Well, actually, if you made these changes, then this end product would work better.” And so they’ve got that entire feedback loop within their country, which is so valuable, and it’s what we’re realizing now in the United States that we’ve lost, because we’ve decided to invent things but not actually manufacture them. So that feedback loop is coming back from China, and it’s slow, compared to if you were to manufacture things here. And so yeah, look, I think that they have achieved a level of synergy that I think is something that we are not yet taking advantage of.
Stephen Lacey: So China’s industrial base is one continuous machine, with energy manufacturing, logistics, all integrated while ours is very fragmented. What would that kind of integration look like in the US? Could we ever execute some kind of model that looks akin to the Chinese model?
Katherine Hamilton: I think we could take some of the lessons from it. It’s not going to look exactly the same because in China they have a different regime. It’s not a democracy, so they can just say, “Here’s what we’re going to do, y’all go do it.” And that’s what they do. And we have all these entrepreneurs, which is what makes us so great, is this really interesting ecosystem of entrepreneurs. But what I think it does mean is that we need to have more partnerships. And I look at these funds, like the fund I’m working with, MKB, which is, they’re saying, “All right, how do all of our investments make sense as a group? How can they all feed off of each other?” This is all really important, even though they may seem like they’re different parts of the value chain, they are part of a larger ecosystem. I think some of those lessons are really important, and it doesn’t have to look exactly like China, but we can still be much more coordinated so that we can iterate more and learn more and produce more here.
Jigar Shah: Yeah, I think that this is something we have to be intentional about having a conversation on, because I do think that somehow we are greenwashing China, and I don’t understand it exactly. Let’s take an example. If you take Sila Nano, which is this extraordinary company that’s building their facility in Washington state, if you go to China, there are 30 companies copying Sila Nano. Every one of them has gotten free land, free buildings, free equipment, and 2% interest financing from their province, because they want to be the group that does that. All of that is illegal. I don’t think anyone is talking about the IP theft anymore. No one is talking about human rights abuses anymore, and we’re all just saying, “But look how awesome the results of all those human rights abuses and IP theft are.” So now the question becomes, how do we compete with that?
We say, “Great, we want to do this here. We want to build stuff here. We want to do this stuff here.” But we work within a democracy and a capitalist system, which I continue to choose to want to live in, and so now we’re in a place where our costs are going to be double the cost of their costs, for a variety of reasons, which we could go into ad nauseum. But when we decide that we’re going to pay double, because that’s what it costs to make a good rate of return, to protect IP, to make sure workers are safe, to do all of those things, and China is saying, “Well, we’ll give it to you for half the price.” And so now you’re Brazil or Colombia or Argentina, or all these places that are importing BYD vehicles, which we now know the Chinese government is subsidizing at $10,000 per vehicle, but I don’t know, what is the right response to that?
I can, on the one hand, cheerlead the electrostate, and on the other hand say that I don’t think that every country in the world should copy what China’s doing, in the way that they’re doing it. I don’t think that’s right. And I think for whatever reason, for the last 10 years, it has become unacceptable to say that out loud, that now we just need to cheerlead the electrostate and we can’t mention the fact that all of these bad practices are destroying industries in, not just the United States, but in India, in Jordan, in Turkey, in Germany, whose auto industry might go bankrupt in the next few years.
Stephen Lacey: No, I think that’s exactly right, and I am worried about romanticizing China’s coordination. Obviously the focus is on China’s vertical integration model and speed, which is impressive, but those same traits have produced a lot of waste, over capacity, financial risk, and some of the other impacts that you outline, particularly human rights abuses. So totally agree that we run the risk.
Katherine Hamilton: Then what do we do? We want to have clean air and clean water, and land that we can use, the Park Service, the Forest Service, et cetera. We don’t want all of our land to go to development the way China has done it. So we need policy, we need to put policy in place. We’ve had policy. A lot of that is still inhibiting the ability to do big things. So what is the answer to this? How do we actually compete? How do we make sure that we set up a system that is better and that is more competitive, and that people will want to participate in?
Stephen Lacey: I think the US is not even really in the same game that China is, and that’s part of the problem. We can sit here and talk about what a coordinated strategy would look like in the US, but it is so clear that the US doesn’t even really know the rules of the game, or care much about it at this stage. And so that’s what worries me. China is so far ahead in recognizing the strategic value of these industries. There’s a lot of ball game left. There’s still a long way to go before we see who really dominates these industries long-term, and I think the US absolutely has a shot, but right now the US just isn’t recognizing the same game.
Jigar Shah: Well, no, I don’t think that’s true at all. I think the US did recognize this was the same game and that’s where the Inflation Reduction Act came from. That’s why we had 920 new manufacturing facilities that were announced, and people were under construction. I think that there’s clearly been a step back. And we are a petrostate. Bottom line is, I think, what the Carlyle Group described within The New Joule Order, is that people are going more local. China doesn’t have local, and so they’re doing electrostate stuff, because that’s what they can do. The US has huge amounts of oil and gas, and so they are continuing to use those supply chains because we have them, and it’s local. But when you think about the innovation cycle, and all these other pieces, there are things that we have tried. I will not suggest to you that all of it was successful, but I think that we have tried things.
And now the question really becomes, now that China has overplayed their hand on rare earths, the question is whether the rest of the countries around the world will recognize that this is something we have to work together on? Because I do think the Biden administration was good at boxing in China, and to get a lot of countries around the world to recognize that China needed to be forced to be better partners within the global economy. I think that that went away during Liberation day. But it feels like it’s coming back. I think that after we put tariffs on Chinese steel, the Europeans started seeing huge amounts of steel getting dumped into Europe, and so now they’ve put tariffs on China, and so you’re starting to see China playing whack-a-mole around the world, where they’re being shut out of market after market. I don’t know that this is coordinated, and so it’d be good for it to be more coordinated. I think Bessent probably does have an ability to coordinate it, more than most. But look, I think that the technologies continue to grow rapidly.
I would make the case that solar panels are likely at a place of stability, although perovskites are very interesting as a next leg up on technology. But I would suggest that batteries are in its infancy. When you think about where we can get to on density, on safety, on all sorts of things, on recyclability, which we talked about before, et cetera, my sense is that the amount of technology that’s still yet to be discovered and implemented into batteries is very high. And I think the same thing is true with electric vehicles. The same thing is true with self-driving cars and some of those types of things. And so I think that this battle is worth fighting, because I don’t think that we’re even close to where the supply chain will be in 2040.
Katherine Hamilton: Yeah, it’s astounding because over 35 years, the cost of all these electric stack components has dropped by 99%, which is pretty phenomenal. And demand will continue to rise, and then the cost curve will continue to go down. So Jigar, it does seem like even though we’ve squeezed a lot out of it already, there’s a lot more to do. And it might take a little time because there’s a gap between the scientific innovation and scaling we have, to make sure that we close that gap that we have, that really are manufacturing products, and that we really make sure that we nurture from the science and the discovery into scale. And I think that’s where we need to focus more. Because as you said, the Biden administration worked really hard on scale and on closing that gap, and that is a lot of what is kind of coming apart right now, and we need to try to pull that back together if we’re going to continue to succeed.
Stephen Lacey: So let’s bring this back around to the broad theme and The Electric Slide essay. Highly recommend people check it out. Be warned, it is hundreds of pages. I thought about printing it out and then I looked at the 300 pages, or whatever it was, and I did not do that.
Jigar Shah: Oh, no, no. You got to go to Staples and get another 500 pack of recycled paper. I did use that app that they recommended, 11th State, or whatever, which turns anything into a podcast. And that was great, because then I could just skip through all the history crap and go to the rest of their stuff. I think I got through it in only 27 minutes.
Stephen Lacey: Yeah, totally. And Notebook LM is really good for that too. If you upload it there, Google will create a little podcast for you to walk through it, and it’s quite good. So lots of ways to consume it. But to bring it to the conclusion of the essay, they’re basically arguing that the US, right now, thinks that the high ground is in intelligence, in AI, in chips and software, but in this new era, intelligence depends on largely electricity capacity, electrons, not ideas, and that we’re investing in all this cognitive horsepower while we’re outsourcing the muscle of the future global economy. And so America’s greatest strength, which is its innovation culture, which we just described, has been decoupled from its capacity to manufacture and deploy at scale. And so I wonder if you all agree with that conclusion, and if so, what the long-term economic consequences are? They basically say, AI won’t solve this for us. To maximize its potential, we need to pair it with electric action. What do y’all make of that conclusion?
Jigar Shah: No, I think they miss the story. They miss the plot completely. The notion that the United States has ever failed to meet its electricity supply, is ridiculous. We’ve never failed, and we won’t fail this time. You might keep coal plants running longer for stupid reasons, and we might not deploy DERs and demand flexibility as fast as we should, or we might not do this or that. But I think China’s actually not good at what they’re suggesting that they’re good at. When you think about what India has done, and India is building massive amounts of new electricity generation, and reducing coal and natural gas production. Why? Because India doesn’t curtail 25% of its solar and wind, because they actually know how to run a freaking grid. China doesn’t know how to run their grid, so as a result, they build tons of solar and wind. And yes, they’re building coal, because they almost had blackouts eight years ago because they still didn’t figure out integration of solar and wind back then.
So I don’t think that their conclusion is as well researched as they suggest. I don’t think that the US will have any problems meeting AI load growth. Now we could do it the expensive way or we could do it the cheap way. And we’ve been talking about doing it the cheap way, but we will not fail to meet the requirements of AI load growth.
Stephen Lacey: And I don’t think it’s just about meeting AI load growth, I think it’s more about who controls and has more power in the future global economy. And I think that’s a separate question from whether we meet AI load growth.
Jigar Shah: But where does that come from?
Stephen Lacey: It does feel to me that the US is on a trajectory to losing that game.
Jigar Shah: Well, sure, that’s why we think Trump shouldn’t have become president. But I think in terms of where this influence comes from, it comes from trust, and people don’t trust China. People trust China to be pro-China and to do what’s in China’s best interest. When you look at Belt and Road, it was a heroic failure. There’s not a single country in Belt and Road who are like, “The Chinese treated us fairly. We had such a good time with the Chinese.’ Sometimes stuff is cheap, and so you import it from China, I get it. But I am not seeing the same level of diplomatic partnership between China and the countries that they’re exporting to, and what the west had built in the past. Yes, Trump is destroying a lot of that goodwill. I totally get it, and I wish he wouldn’t, but I don’t think China’s replacing it.
Katherine Hamilton: Yeah, I see a lot of other countries trying to look internally, the UK, EU, Canada, looking at, how can we do this? How do we do this ourselves if we don’t have good partners out there in some of the biggest economies in the world? I still feel like there’s a huge amount that we can do. And just hearing these companies give their pitches for this fund was so heartening, because they’re building plants in the US, they are part of the electric stack. They weren’t all AI, but some of it helps AI be better. So I do think that there’s a huge amount of hope here, that we’re not lost to China. I just would hate for us to hurt too many relationships in the process, because it does take a long time to get those back.
Stephen Lacey: Well, if you want to dig into this topic, there’s a lot for you to read. There’s the essay that we’ve been talking about, The Electric Slide. I’ll attach in the show notes, an essay from economics writer, Noah Smith. I’ll put the one in from Andreessen Horowitz, and I will put the Ember report on The Electrotech Revolution in there as well. So lots of reading for you. Really good analysis here. I think I find myself a little bit more worried than you, Jigar, but this is still a very long game.
Jigar Shah: Yoga. Yoga, my friend. It’s happy Diwali week. We all need to just breathe. But look, I am a big fan of the competition. I believe very strongly that we need people to push us in the direction of decarbonizing the economy, of improving human flourishing, like doing all the things that the electrostate does. And so I’m super excited about all the progress that we’re making.
Stephen Lacey: Katherine, good to see you as always.
Katherine Hamilton: You too. I’m going to go and see how many batteries I can use in the next half an hour.
Jigar Shah: I’m going to find all of those dead batteries in all my drawers in the house and recycle them today.
Katherine Hamilton: Oh, my Bobblehead Pope has a solar panel on the back so that he can move on his own.
Stephen Lacey: Integrated manufacturing, man. China’s figured it out. Open Circuit is produced by Latitude Media. My co-hosts, they are Jigar Shaw and Katherine Hamilton. The show is edited by me, Stephen Lacey. Our technical director is Sean Marquand. Anne Bailey is our senior story editor. For in-depth reporting on the trends we talk about every week, from AI power demand to clean energy manufacturing, to grid modernization, sign up to Latitude Media’s Daily or our AI Energy Nexus newsletter. And please give us a five star rating wherever you get your podcasts, and share links to the show to people who you think would get value from this conversation. You can find transcripts, if you need to reference them, at latitudemedia.com, and we will see you next week.
