Geoeconomics Bi-Weekly: A Massive Rare Earth Find, Another CHIPS Grant, and More Sanctions

Happy Friday all! We hope those celebrating had a wonderful Lunar New Year. While China didn’t release much new data in the last two weeks due to the holiday break, there was a full slate of data releases elsewhere in the world, giving us some insight into the state of the global economy.  

Macroeconomic Update  

In the United States, inflation remains above the Fed’s 2% target. Per the Consumer Price Index (CPI), prices in January were up 3.1% from the year before, compared to an annualized increase of 3.4% in December. But Core CPI, which strips out more volatile food and energy prices, remained level with the prior month at 3.9%. Monthly CPI and Core CPI both came in at 0.1%, meaning that prices in January increased 0.1% compared to December.  

The recent inflation data suggests that interest rate cuts in the first half of the year are unlikely. (Interest rates are currently 5.5%, their highest level since 2001.) Instead, markets now expect rate cuts to begin in June instead of March. Still, it’s possible that annual inflation above 2% will persist as the new norm. Ongoing supply chain reshuffling and geopolitical hot spots such as the Red Sea may keep pushing global prices up.  

Abroad, many advanced economies are coping with sluggish growth. The UK is now in a recession , with GDP decreasing 0.3% in Q4 2023 after falling 0.1% the previous quarter. So is Japan, following a 0.3% GDP decline in Q4 2023 and a 3.3% decrease in Q3. Due to this decline, Japan’s economy was surpassed by Germany as the 3rd largest in the world. Nevertheless, the German economy has also been contracting , weakened by budgetary issues, subdued global growth, and negative trends in manufacturing output.   

In the Eurozone as a whole, while the economy is not declining, growth remains slow. Eurozone GDP grew 0.1% in Q4 2023, after remaining level in Q3 2023. On the inflation front, annualized Eurozone inflation fell from 2.9% in December to 2.8% in January, while prices decreased 0.4% in January on a monthly basis. However, inflation remains above the European Central Bank’s (ECB) 2% target, and analysts remain skeptical that the ECB will cut rates in their next meeting in April. Last week the ECB cut its 2024 projections for GDP growth to 0.8% and forecast 2024 inflation to hit 2.7%, down from 5.4% in 2023.  

Stories of the Week  

Rare-earth deposit discovered in Wyoming estimated to be world’s largest: American Rare Earths Limited announced last week the discovery of an estimated 2.3 billion metric tons of rare-earth metals at Halleck Creek in southeastern Wyoming, potentially the richest discovery in the world. The find has game-changing potential in the China-dominated rare-earth industry, which is vital to emerging technologies such as semiconductors, electric vehicles, and wind turbines. In 2022, China accounted for 70% of the world’s rare-earth mining and 85% of its rare-earth processing. While the site will take years to develop and environmental concerns abound , it may offer the United States a counter to China’s leverage over the mineral supply chain. In the past year, China has announced export restrictions on germanium, gallium, and graphite, minerals critical in the production of semiconductors and green energy tech. Rare-earths are a group of 17 elements, all but one of which appears on the U.S. Geological Survey’s list of 50 “critical minerals,” meaning they are economically important yet vulnerable to supply disruption.  

Chinese shipping to Mexico skyrockets as Mexico becomes U.S.’ top importer: In 2023, Mexico surpassed China as the U.S.’ top importer for the first time in two decades. While this suggests that U.S. dependence on China is decreasing, a key Biden Administration objective, there is more to this data than meets the eye. Chinese shipping to Mexico soared by 28% in the first three quarters of 2023 compared to the same period the year before, while China has also doubled its investments in Mexico since 2018. Combined, these data suggest that many products bound for the United States may still be made in Chinese-owned factories or require key inputs from China. Chinese firms may also be using Mexico to evade U.S. tariffs. A similar dynamic exists in other countries such as Vietnam, which is simultaneously increasing imports from China and exports to the United States.  

Biden Administration grants $1.5 billion in CHIPS Act funds as semiconductor industry faces downturn: The Biden Administration’s efforts to bolster the U.S. semiconductor industry took another step forward on Monday, as the Commerce Department announced a $1.5 billion grant to New York-based chipmaker Global Foundries. Semiconductors, an essential component of modern electronics and emerging technologies, have emerged as a critical domain of geopolitical competition between the U.S. and China. The grant is accompanied by $1.6 billion in loans and is expected to triple the chipmaker's production in New York over the next decade, enabling it to produce chips used in satellites, smartphones, and automobiles not currently made in the United States. The announcement comes as the notoriously cyclical semiconductor industry experiences a downturn and some semiconductor firms delay their U.S. projects. Semiconductor companies often invest billions of dollars and several years to construct new fabrication plants.  

Western allies announce new sanctions on Russia following Alexie Navalny’s death: The United States and the EU announced a new set of sanctions this week targeting over 700 entities in Russia and third countries supporting Russia’s war effort. The sanctions follow the death of Russian opposition leader Alexie Navalny in a Siberian penal colony and mark the two-year anniversary of Russia’s full-scale invasion of Ukraine. While large in number, however, the sanctions are unlikely to have a major impact. After contracting 1.2% in 2022, the Russian economy grew 3.6% in 2023 and the IMF projects it will grow 2.6% in 2024. Still, the outlook for Russia may not be as positive as its GDP growth would suggest. High levels of military spending, the flight of skilled workers, and a sharp drop in oil revenue may prove problematic over time.  

U.S. government sanctions Russia-based cybercriminals as global ransomware payments reach all-time high: The U.S. government on Tuesday imposed sanctions on individuals affiliated with LockBit, a Russia-based ransomware group responsible for attacking the U.S. financial sector. Russia harbors many such groups that launch attacks on U.S. critical infrastructure, representing a threat to economic and national security. And this threat is growing. Blockchain analysis firm Chainalysis recently determined that ransomware payments exceeded $1 billion for the first time in 2023, with victims of attacks ranging from hospitals to schools to casinos. The heightened volume of attacks comes as the technical barriers for ransomware are slowly fading away. Emerging illicit services now sell ransomware software or sell access to already-penetrated networks, thereby expanding the range of potential threat actors. Last month, the UK’s National Cyber Security Centre also warned that the global ransomware threat is likely to rise as AI technologies develop.  

What we’re watching

  • March 6 – China releases data on imports and exports. In 2023, Chinese exports dropped for the first time in 7 years.  
  • March 7 – The European Central Bank releases its next interest rate decision.  
Kirti Gupta
Senior Adviser (Non-resident), Renewing American Innovation Project
Chris Borges
Program Manager and Associate Fellow, Geoeconomics Center