Highlights
- Steve Hanke argues China has gained structural leverage over the U.S. through dominance of critical industrial supply chains, including rare earth processing, advanced manufacturing, and commodity security systems.
- The geopolitical contest has shifted from territorial control to dominance over semiconductor fabrication, energy systems, advanced materials, AI infrastructure, and refining chemistry—defining Great Powers Era 2.0.
- After decades of deindustrialization and free-market orthodoxy, the West faces the challenge of rebuilding industrial sovereignty, while China has already adapted to treating supply chains as instruments of national power.
For much of the post-Cold War era, Americans were taught to believe that globalization was an economic inevitability — an ever-expanding web of efficiency, open markets, and frictionless trade. Supply chains became invisible. Manufacturing migrated overseas. Wall Street rewarded optimization while governments assumed industrial capacity could always be rebuilt later if necessary. That assumption is now colliding with a harsher reality.
Across semiconductors, batteries, critical minerals, artificial intelligence, energy infrastructure, and defense manufacturing, the world is rediscovering an old geopolitical truth: nations that control the industrial systems beneath modern civilization wield extraordinary power. The competition unfolding between the United States and China is no longer simply about tariffs or trade balances. Increasingly, it is about who controls refining capacity, engineering talent, logistics corridors, industrial standards, advanced materials, and the physical architecture of the modern economy itself.
Steven H. Hanke
Source: Wikipedia
Rare earths merely exposed the deeper system. This emerging framework increasingly resembles what Rare Earth Exchanges™ has described as the “Great Powers Era 2.0” — a world where supply chains themselves become instruments of geopolitical leverage.
That reality received an unusually direct articulation this week from Steve Hanke (opens in a new tab), the veteran applied economist, currency reform expert, and professor at Johns Hopkins University. In a wide-ranging interview (opens in a new tab) on global markets and geopolitics, Hanke argued that China now possesses substantial structural leverage over the United States because it dominates critical industrial supply chains, particularly rare earth processing, metallurgy, advanced manufacturing, and commodity security systems.
While Hanke does not explicitly frame the issue in civilizational or bloc-oriented terms, his analysis increasingly converges with the REEx thesis that industrial ecosystems — not merely financial markets — now define strategic power.
His observations are especially striking because they come from a long-time advocate of classical free-market economics. Hanke repeatedly criticized tariffs, sanctions, and industrial policy during the interview, arguing that governments distort markets when they attempt to direct capital allocation. Yet at the same time, he acknowledged something increasingly difficult for Western policymakers to ignore: China spent decades building dominance (via state-backed investment and industrial policy) across mining, metallurgy, refining, engineering education, advanced manufacturing, and strategic commodity stockpiles while much of the West deindustrialized.
According to Hanke, Beijing accelerated this transition after U.S. sanctions actions against companies such as Huawei convinced Chinese leadership that supply chains themselves had become weapons of statecraft. China responded by securing inventories, hardening domestic industrial systems, investing in engineering capacity, and reducing vulnerability to external chokepoints.
That distinction sits at the center of Great Powers Era 2.0.
The geopolitical contest is no longer defined primarily by territorial conquest or even conventional military strength alone. Increasingly, it revolves around control over semiconductor fabrication, energy systems, advanced materials, AI compute infrastructure, refining chemistry, logistics networks, and industrial standards. The nation controlling those systems gains leverage not just over trade, but over the functioning of entire economies.
Hanke’s remarks on rare earths were perhaps the most consequential. He argued that the U.S. defense industrial base cannot rapidly replenish depleted weapons inventories without Chinese-controlled processing and materials infrastructure. That concern is quietly spreading through Western strategic circles as governments confront the reality that industrial dependence itself may now constitute a national security vulnerability.
Where Hanke diverges somewhat from the REEx framework is philosophical rather than diagnostic. He appears to recognize the new battlefield clearly. What remains less certain is whether he fully accepts that the underlying rules of globalization may already have changed permanently. Great Powers Era 2.0 suggests they have.
The emerging world order increasingly resembles competitive industrial blocs where governments subsidize strategic sectors, secure domestic manufacturing, weaponize standards, and treat supply chain resilience as an extension of national power. The West is beginning to understand this shift. But after decades of financialized globalization and free-market orthodoxy, rebuilding industrial sovereignty may prove far harder than recognizing its importance.
China, meanwhile, appears to have begun adapting to this world years ago.
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