The colonial loop we ran on ourselves
Joel Litman’s Altimetry presentation, which we reviewed in full here, tells a story that is uncomfortable to hear and difficult to dismiss. America, the country that won two world wars by outbuilding the entire planet, has been doing to itself what Thomas Jefferson spent his life warning against.
The story goes like this. We dig rare earth metals out of the ground in California. We ship the ore to China. China refines it. We buy back the finished product. The exact colonial loop that Jefferson described in 1793, 17 years after the Declaration of Independence, we did to ourselves voluntarily.
This is the “Second Declaration” thesis, and underneath the Founding Fathers framing, the economic argument is real.
The numbers that matter
The presentation stacks up a series of statistics that paint a picture most Americans have not seen:
China refines more than 99% of the world’s heavy rare earths. There is no electric vehicle, no smartphone, and no F-35 fighter jet that gets built without them.
Eight out of every 10 drones used by U.S. law enforcement and first responders are built by a single Chinese company.
The giant cranes that lift goods off ships at American ports are mostly built by one Chinese state company. When investigators looked closely, they found cellular modems nobody could account for inside machines that run American trade.
China’s commercial shipbuilding capacity is now so massive that it produces more than 1,000 ocean-going vessels for every eight built by the United States. That is a 200-to-1 manufacturing advantage.
Many of the chips that run American weapons are made on one island 90 miles off the coast of China: Taiwan.
The active ingredients in the medicine in your cabinet, the antibiotics, the blood-pressure pills, mostly come from India.
The $10 trillion number
Litman puts the cost of this dependency at more than $10 trillion, citing Morgan Stanley analysis. Since 2001, when the U.S. let China into the World Trade Organization, more than $6 trillion in American wealth has flowed out of this country and into China. Add the offshore factories that never came back, the wages that did not grow, the intellectual property that was copied, and the tax revenue from companies that paid someone else, and the real figure exceeds $10 trillion.
The Information Technology and Innovation Foundation found that if American manufacturing had simply grown at the same rate as the rest of the U.S. economy from 2000 to 2010, not faster, just the same, we would have 13.8 million more jobs right now.
Those are not jobs we might create someday. They are jobs that existed and that we sent somewhere else.
The Mountain Pass story
The most concrete example in the presentation is Mountain Pass, California. America had the largest rare earth deposit in the Western world. We mined it. Then, through the 1990s, China did exactly what mercantilism does. It flooded the market, drove the price below what anyone could match, and drove the American producer into bankruptcy.
By 2017, Mountain Pass had been bought out of bankruptcy by a group that included a Chinese-owned firm. It was shipping American ore to China to be refined. We were mining the raw material in California, shipping it to China, and buying back the finished product. The exact colonial loop Jefferson described in the 1700s, running in 2017.
Today, China refines more than 99% of the world’s heavy rare earths, and there is no electric vehicle, no smartphone, and no F-35 fighter jet that gets built without them.
The penicillin story
The same pattern happened with penicillin. In 1943, in East Syracuse, New York, we built a plant that made penicillin. At its peak, it produced up to 70% of the nation’s supply. That plant is the reason a wounded soldier could survive a beach landing in 1944 instead of dying of an infected wound a week later.
In 2004, the same year a Chinese cartel flooded the global market and drove the price below cost, that plant shut down its penicillin production for good.
The active ingredients in the medicine in your cabinet, the antibiotics and the blood-pressure pills, mostly come from India and China now. We lost the ability to make the things a country has to be able to make, even though we have the money, the resources, and the know-how.
What Washington is doing about it
The presentation describes a shift that is already underway, and it is bipartisan. The Pentagon took a $400 million stake in MP Materials, the heavyweight of the U.S. rare earths market. About a month later, the government bought 10% of Intel, because Intel makes its chips in the U.S. while Nvidia, AMD, and Apple outsource manufacturing to Taiwan.
Then came Lithium Americas for battery materials, and Trilogy Metals for copper and strategic metals.
The CHIPS Act, passed in August 2022 under President Biden, committed $52 billion to bring chip manufacturing home. The first major modern tariffs on Chinese goods came under the first Trump administration in 2018 and 2019. Republicans and Democrats who agree on almost nothing, who cannot compromise on taxes, immigration, healthcare, or energy, are agreeing on this.
As Litman notes: “It’s happening on this. It hasn’t happened on healthcare. It hasn’t happened on immigration. It hasn’t happened on taxes, or energy, or guns.”
The investment implications
If the $10 trillion shift is real, and the bipartisan commitment holds, the investment implications are significant. The industries that the government is pouring money into, rare earth refining, chip manufacturing, shipbuilding, drones, defense AI, and industrial materials, are the industries that have been hollowed out over the past 25 years.
Rebuilding them requires the companies that can do the work, and the companies that supply the infrastructure. We explore the specific chokepoint investment approach in our guide to government-adjacent stocks, and the forensic accounting methodology that identifies them in our analysis of Litman’s approach.
The honest read is that the American manufacturing rebuilding thesis has real substance. The numbers are real. The bipartisan commitment is real. And the investment opportunity, in the companies that stand to benefit from trillions of dollars of government-directed spending, is genuine.
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