Glass beads for gold

When settlers started to arrive in North America they brought with them, among other things, colorful glass beads. These were used in trade with the native population. Without higher value in themselves they were traded for different goods vastly exceeding the beads manufacturing value. The natives who had no capacity of their own to produce these beads got cheated, badly. From this, important parallels can be drawn to the current debate regarding critical minerals*. In a sense the Americans have become the natives and it is the lack of flexibility in the Western system that has led them there.

Critical minerals, many of them without higher value in themselves, have become the glass beads of our time. Now, however, it is not their shiny colours that mesmerize us but their absolute criticality in everything from wind turbines to advanced stealth fighters. Without access to these minerals, modern society as we know it would come to a halt. The Chinese know this and are now offering their glass beads for the world’s best technology. An off-the-charts crazy trade, but it is here we undeniably are.

Let’s step back a bit and examine how we got to this point. During the Cold War the West concluded that its capitalist system held some strategic advantages compared to the Soviet Union. There was energy and force that the Western system could tap into, areas that they could set foot on, where ideology prohibited the Soviets from following. In the end, it was the flexibility in the West's system that led to the end of the Cold War and the emergence of the United States as the preeminent unipolar power.

Communist China carefully observed the course of events around them and came to the painful but grounded conclusion that the system they had could not compete with the West. Ideology was, during Deng Xiaoping’s rule, forced to take a step back and the journey of the great Chinese economic miracle began. However, they did not simply adopt the whole package. Having analysed the Western system carefully, they adapted the superior parts, but they also carefully kept the parts of their own system that they assessed should not strategically be overwritten.

If we now step back to the critical minerals. China’s system has allowed it to systematically, step by step, monopolise the extraction and especially the refining of many of these minerals, especially the rare earths. The West has simply stood by watching, paralysed by one of the fundamental flaws of its system.

The thinking goes: “We cannot produce these commodities at this price; they are not worth it.” The pricing in this context is the price Chinese producers sold them for. The Chinese, however, priced them differently. Having identified this flaw in our system, just as the West previously identified other flaws in the Soviet one, they then exploited it. The Chinese priced the critical minerals as an invaluable advantage in becoming the most powerful nation on Earth. That is the explanation for why they could produce these minerals at such a low price. They have identified the West's inability to price factors different than the market as a major competitive advantage and are using it to the West's peril.

I spent some time recently reading a commentary by Chen Yixin, China’s Minister of State Security, published in Qiushi earlier this year. Even though it is not particularly highlighted in the piece, I assess the biggest takeaway from the text is the part on systemic advantages and how it can be utilised for strategic outcomes.

Just as the Chinese some decades ago painfully realised that they had to change their system if they wanted to compete, now a gradual awakening has also occurred in the West. The taboo of naming the words “industrial policy” has slowly faded. In its place, another insight has stepped out of the shadows. The strategic advantage of having the best technology in the world is greatly diminished if you are forced to pay gold for glass beads in upstream supply chains. The value of reliable access to these minerals far exceeds their cost.

I assess that a competitive system must have mechanisms that can price important strategic factors in other ways than the price the West's most capable adversary sets for them on our markets. Without the capability to flexibly and pragmatically adapt our system to the challenges of our time the strategic loss will be monumental, just as the Soviet Union's system’s rigidity turned out to be for them.

Getting this right is, however, only part of the solution. The West is late in the game.

Speed is of the essence. The usual playbook will have to be disregarded. Conventional procedures will have to be put aside. Shortcuts must be found and taken. Rules will have to be bent, and a select few will simply have to be broken.

When the dust settles from our world’s current geopolitical upheaval, the trajectory of the winners and losers will have been stably set for a long time to come.

*There are also, to other supply chains, important inputs that could turn out just as critical if geopolitically highlighted.

Update 2026-08-26: Corrected grammar and spelling (going through old posts using a new tool). The content of the text was not changed in any way.