Weekend Food For Thought WFFT
On today's menu: "What Defines Japan's National Identity?", "Transformers Are a Problem, But So Are Converters, Inverters And MMC's", The Broader Physical AI Trends, and much more...
Hello from NY,
I hope you had an interesting and productive week.
Donna Meadow stated that: “You can drive a system crazy by muddying its information streams.”
Take Note…Filter out the noise and seek clarity…
1 Getting Visual
2 If You Read One Thing Today - Make Sure it is This
3 Consequential Thinking about Consequential Matters
4 Big Ideas
5 Big thinking
6 WORRY
1 Getting Visual
Big Picture: Seeking to Understand: “Science has long been concentrated in the Western world, but the global research landscape is undergoing a profound reorganization. Using data on 44 million publications from 1980 to 2022, we document the geography of science in terms of who produces it, what it studies, and where it diffuses. The share of publications produced in the United States has fallen from 40% in 1980 to 15% in 2022, while China’s share has risen from near-zero to 32%. This pattern extends even to elite outlets, with China now producing over 35% of top-journal publications. Notably, this is driven not only by an expanding researcher base but also—to a large extent—by increases in individual productivity. This growth varies by fields: China leads in the Engineering and Physical Sciences (such as Chemistry), while the US retains its lead in Biomedical and Health Sciences. Moreover, China’s expanding leadership in scientific production has not translated into a commensurate shift in global diffusion and integration. Elite research remains disproportionately focused on US topics (40% of breakthrough publications), and citations to Chinese research disproportionately come from within China rather than from other regions, even for top-tier science. Similar to China, other middle- and low-income countries (including India, Russia, and Brazil) have also expanded output producing as much research as high-income European Union countries combined (about 21% overall) but they remain underrepresented in top-tier journals. Overall, our findings highlight both the democratization and fragmentation of global science, raising important questions about the future of the global scientific enterprise. - NBER
Spotlight: Energy - Burning Money: “…one less-appreciated aspect of the 2010s shale boom is that its massive impact on the U.S. economy actually came from how it laid the groundwork for a future shale bust. From a financial perspective, the investment figures almost defy belief. Between 2010 and 2020, U.S. oil and gas companies saw over $342 billion in losses. IEEFA estimates that, in that same time frame, North American shale oil and gas developers had over $189 billion in negative free cash flow (the difference between their cash flow from operations and their total capital expenditure). Between the financial crisis and the pandemic, large institutional investors piled into the shale sector, driving capital expenditure seemingly without regard for long-term solvency. Between 2015 and 2019, the sector yielded $207 billion of losses to debt holders in formal bankruptcy proceedings alone. This figure does not account for the losses to equity shareholders, or for losses resolved outside of formal bankruptcy procedures. Indeed, the shale boom was a perfect example of what Bill Janeway describes as a “productive bubble,” in which investors rush toward speculative investments that, even if their value collapses, transform the structure of the economy.” - Center for Public Enterprise
Spotlight: Energy: Harnessing Exponential Technology: Chinese renewable power generation is now enough to entirely cover the entire power consumption of US industries and households.
Big Picture: Politics Vs Markets - Global Trade Reached a Record High in 2025…
Big Picture - Seeking Alternatives: Central Banks swapping USD for Gold…
Long View: 250 Years in Vibe Check: Will the US exist as a single country in 250 years?
US Market Mid-Year Check: Two Legged Chair - Since January, the entire S&P 500’s gains have come from just two corners of the market, AI and energy, while everything else is actually trading at less than where it started.
Key Point: Understanding the Game: IPO Perspectives: “Avoid the IPO hype: The first-day pop mostly belongs to investors who received the allocation, not to open-market buyers. Rushing in on Day 1 forces you to pay a hype-driven premium at the moment of maximum risk. The rule is simple: let the initial open-market volatility pass without touching it. Wait for the second earnings call: The S-1 is a snapshot. Public markets are the test. The first earnings call shows how management talks to investors. The second shows whether they can forecast appropriately. Are the right KPIs improving? Is growth accelerating or decelerating? Did guidance hold? Did the lock-up create selling pressure? Two quarters help draw a trendline. Anything earlier is closer to buying blind. Nibble in year one: The first year is usually the noisiest. The stock is absorbing new shareholders, lock-up expirations, analyst coverage, guidance resets, and the first real tests of public-market expectations. A small starter position lets you follow the company closely without making the IPO price your entire cost basis. If a 50% drawdown would damage your portfolio or your sleep, the position is too big. Anchor to valuation: Missing a 20% move is not a disaster. Buying a great company at a price that already assumes perfection can be. The question is not whether the company is exceptional. It is whether the valuation leaves room for error. Don’t sweat daily movements; instead, focus on valuation relative to fundamentals. Give it time: Many great stocks go nowhere in their first few years as public companies. That doesn’t mean the business is broken. It means the market is still figuring out the right multiple, the right expectations, and the right shareholder base. Multi-baggers rarely require buying on day one. They require surviving the early volatility. Takeaway: The playbook is boring on purpose. Wait for public evidence, size small, and let the lock-up cycle pass. Boring is how you beat the IPO base rates.” - AppEconomy
2 If You Read One Thing Today - Make Sure it is This
Hiroko Yoda explores ‘What defines Japan’s national identity? In this guest essay for Noahpinion Substack - It’s an Interesting lens into a key cog in the global economy - Go explore it in full here:
Some Takeaways
“Japan is accepting more immigrants than ever before. When my husband and I moved to Tokyo in 2003, international couples were still uncommon, and we’d sometimes draw stares if we walked hand in hand. These days, it’s completely unremarkable. The numbers of tourists visiting Japan increase year by year, and so does the number of people taking permanent residence. I see many international families in the suburb where we live, and I don’t think we are unusual, at least as regards urban centers.
As Japanese are finding new ways to co-exist and live alongside non-Japanese, they are also revisiting what it means to be Japanese. As I’ve written in my own newsletter, the question once centered simply on ethnicity, but now many are coming to believe that shared cultural values are more important.
Are you Japanese simply because of where you were born, or are you Japanese because of how you participate in society? Superficially, this resembles the arguments going on in America. Are you American because of some kind of heritage, or are you American because you embrace shared values, like those laid out in the Constitution?
But there is an interesting difference, too. Japan is (or was) a country with relatively little immigration; that’s why the question of who’s Japanese traditionally hinges on ethnicity. On the other hand in America, an immigrant melting pot, the litmus test often seems to return to faith.”
“Thompson concludes: “If you don’t have that central spine of purpose, the community won’t last. If your only purpose is “let’s get together,” that’s not enough. You need that higher purpose—that vertical spine—in order to build a truly strong horizontal community.”
These pundits are arguing that ideas alone – the values of the Declaration of Independence or the Constitution – aren’t enough to keep Americans together, whether in communities or as a country. America’s loneliness epidemic, its polarization, its young citizens’ loss of hope: a big part of it can be attributed to the fact Americans don’t go to church or synagogue or temple or what have you anymore.
All of which makes me want to say: have you ever been to Japan?
Japanese, as a nation, don’t subscribe to any one faith. In fact, there’s a popular saying “born Shinto, married Christian, buried Buddhist.” We pick and choose, bringing what we like from various traditions – the purifications of Shinto, the pretty aspects of Christian weddings, the traditions of Buddhist funeral rites – into our secular lives. We’re so flexible about it that we often answer no when people ask if we’re religious. Look at this chart:
“America is a flexible society that is rigid when it comes to religion; Japan is the opposite, a rigid society with a surprising flexibility when it comes to faith.
There’s an old phrase that sums up Japan’s traditional spiritual cosmology: yaoyorozu no kami, which means eight million deities. It isn’t an accounting; it’s an expression of awe at the infinite nature of the sublime in all its forms. It incorporates, absorbs, rather than draws lines. In short, it’s radically inclusive.
I get that America is a religious country. I was taken to Sunday school every week when I was a homestay student in Indiana in the 1990s. I recited the Pledge of Allegiance alongside the other students every day. But there’s no pledge of allegiance in Japanese schools. The Japanese flag wasn’t even displayed in any of my classrooms. None of my classmates ever went to anything resembling a Sunday school.
But we were united in other ways. Ways that look like faith to outsiders, but just felt like everyday life to us. We made New Year’s visits to shrines or temples for hatsumode, a first prayer for the year. Many of us had Buddhist-style altars in our homes, where we kept photos of departed family members. Many of us carried omamori, Shinto or Buddhist amulets for scholarship or travel safety on our schoolbags.
But if you’d asked the majority of us what our faith was, or who we were praying to, we’d have reacted with utter confusion. None of us saw amulets as a replacement for studying, or looking both ways before crossing the street. They were simply cute ways to wish. If you’d asked us what we believed, I honestly don’t think we would have even understood the question. We just did.
So if institutional faith is core to the communities that form a healthy society, why is Japan’s so successful without it?
First, let me be clear here. I don’t see Japan as some kind of utopia or even a role model. I just see it as different. But the fact it is different – and not struggling in the ways many commentators seem to think America is struggling, at least regards faith as an identity – is what might make the Japanese counterpoint relevant. Let me also be clear that I believe faith can nurture a life or a community. If your personal faith nourishes you, I cheer you on.
But speaking broadly, if Japan can maintain a stable society without faith, it would seem to indicate it isn’t a necessity for a healthy society.
So what is keeping Japan together?
For a long time, Japanese could rely on clear lines to define themselves, like language (Japanese being little spoken outside the nation) and terrain (being an archipelago). But things are changing, and changing fast. It isn’t particularly difficult to get to Japan anymore. More people outside Japan are learning and speaking Japanese than ever before. More want to live here than ever before.
And Japan is aging and shrinking. We’ve “lost” three million citizens over the last few years alone, as deaths outpace births. The numbers of foreign visitors and permanent residents are higher than ever before. All of these factors are driving the question of what it means to be Japanese, which is playing out in online forums, TV shows, newspapers, and election contests throughout Japan.
A recent Stanford survey about immigration shows that race isn’t a major factor in resistance to immigration. Rather, Japanese language ability is.
Now, this might seem like a no-brainer. Of course, you want to admit people who can communicate with you. But “fluent” is doing a lot of lifting here that might not be obvious in English.
Japanese is classified as a “high-context” culture, meaning that a large amount of cultural knowledge is required to speak fluently. (Other high-context cultures include China, Korea, and many Arab countries.) There’s a lot of implicit communication, meaning context is often implied rather than expressed directly. Meanwhile, Americans, Germans, and Scandinavians (among others) are framed as “low-context,” meaning conversations tend to be explicit, with context usually spelled out.
Anyone who’s studied Japanese will know what I mean. We often leave pronouns and even subjects out, in casual speech. You’re expected to kuuki wo yomu – “read the air” and intuit meaning. So when Japanese say they want immigrants to master Japanese, they’re talking less about the linguistics of speaking than they are context – “the air,” in other words.”
“Of course, not everyone in Japan agrees with this thinking. There are those who have a vested interest in keeping the definition of Japanese as strict as possible, who use foreigners as scapegoats for society’s failings, who wish to keep the number of outsiders who immigrate here as low as possible. The far-right party that rode an anti-immigrant platform to a surprising number of seats in parliament in the 2025 elections is one example.
But I believe the winds are against people who think in this way. The demographics are against them. The technologies that let us cross borders physically, and share our ideas across them virtually, are against them. And most of all, I think our cultural traditions are against them. When our cosmology, so to speak, is so inclusive, it’s hard to square why our society should not be. Anyone who trumpets conservative values in Japan is eventually going to run up against that conundrum.
As a Japanese, it isn’t my place to say who is or isn’t an American. But I can say what I personally envision for my country’s identity going forward. I see it in little moments all over the city today. Non-Japanese employees greeting customers in polite Japanese. Foreign folks showing respect at temples and shrines. The caucasian man and his daughter I saw commuting to kindergarten on a mama-chari bike, her tiny pastel backpack slung incongruously over his big shoulders. In other words, the stuff of everyday life. To me Japanese isn’t what you look like; it’s how you act. In other words, it’s how you read the air.”
3 Consequential Thinking about Consequential Matters
Dana Golden, an economist at Argonne National Labs, joins ChinaTalk to explore how for the US power systems; “transformers are a problem, but so are converters, inverters and MMCs!” It’s consequential thinking about consequential matters - go explore it in full here:
Some Takeaways
“I want to offer you a thought experiment. A genie has agreed to conjure an infinite supply of transformers for integration into US power systems. We’ve heard plenty about the transformer shortage. They’re vital to data centers, construction projects, and grid expansion. With one rub of the lamp, that bottleneck vanishes. Do our power supply chain problems disappear? Can we build all the data centers we want?
Let’s go further. The genie also supplies limitless gas turbines. If you’ve been following the data center energy discourse, this feels like a double whammy — the two big bottlenecks, gone. Throw in a third wish for streamlined permitting. Is the grid supply chain fixed? Can we build out data centers like railroads in 1872?
The answer is clearly no.
Grid supply chain problems go far deeper than transformers and gas turbines. Grid modernization requires many other components with equal or greater supply chain challenges. The DOE’s supply chain mapping for large power transformers alone reveals many inputs with significant interdependencies throughout the power electronics supply chain. If these inputs threaten transformer supply chains, they equally create headaches for the supply chains of other important power electronics.”
“Go further into the DOE’s work, and you find that the HVDC supply chain lacks significant domestic manufacturing capacity throughout, with components like converters (circuits that help change between voltage levels) and DC filters (devices to suppress electromagnetic interference) not even generating enough domestic demand to encourage new capacity entry.”
“The economic security community spent years learning the semiconductor supply chain map for compute. We all read Chip War and learned of ASML’s EUV monopoly, TSMC’s fabrication dominance, the handful of firms producing photoresists and etch gases… Not nearly the same attention has been paid to power electronics. It’s time for that to change.”
Separating the Gallium from the Copper
I have another thought experiment for you.
It’s 2027, and China has carrier groups in the South China Sea headed for Taiwan. The current US administration has chosen to escalate. Maybe the escalation looks like sanctions. Maybe this is a full-scale military fight. Either way, the Shanghai Metals Exchange is closed for business to the West. Suddenly, analysts get on TV shouting about our dependence on Beijing for rare earth elements and — of course — critical minerals! So critical. Important minerals.
Talking heads from MSNBC to Fox cannot agree on whether we should be defending the ROC against the PRC, but everyone seems to agree that we are effectively up shit’s creek without a paddle. We have brought a shovel to a drill fight and cannot wage war without the ability to purchase critical minerals.
Suddenly, prices from copper to lithium to ytterbium shoot to the moon. Weeks later, prices for almost all metals have come back down. We discover that only a small subset of metals could not be procured in the medium run without trade with the Middle Kingdom. Turns out our vulnerabilities in this space are almost entirely restricted to a few elements — some notable rare earths, and importantly, gallium.
In our 2027 scenario, the majority of the metals crisis was fixed almost immediately. What could have happened? Simple.
The President got the heads of Trafigura (Singapore-based multinational commodities trading and logistics company), Vitol (Dutch energy and commodity trading company), and Glencore (Anglo-Swiss Metals and Mining Trading Company) in a room at the White House and dropped a curtain to reveal a gigantic pile of cash to go to ‘the beautiful America-loving firm that can win in getting me metals.’ Suddenly, ships magically stop in place and move towards the US coasts. Boats bound from the port of Shenzhen suddenly fall off ship-tracking systems, reappear under Dutch banners and, as though pulled out of a hat by an illusionist, find their way to Los Angeles. Resolution Copper gets built, and with economic incentives, fracking-bros decide to apply their chemistry expertise to mining in Mountain Pass. Turns out, it was never all that hard to procure most critical minerals. We lacked an economic incentive.
This may sound like exaggeration, but this is almost exactly what happened to copper in 2025. Relative prices went up, and the metals followed the markets, will of America’s adversaries be damned.
The conventional wisdom in DC right now seems to be that critical minerals is an exhaustive list of elements crucial to American security. We have to secure the supplies! The US has turned its back on mining and on metals while China has become a metals superpower. China is a rare-earths super power. In the words of Deng Xiaoping, “The Middle East has its oil, China has rare earths.” China controls much of rest of the power electronics supply chain as well and has increased share through strategic investments. The West hasn’t made the same investments.
However, there is a massively important distinction between the words “can’t” and “haven’t.” The United States hasn’t built many mines or refineries in recent memory due to a combination of low metals prices (which makes production uneconomical), difficult permitting processes, and a lack of urgency due to easy access to metals from elsewhere. While prices of the most common base metals rose significantly with the China shock in the 2000s, they fell pretty significantly in the 2010s before rising again in recent years. With an industry like mining requiring long-term high profits to justify investments, prices have not yet reached levels that make mining in the US economical for the most part if all costs are considered.”
“The critical distinction: while lithium, copper, and even most rare earths are obtainable with proper incentives, some elements are not. Gallium and certain rare earths necessary for power electronics top this list.
The power electronics supply chain is a case study in an industry where no amount of money will fix a shortage caused by conflict with China in the medium term.
We need to move beyond conversations about general bottlenecks to ones that separate the gallium from the copper.”
“To understand the bottlenecks to the electric supply chain, it is instructive to start by understanding power electronics. Power electronics, the semiconductor devices that convert, control, and condition electrical power, are reshaping grid architecture. At the center are wide-bandgap (WBG) semiconductors: silicon carbide (SiC) and gallium nitride (GaN). Both offer fundamental advantages over conventional silicon including higher voltage handling, better thermal performance, and faster switching speeds. SiC has emerged as the enabling technology for high-power grid equipment like converters and solid-state transformers. GaN dominates lower-voltage applications: data center power supplies, fast chargers, and 48V rack-level distribution. Both remain more expensive than silicon, but total system costs often favor WBG devices once you account for smaller passive components, reduced cooling, and lower energy losses over time.”
“On the manufacturing side, transformers are made-to-order, not mass-produced. Transformer manufacturing involves highly specialized steps like precision winding, drying, and insulation layering that can only be done by specialists and at a limited number of factories worldwide. Transformers are hard to build, difficult to scale and have long manufacturing times.
On the input side, a main driver of the transformer shortage is the long lead times for Grain-Oriented Electrical Steel (GOES). GOES minimizes hysteresis losses and is highly magnetically permeable in one direction, making it ideal as a material for transformers. Other major metals inputs to traditional transformers include copper and aluminum.
The creation of GOES is highly specialized and concentrated with only a few producers worldwide, such as Baowu Group, Nippon Steel, and POSCO. China alone produces 56% of GOES. Currently, the US produces only 12.5% of global GOES, with major declines in a once-dominant industry due to underinvestment and foreign subsidization. Cleveland-Cliffs in Ohio is the only producer of GOES in North America, with production capacity for only 240 thousand tons compared to estimated North American consumption of 489 thousand tonnes. The perpetual lack of domestic supply comes despite over a decade of handwringing over the need for US steel.”
“SSTs also differ significantly from traditional transformers in terms of components. SSTs trade iron for silicon and gallium and thus contain almost no GOES. SSTs are thus thankfully less exposed to the challenges imposed by steelmaking and the difficulty of establishing a US GOES industry. Unfortunately, SSTs are significantly more sensitive to the supply chain for Gallium and advanced magnets. China leads in both and produces over 85% of the types of advanced magnets needed for SSTs. While not ideal, SiC can substitute for GaN if needed. Even with this substitution, there is still significant exposure. It would be ironic to fix the long maligned transformer shortage and associated chokepoint by switching to a technology that has similar dependencies and no plan for independent production.
Amperesand, a startup founded by veterans of ABB, GE, Siemens, and Vestas, raised $80 million in late 2025 and is delivering its first commercial units in 2026, targeting hyperscaler data centers, megawatt EV charging, and utility customers. DG Matrix raised $60 million in a Series A and has partnered with PowerSecure, a Southern Company subsidiary, to deploy SST-based power infrastructure for AI data centers.”
“Grid-scale HVDC moves power hundreds of kilometers from a wind farm to a city. Datacenter HVDC moves power tens of meters from the building’s perimeter to the GPU. Both require the same underlying power electronics, including converters, rectifiers, and switching devices. Further, both consume SiC and GaN devices at volume; however, the vendor landscapes are quite different.
Grid-scale HVDC converter stations are built by the four companies discussed later in this article — Hitachi Energy, Siemens Energy, GE Vernova, and Mitsubishi Electric. The 800 VDC datacenter ecosystem, however, has a broader and different set of players. The companies building the power racks, sidecars, and distribution systems for 800 VDC data centers are firms like Delta, Eaton, Schneider Electric, Vertiv, Flex, and LiteOn. The silicon going into these systems comes from a wide range of WBG semiconductor vendors, including Infineon, Navitas, onsemi, ROHM, STMicroelectronics, and Innoscience. CoreWeave, Lambda, and Together AI are among the companies already designing for 800-volt data centers.
The supply chain implications cut both ways. On one hand, datacenter 800 VDC creates enormous new demand for the same WBG semiconductors that the grid needs, potentially accelerating cost reductions through volume. Datacenter VDC also creates a market for domestic VDC and encourages innovation in the products. However, threats to transmission and grid modernization are also threats to AI infrastructure and the rise of compute. The power grid supply chain and the AI supply chain are converging, and policymakers have not caught up. We need to update our playbook to treat power electronics as seriously from a supply chain risk perspective for AI as GPUs. We are highly exposed… and it has already been demonstrated to us.”
China Already Pulled the Trigger on Gallium
Modern grid-scale power electronics run on either SiC or GaN. This creates a rift in the semiconductor market that the economic security community has largely overlooked. While most supply chain discussions have focused on chips for computing, power semiconductors actually dwarf computational semiconductors as a demand source for silicon.
A stable power electronics supply chain is becoming as important to economic security as the GPU supply chain. Power electronics are key to building a grid that can tolerate failures without widespread contagion. One need only look to last year’s blackouts on the Iberian Peninsula to be reminded that renewable-intensive grids are susceptible to cascading failures due to lower inertia.
Arguably one of the most concerning risks for the development of AI right now is the potential for political backlash. If we look back to the hardy response to the blackouts in the mid-1990s, including the formation of NERC, it becomes clear that systemwide grid challenges will result in major public backlash. This could halt AI right in its tracks. Thus, a more reliable grid is crucial not just to developing AI but to maintaining long-term public support for AI development.
So why SiC and GaN? These materials offer higher efficiency, better thermal performance, and faster switching speeds. All of these matter enormously at grid scale. The SiC power semiconductor market was valued at roughly $2.1 billion in 2024 and is projected to reach over $21 billion by 2034.”
“Gallium is not primarily mined alone. In the same way that the silver market is structurally linked to the copper market, Gallium is closely linked in production to aluminum. Gallium does not occur in concentrated ore deposits; nearly all production is recovered as a byproduct of processing bauxite for aluminum. This feature of the market structurally ties gallium supply to aluminum production decisions. The US has gone from the leading producer of aluminum to a bit player. Aluminum market share peaked at over 50% of global production in both World War periods, while US production peaked at 4.65 million tonnes per year with 40 smelters in 1980. As of 2023, the United States produced .75 million tonnes or just 1.1% of global aluminum production. The fall of aluminum production in the US is highly tied to the increasing dependence on China for gallium, with the last major US producer at Apex Mine in Utah closing in 1988 as production was offshored.”
“China controls approximately 99 percent of global low-purity gallium production according to the United States Geological Survey. In December 2024, Beijing banned all exports of gallium to the United States as part of the tit-for-tat tech trade war. By May 2025, the Rotterdam price had surged to $687 per kilogram. This was up over 150 percent from pre-restriction levels. Prices inside China actually fell due to domestic oversupply. This is the classic Chinese playbook, and it significantly preceded the more publicized bans on rare earth exports.
Unlike many other elements where US production is merely uneconomical, gallium has negligible domestic production and minuscule output among US allies.
Diversification timelines are measured in years, and it’s unclear that gallium can be fully diversified away from Chinese sources on any reasonable timeline, given Chinese dominance of both reserves and the full supply chain. In November 2025, the DoD used the Defense Production Act to provide approximately $30 million for gallium recovery in Louisiana. Notably, this was only for recovery from waste, not original mining.
A Greek metals group, Metlen, plans to produce 50 tons annually by 2027 as part of an EU strategic project. Korea Zinc, which recently received a Pentagon cash infusion, has committed to development of a smelter in Tennessee and is considering gallium expansion, but the economics remain unconvincing even with policy support. In November 2025, China temporarily suspended its export restrictions for one year as part of a broader diplomatic détente; however, the leverage isn’t going away.
What about silicon carbide?
A reminder: SiC is chemically similar to industrial diamond. China dominates production with over 60 percent of global output. North American production of silicon carbide at the abrasive level has collapsed from 160 kilotons per year in the 1970s to roughly 40 kilotons today. The US maintains a lead in the more specialized segment of SiC substrate manufacturing. Wolfspeed is the world’s largest producer and is building a new facility with up to $750 million in CHIPS Act funding. It should be noted, though, that substrate manufacturing is only one node in a longer chain.”
“Then, there are rare earths.
Rare earths is really a misnomer as the elements are distributed throughout the earth’s crust and are not necessarily rare. They are, however, often found in small concentrations that make them uneconomical to mine. Mountain Pass has significant supplies of lighter rare earths, but heavier elements like dysprosium and terbium remain difficult to produce domestically.
Permanent magnets containing neodymium, praseodymium, and dysprosium are essential for power electronics packaging. China’s rare earth export restrictions aren’t new — exports to the US peaked in 2000 and have been restricted in various forms for almost two decades. In April 2025, China imposed controls on seven additional elements. The 2025 USGS Critical Minerals List identified rare earth elements as posing the highest economic risk from supply disruption. The US lost its position to the higher cost of mining in the United States and the inability to fulfill environmental standards at a reasonable cost.
Rare-earths mining is highly extractive and dirty, which created an environmental backlash that made mining in the US nearly impossible. The United States is a beautiful country, and protecting it from mining is admirable stewardship of the environment. However, shifting the burden to countries with low state capacity and appalling records for human rights and environmental protection actually make environmental harm worse. Just because a glory hole is not in your backyard, doesn’t mean it doesn’t exist. It is important to push for common standards across the supply chain both to prevent coerced labor and environmental degradation and to keep US suppliers competitive. These tradeoffs further the inherent supply chain risks. To truly understand where the risks come from though, we must analyze and understand the layers of the supply chain network.”
The Supply Chain for Power Electronics
As with any supply chain analysis, we begin with the two canonical frameworks: a two-by-two matrix and a multi-echelon flow diagram. When thinking about supply chain risk, one axis captures risk or controllability while the other captures strategic importance.
For SiC semiconductors, MOSFETs (voltage-controlled devices for switching and amplifying signals), gallium, and SiC substrates sit in the high-risk, high-importance quadrant. These supply chains are difficult to diversify. Most other critical grid minerals are important but less risky.
The power electronics supply chain discussion often fails to make this distinction, conflating easily obtainable materials with goods that are essentially impossible to procure without dedicated resources.”
“The supply chain begins with two common raw materials: silica sand and petroleum coke, combined at extreme temperatures to form silicon carbide powder. While these starting materials are globally available, China dominates this initial processing step, accounting for over 60 percent of worldwide SiC powder production. This domination is a reflection of lower energy costs and less stringent environmental regulations for the energy-intensive furnace operations required.
The powder must then be transformed into large, nearly perfect single crystals through a process that takes one to two weeks per crystal and requires extraordinary precision. This crystal growth stage is a key chokepoint where the United States maintains a stronger position. Wolfspeed is building the world’s largest SiC substrate facility in North Carolina. But Chinese producers are rapidly expanding, and the slow, technically demanding nature of crystal growth limits how quickly any country can scale.
Beyond silicon carbide, the supply chain depends on materials with even more severe concentration risks.
Gallium is almost entirely controlled by China at 98 percent of global supply. It’s not mined directly but recovered as a byproduct of aluminum production, and China has already demonstrated willingness to restrict exports. Rare earth elements used in power electronics packaging flow predominantly through Chinese processing facilities, which handle over 80 percent of global refining despite other countries possessing substantial ore deposits.
Downstream manufacturing presents different vulnerabilities. Semiconductor packaging and assembly are heavily concentrated in East Asia, including Taiwan, South Korea, Malaysia, and China. A crisis in the Taiwan Strait would simultaneously threaten multiple supply chain nodes, as Taiwan hosts critical packaging capacity alongside its dominant position in advanced logic chip manufacturing.”
How the US Lost the Power Electronics Supply Chain
Like most skill-intensive manufacturing industries, power electronics did not start as China’s domain. Photovoltaic solar panels, the original grid semiconductors, got their start in the United States. Starting at the upstream of the supply chain, it should be noted that Chinese firms have outpaced Western firms from mining to components to manufacturing, creating not just a lead in power electronics but the ecosystem to support it.
Even if Western majors were ready to pull the trigger on mining in America, it would take over two decades for the mines to materialize. As the following chart shows, the US has one of the longest lead times for new mines at over 25 years on average. This lag persists despite recent efforts at reform.”
“China’s upstream policies didn’t happen in a vacuum. Beijing pursued aggressive subsidies in both photovoltaic and power electronic semiconductors, while its massive buildout of ultra-high-voltage transmission lines provided enormous domestic demand for HVDC systems.
“There are benefits to the West that shouldn’t be overlooked. Photovoltaic panel prices have fallen dramatically, and much of the research and development of HVDC systems has come out of China. Cost reductions were largely driven by found efficiencies and deployment-driven reductions from solar’s steep learning curve; however, China’s subsidies undoubtedly played a role in the development of industry leadership. With those low prices comes exposure that the US should work to reduce.”
“The global HVDC market is projected to grow from roughly $15.6 billion in 2025 to over $22 billion by 2030. Asia Pacific dominates with over 50 percent of installed capacity, driven by China’s massive ultra-high-voltage DC projects. North America accounts for only about 8 percent. The converter station, where AC is converted to DC and back, is the most complex and expensive component, accounting for approximately 55 percent of total system cost. This is where supply chain vulnerabilities concentrate.
China’s UHV buildout has generated massive domestic manufacturing scale in precisely these technologies. Companies like TBEA, NR Electric, XJ Electric, and Xuji Group now supply complete UHVDC systems. The equipment supply chain functions as what industry analysts describe as a “regulated duopoly” between SGCC and China Southern Power Grid,which together accounted for an estimated 94 percent of EPC awards in 2025. Chinese domestic suppliers reportedly commanded 68 percent of submarine HVDC cable orders that year, undercutting European competitors through shorter delivery cycles.”
“A structural problem endemic to economic security exists here though: DOE is not equipped to see the bigger picture. As such, DOE’s technical reports are almost entirely disconnected from analysis of geopolitical and economic strategy.
A DOE assessment will tell you that gallium supply is concentrated in China. It will not tell you how China’s demonstrated willingness to use export controls as retaliatory instruments changes the risk calculus for grid equipment procurement. It will identify SiC substrate availability as a bottleneck. It will not connect this to the broader question of whether the United States can maintain sovereign capability in grid-scale power electronics manufacturing while competing with Asian cost advantages.
This reflects the bureaucratic reality of the U.S. government, where energy policy, trade policy, industrial policy, and national security policy are housed in different departments with different cultures and mandates.”
4 Big Ideas
Grace Shao explores Dreame - a vacuum company that is now selling cars and the broader physical AI trends in this essay:
Some Takeaways
“Everyone’s talking about humanoid robot marathons, and Silicon Valley’s hottest livestream is of a warehouse robot. But there is actually a more interesting physical AI story unfolding before us that is going unnoticed in the West: a Chinese vacuum company that now makes sports cars.
You know which Chinese company is making a lot of noise right now? Dreame. The vacuum company. The home appliance company. The robot vacuum company. The “AI-powered whole-home ecosystem” company. The one that debuted its huge demo event in San Francisco in late April, talking about cars, phones, smart rings, robotic arms, AI laundry, robotic lawn mowers, and a future where every consumer electronic will be reinvented.
How do you even categorize a company like this?”
“In today’s Chinese tech environment, as in after the whole Jack Ma saga, most Chinese tech (all rich people) founders have become careful, sanitized, or gone out of their way to be invisible. Yu Hao (余浩) has been going the opposite direction. He talks a lot, he makes public statements a lot, and he’s very active on social media. All of which is probably a headache for his PR team but somewhat entertaining and refreshing in an environment where everyone’s either hush or reading off corporate scripts. He talks about building one of the greatest companies in human history. He talks about a future Dreame ecosystem worth 百万亿市值. Now what is that? One hundred trillion dollar market cap company, and for context, that is like ~20 Nvidias. Like I said, not a humble guy. His ambition is to grow the Dreame ecosystem to the largest company in the world, essentially.”
Yu Hao’s answer was that Dreame had built two layers: a bottom layer of long-term technologies (motors, vision algorithms) and an upper layer that combined those with external suppliers and channels. New products didn’t need to start from zero. The company could reuse the stack.
The escape strategy was clever. By 2020, Dreame’s own-brand products already accounted for about half of the company’s sales, while overseas sales were roughly 70% according to 36Kr’s reporting. Yu Hao explained the overseas-first move simply: they didn’t have enough money. Domestic promotion was expensive. Overseas markets were more open, and Chinese companies like Huawei and Xiaomi had already spent years educating the market abroad. His shorthand was: use overseas to hit domestic, use high-end to hit low-end, use new channels to hit old channels.
And here’s a detail from their early brand-building that I think is underappreciated. When Douyin (TikTok’s Chinese version) opened up to e-commerce at the end of the 2010s (2018ish), there were basically no legitimate premium brands selling on the platform. Dreame went all in on Douyin commerce early, making it a core channel for 2C marketing when everyone else was still skeptical. For a resource-constrained company competing with Xiaomi’s own distribution, that was a genuinely differentiated bet on a channel no one else was taking seriously yet.
Whether intentional or not, the success came about when a few ingredients converged. Dreame used Xiaomi to learn how to make and figure out what sells, used overseas markets to prove it could stand alone, used Douyin to build a brand when no one else was premium on the platform, and then came back to the domestic market with higher-end positioning.”
“The team spent the first two years of their initiation just figuring out how to optimize the motors. At the time of its inception, as I mentioned above, Dyson was the holy grail of luxury home appliances, and their goal was simply to match Dyson’s motors. Motors go into vacuums, hair dryers, fans, air purifiers, lawn robots, and maybe cars. AI goes into navigation, cleaning, laundry, and phones. Robotic arms go into vacuums, mowers, laundry machines, and refrigerators.”
Wheels before legs
So the reason Dreame caught my eye is that amid all the humanoid mania, a robotics company like itself seems to be rejecting it altogether.
Everyone wants to talk about humanoids because, well, we’ve written before 1/ ego 2/ sense of self-importance 3/ buzz and what people say “our physical world is designed for humans’ but you guys know how I feel about it all. It’s simply just not there yet. And I, for one dont understand why industrial six-axis arms don’t get more love.
At CES 2026 in January this year, 21 of 38 humanoid robotic displays were Chinese. The marathons and demos definitely fuel the excitement. The discourse follows Elon Musk’s vision of a general-purpose humanoid, and the rave followed. But Yu Hao understands that hardware does not scale as easily as software. There’s no Moore’s Law for legs, actuators, batteries, reliability, and service networks. In fact, it is said that more than half the cost of a humanoid robot is in creating the legs and the form factor. Using wheels is much cheaper. And that’s why we see Sunday Robotics or Dyna Robotics optimizing with the arms on wheels, adding a ‘head’ like sphere, I guess, for funsies, because a headless bot could turn some people off.
Someone shared a stat with me that I keep thinking about. For every step in a robotics process, assume a 99% success rate. Sounds great. But if you’re running a 30-step process, which is considered long for consumer robotics, your total success rate drops to about 74%. That’s the math that makes hardware hard. The chip isn’t cheap, the software models for robotics aren’t strong yet, and the cost structure is overwhelmingly in manufacturing.
The thing is, if you push through the noise and hype, think about what an actual practical use case of robots in a home environment is. A vacuum that can know not to suck up a sock, and elevate itself over a step, or a human-looking bot that can run fast.
And why Dreame’s consumer specialized robots and not humanoids, have actually built a business, a real, viable business. Some may say Dreame’s bots dont look ‘revolutionary,’ but a functioning bot that can clean the pool or mow the lawn really adds more tangible value than most of what we’re seeing on the market.”
“As the country’s decades-long efforts in building, enhancing, and grooming a generation of companies, technology, and talent in the spaces of manufacturing, lidar sensors, battery storage, and so on have definitely helped. It’s the convergence of technologies that is embodying the boom of China’s AI robotics industry now. So the story of Dreame is not really just about Dreame, it’s the whole ecosystem around the robot.”
“Just as Rui Ma wrote in TechBuzzChina after two trips across China visiting factories and showrooms, she “came away less convinced that humanoids are close to becoming household helpers, but more convinced that China’s advantage in robotics is not any single robot. It is the closed loop around the robot: capital, factories, data, supply chains, customers, and local governments all pushing in the same direction.”
The market data reflects this. IDC’s 2025 data shows the global cleaning robot market shipped 32.72 million units, up 20.1% YoY. Lawn-mower robotics grew 63.8%. Window-cleaning robots grew 70.4%. Chinese manufacturers are setting pricing benchmarks, commercializing AI navigation, and scaling globally through e-commerce. IDC’s conclusion was blunt: supply-chain depth and rapid iteration have become decisive competitive advantages.”
“Two decades ago, German and Nordic brands dominated the premium consumer electronics space, and Japanese and Korean companies were the suppliers of many. A decade ago, consumer electronics used to be made in Japan, then Korea, then China as a low-cost factory. (Btw, even Boston Dynamics is now owned by Koreans)
The old story was the price of export but the story now is iteration speed and truly quality design. Dreame’s own numbers claim overseas revenue at nearly 80% of total sales in 2025, North America revenue up 189% YoY, products in 42 million households across 120 countries, over 10,000 patents filed with 3,000+ granted, and R&D personnel at more than 70% of the company. A Dreame-distributed release citing IDC’s tracker claimed 27.6% unit share of European robot vacuum shipments in 2025.”
5 Big thinking
FS Blog dropped some knowledge on how we end up “Playing on Hard Mode”back in 2022 - still holds plenty of food for thought - go ponder it here in full:
https://fs.blog/brain-food/january-23-2022/
Some Takeaways
“While most of us would never choose to play life on hard mode, that’s exactly what we do when we put ourselves in a bad position. One way to visualize this is through the lens of billiards. We become so focused on making the first shot that we fail to consider how we position the ball for the next shot. When we go to take the next shot, it’s harder than it had to be.”
“Being in a position to capitalize when times are bad requires doing different things when times are good. This goes against human nature — we don’t want to look like an idiot when times are good even if doing so offers an unstoppable advantage when times are tough. Good times eventually come to an end. As Warren Buffett says, “Only when the tide goes out do you discover who’s been swimming naked.”
The main lesson here is to always put yourself in the best position possible no matter the future conditions. Not only does this mean avoiding costly problems, as the couple above learned, but it also means putting yourself in a position to perpetually play offense.
Brilliance might appear to win in the short term, but positioning inevitably wins in the end.”
6 WORRY
Have a Great weekend when You get to that stage,
Sune