With 2025’s data center CAPEX boom behind us, the AI and energy industries are now facing a multi-trillion dollar logistics threat from the east: China’s manufacturing and refining dominance.
Craig Tindale – a macro trader and former manufacturing consultant for IBM and other major firms – discussed the looming threat on the most recent Blockspace Podcast. He highlights how decades of Western outsourcing have allowed China to secure a stranglehold on the global supply chain, cornering as much as 90% of global refining capacity for the minerals that are indispensable for everything from AI chips to missile defense systems.
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Tindale argues that, while the West focused on financial efficiency, China spent decades building a “midstream matrix” of refining capacity. The result is a geopolitical chokehold where one nation now controls the flow of essential materials, and China’s recent export controls are primed to make a bad situation worse, Tindale argues.
China controls 80-90% of the mineral refining necessary for AI, energy
The core of the problem lies in processing rather than mining.
Tindale explains that China has seized control of 80% to 90% of the refining capacity for critical minerals. This dominance effectively gives China the option to guillotine global supply of these metals; even if they are mined in Australia, North America, or South America, they will probably end up in China for processing before they can be used in Western manufacturing.
At the same time, China has implemented a dual licensing system where only select companies are authorized to buy or sell these refined metals. Tindale warns that if Beijing decides to restrict exports, as they have recently done with gallium, germanium, and antimony, Western industries would have no immediate alternative for sourcing the materials needed to build high-performance computing centers, certain energy systems like solar, and advanced weaponry.
Silver production and the 25,000-ton deficit
Silver has become the poster child of the vulnerabilities laid bare by this dependency.
The bulk of silver production is a byproduct of refining copper, lead, and zinc, a process that is overwhelmingly conducted in China. The raw ore mined in countries like Peru and Chile is shipped to China for processing, where the silver slag is extracted before being sent to ingot makers in Switzerland, Mexico, and elsewhere.
This bottleneck is exacerbating a severe supply shortage. The market has racked up a 25,000-tonne deficit of silver over the last four years, drawing down vault stockpiles to meet demand. With the AI boom and solar panel manufacturing requiring exponential amounts of silver, any disruption in the Chinese refining loop could send prices skyrocketing and halt deployment of new energy and data technologies.
Infrastructure bottlenecks and equipment delays for AI data centers
The impact of these shortages is already visible in the energy sector.
Large transformers, which are critical for powering data centers and updating the grid, now have lead times of four to five years, Tindale claims. Major manufacturers like Siemens have backlogs worth billions, and they rely on Chinese supply chains for the raw materials and components needed to build these units.
This inability to procure essential infrastructure hardware threatens to stall the capital expenditure plans of major tech companies. As Tindale bluntly points out, you cannot build AI data centers if you cannot power them, and you cannot power them without the transformers and transmission equipment that are currently caught in this supply squeeze.
Capital cost disparity hinders reshoring
Efforts to reshore manufacturing face a significant financial hurdle.
Chinese state-owned enterprises and supported firms are often subsidized by the central government and can borrow capital at sub 4%, Tindale says. And without the burden of ESG constraints, we might add. By contrast, Western mining and industrial companies often face a weighted average cost of capital between 15% and 20%, he continued.
This disparity makes it difficult for Western companies to compete on price or to finance the long-term infrastructure projects required to rebuild refining capacity. While companies like Rio Tinto (NYSE: RIO) look to merge or expand to survive, the timeline to bring new refining capacity online is measured in years, leaving a dangerous gap where the West remains reliant on a strategic rival.
The turtle on its back
Tindale concludes that the US is akin to a “turtle on its back,” having sold off its industrial capability in exchange for cheap goods and financial efficiency.
The disconnect between the financial economy and the material economy means that sound money (like gold or bitcoin) or high stock valuations cannot solve the problem if the physical atoms needed to build products are unavailable.
Recovery will require a shift in mindset from financialization back to engineering and industrial production. While there are pockets of innovation in titanium and rare earth processing emerging from US universities and defense funding, the path to resilience requires acknowledging that the era of relying on rivals for critical supplies must end, Tindale concluded.
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