Originally, I was just answering a question, but unexpectedly, it turned into a special topic, so I’ll write a bit more — the global geopolitical conflicts and the actual impact of the Russia-Ukraine conflict on the risk market and the United States.
First, we need to see what the current geopolitical conflicts' impact on the United States is. For example, the conflict between Russia and Ukraine has the most significant impact on the U.S. in terms of prices, food, raw materials, and energy, with inflation starting to rise significantly related to the Russia-Ukraine conflict. Therefore, I think geopolitical conflicts can be divided into three types:
Those that may affect U.S. inflation.
a. The Russia-Ukraine conflict has led to rising prices of energy, food, and raw materials, directly pushing up inflation and affecting the Federal Reserve's monetary policy.
b. The Red Sea crisis (Houthi attacks on commercial ships) has led to increased international shipping costs, which may also push up inflation.
c. If the Iran-Israel conflict escalates, it may affect oil supply, leading to energy inflation.
Those that may drag the U.S. into conflict.
a. The Taiwan issue: If a conflict occurs, the U.S. may intervene, significantly impacting global supply chains and market sentiment.
b. The Korean Peninsula crisis: If North Korea escalates provocations, the U.S. may be forced to participate in sanctions or military actions.
Those that are completely unrelated to the U.S.
a. The Armenia-Azerbaijan conflict: Minimal impact on global markets.
b. Internal conflicts in Africa: Such as the Sudan civil war, which has a very small impact on the market.
The first type, if it occurs, will lead to negative reactions from investors due to its impact on inflation, leading to a belief that inflation will rise, which will lower the Federal Reserve's expectations for interest rate cuts. The second type is more troublesome than the first, as it not only requires personnel and military spending but will also be perceived by international investors as an unstable situation, thus reducing investment in risk markets.
As for the third type, although it may have localized impacts, it will not affect U.S. inflation and will not drag the U.S. into risk, so naturally, it poses no risk to the risk market.
The end of the Russia-Ukraine conflict would have the greatest benefit of hedging against increased tariffs, allowing the U.S. to continue importing low-priced food, energy, and raw materials from Russia, and also some cheap raw materials from Ukraine.
Moreover, the focus of the negotiations between the U.S. and Ukraine this time is to obtain Ukraine's rare earth mineral resources. This is considered a priority because previously, the U.S. and even the global rare earth supply chain were highly dependent on China, which accounts for about 70% of global rare earth production and holds an even larger share in processing and refining.
Currently, the U.S. has increased tariffs and semiconductor controls against China, and China has implemented export controls on rare earths to the U.S. On December 3, 2024, China's Ministry of Commerce announced a ban on the export of key rare minerals, including gallium, germanium, and antimony, to the U.S. These minerals are crucial for manufacturing semiconductors, military equipment, and general industrial use.
On February 4, 2025, China further implemented export controls on five major categories of 25 rare metal products and related technologies, including tungsten, tellurium, bismuth, molybdenum, and indium. These measures are seen as a response to the U.S. restricting semiconductor exports to China and may have a significant impact on the U.S. renewable energy and defense industries.
Therefore, to counter China's countermeasures, the U.S. particularly needs Ukraine's rare earth mineral resources, and for Ukraine, there are not many options. This is also why Trump said Ukraine has no cards to play in the situation. Although Europe has provided a large amount of weaponry, the U.S. increasing tariffs on Europe is also part of the pressure to reduce European support for Ukraine. Currently, countries like France and Germany still support Ukraine, but if economic pressure becomes too great, they may reduce aid.
Ultimately, it is because Ukraine has rich rare earth deposits, which were explored during the Soviet era but have long been undeveloped. Ukraine's economy relies on aid from the U.S. and Europe, lacking autonomy in negotiations, making it easy for the U.S. to reach mineral agreements. Ukraine's resources meet the U.S. supply chain localization needs, which is an important part of the U.S. "decoupling from China." This is why both the Democratic and Republican parties are helping Ukraine; although the directions of assistance differ, the essence is to enable Ukraine to ultimately replace China in the global supply chain (mainly rare earth minerals).
So the final core logic is:
The Russia-Ukraine war affects U.S. inflation, which in turn affects the market and Federal Reserve policy.
China's rare earth export controls accelerate the U.S. search for alternative supplies, with Ukraine becoming a key target.
Ukraine is in a weak position in these negotiations because it has no other choice.
The U.S. indirectly weakens European support for Ukraine through tariff pressure.
The U.S. gains development rights to Ukraine's rare earth minerals, replacing China in the global supply chain system.
This post is sponsored by @ApeXProtocolCN | Dex With ApeX
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