As the West and China/Russia drift apart economically, both the US and the EU try to decouple their supply chains from China, Russia, and their allies. This has created a lot of concern about the supply of critical raw materials like rare earth metals that are used in wind turbines and other modern applications. Obviously, if supply becomes constrained, prices for these commodities have to rise. How much exactly is something a new research paper by the IMF has tried to calculate. And the results are not pretty.
The vulnerabilities of global supply chains have been laid bare in the aftermath of the pandemic. When all of a sudden cargo cannot be transported between China and Europe or Africa and China, much of modern industrial production comes to a standstill. Nowhere are these bottlenecks tighter than in global commodity markets, I think. While one can often get machinery parts from several suppliers in different countries, the supply of certain critical metals like cobalt is heavily concentrated in one or two countries.
The chart below is quite scary because it shows the global share of production of the top three producers of the most important commodities.
Global share of production of top three producers
Source: Alvarez et al. (2023)
But it is not just production that is highly concentrated in the hands of a few countries. Most countries import metals and other commodities only from a very small number of supplier countries.
Share of countries that import commodities only from one, two or three suppliers
Source: Alvarez et al. (2023)
A team from the IMF has now built a model that looks at the global trade links of the 48 most important global commodities from crude oil via metals to palm oil and cocoa. They use this model to estimate how much prices in the Western bloc and the Russia/China bloc would change if trading between the two blocks stopped altogether.
Obviously, this is an extreme case, because even in an all-out trade war, trade in these commodities between the blocs would not stop altogether. Just look at Russia still being able to sell its oil and gas despite Western sanctions against it. But what this simulation does show is the sensitivity of commodity prices to a trade interruption and a trade war that affects them.
Effectively, what would happen is that the Western bloc would end up with a surplus of some commodities like iron ore or copper where there is more production than is needed in the region. Hence, steel prices would drop a lot in the West and rise dramatically in China, which undoubtedly would put an end to a lot of the growth in infrastructure and real estate in that country.
But prices for magnesium and graphite, used extensively in the production of batteries and other renewable energy equipment as well as platinum, group metals, and rare earth metals would skyrocket in the West since we would be cut off from supply from China.
Expected price changes in commodities after a geopolitical decoupling of the West from China and Russia
Source: Alvarez et al. (2023). Note: y-axis cut off at 150% to improve readability.
This is why I call the current standoff between Russia/China and their allies with the US and its allies a situation of mutually assured economic destruction. China can hurt the West just as much as the West can hurt China with economic sanctions. An all-out trade war between China and the West would have no winners, only losers. And I think many of the people who call for economic isolation of China through sanctions do not realise this problem, or wilfully ignore it for ideological purposes.
Economic- and financial literacy seem pretty rare amongst US neocons *, who have had a pretty big ear in Washington the past decades compared to their numbers vs traditional conservatives - if those exist in the US- and vs liberals. (Both group have of course now also turned pretty hawkish). Then again, plenty neocons and conservatives have stated that deficits don't matter and that in fact they help to 'starve the beast'. Though every time one of them occupies the white house the beast gets bigger...
While the climate alarm segment of society, mostly middle class, sees economic growth as harmful and thus you can hear them say and see them write along the lines of 'a little bit less should not be a bad thing'. The global South of course, in the name of Climate Justice **, should be allowed (you know by who) to experience prosperity, but prefrebly fueled by renewable energy.
The political working group of the IPCC has been pretty much captured by the degrowth set if you'd had to belief the latest 2021 IPCC AR6 report:
The Political Agenda of the IPCC
'The IPCC continues (emphasis added):
The starting point for this virtuous circle are inner transitions. Inner transitions occur within individuals, organisations and even larger jurisdictions that alter beliefs and actions involving climate change (Woiwode et al. 2021). An inner transition within an individual (see e.g., Parodi and Tamm 2018) typically involves a person gaining a deepening sense of peace and a willingness to help others, as well as protecting the climate and the planet . . .”
What are examples of such “inner transitions”? The IPCC explains:
Examples have also been seen in relation to a similar set of inner transitions to individuals, organisations and societies, which involve embracing post-development, degrowth, or non-material values that challenge carbon-intensive lifestyles and development models . . .
The IPCC discusses the importance of “degrowth” to its vision of transformation in its AR6 Working Group 2 report:
Consumption reductions, both voluntary and policy-induced, can have positive and double-dividend effects on efficiency as well as reductions in energy and materials use . . . a low-carbon transition in conjunction with social sustainability is possible, even without economic growth (Kallis et al. 2012; Jackson and Victor 2016; Stuart et al. 2017; Chapman and Fraser 2019; D’Alessandro et al. 2019; Gabriel and Bond 2019; Huang et al. 2019; Victor 2019). Such degrowth pathways may be crucial in combining technical feasibility of mitigation with social development goals (Hickel et al. 2021; Keyßer and Lenzen 2021).'
https://bit.ly/42QxGo4
Boing...
China:
In 2005 Chalmers Johnson wrote this essay on the likely US reaction to the emergence of China while he also predicted correctly Japan's turn to the right and its current rearming.
No Longer the “Lone” Superpower
Coming to Terms with China
BY CHALMERS JOHNSON
https://bit.ly/3NZisaR
* They did think of having the Iraqi gov send all their oil revenues into a US bank account to 'combat corruption, money laundering and Islamic terrorism'.
http://tinyurl.com/3jv2s9ky
** Rightneousness is at 1970s levels these days, let me introduce the concept of 'Hydrogen Justice' posited by a bunch of well meaning German academics:
'This paper introduces the concept of hydrogen justice as an analytical toolkit to help examining justice challenges of the global hydrogen transition. Placing hydrogen justice at the nexus of energy, water and climate justice, and incorporating crucial insights from political ecology and decolonial studies we highlight potential hydrogen injustices'
https://bit.ly/3OHI2li
The German team is led by Prof. Dr. Franziska Müller whose 'main research interests are global climate and energy governance and (constructivist, poststructuralist and postcolonial) theories of international relations'. She and her team work on an 'African energy transition'.
Because The Guilty have to guide their African Children to a better Africa. A world they apparently can't find on their own. Ask any NGO.
I fear that the continued de-coupling plus a scramble for "transition metals" will likely lead to some very brutal proxy wars (just like the 70s). Just my 2c.