The 31st Global Trade Alert Report
Many Western governments frame their strategies towards Critical Raw Materials in terms of security of supply and fret about “dependency” on hostile trading partners. Governments of lower per-capita income nations with lots of material reserves see the matter differently. For them, the sharp predicted increases in demand for these materials in the decades ahead is too good an opportunity to miss to develop processing industries as part of the modernisation of their economies. Both groups frequently talk past each other, a practice made worse by the suspicions created by intensified geopolitical rivalry. The ensuing scramble for critical raw materials is the subject of this report.
Many narratives around geopolitics and critical raw materials are misleading
What differentiates this report from others is that:
We assess the pros and the numerous cons of creating lists of raw materials deemed “critical.” Lists can have the merit of being transparent, but they attract the attention of special interest groups.
- We evaluate whether trading patterns in critical raw materials are more volatile than other materials and metals (they aren’t). Central to geopolitical scaremongering about trade in critical raw materials are claims made that China “weaponised” Rare Earths exports against Japan in 2010. Using United Nations’ trade data, we found no evidence that China singled out any G7 member or the EU for reductions in Rare Earth exports.
- We demonstrate that, with the exception of the United States, Western nations have significantly reduced their sourcing of Rare Earths from China since 2010. That was facilitated by a five-fold increase in the quantity of Rare Earths available from other countries in the years 2015 to 2021.
- Another narrative we challenge with data is that Indonesia’s export curbs on nickel ore provided a surefire recipe to develop its downstream processing industry. Increases in Indonesia downstream exports look a lot less impressive when the surge in recent years of Indonesia’s other non-agricultural exports is taken into account. Attributing downstream nickel sector gains solely to the upstream export ban fails to take account of the other measures Indonesia took.
- For all the talk of policy support for sourcing and producing critical raw materials we show that, worldwide, policy intervention affecting other materials occurred more often, was more likely to be permanent, and was more likely to favour local firms than the products deemed critical.
- We show that the weight given in trade policy circles to export restrictions on critical raw materials is probably misplaced. In fact, such restrictions account for small percentages of the measures taken by governments that bear upon markets for critical raw materials. Resort to subsidies is far more frequent.
- Given Western governments frequent reference to securing critical raw materials one might have expected that they would have reduced import restrictions on more critical raw material product lines and larger shares of relevant imports. We show that, when compared to those champions of active industrial policy—the BRICS and Indonesia—they didn’t.
Time to take stock and to face the realities inhibiting capacity growth
It surprised us that much of the trade policy-related narrative concerning critical raw materials has little basis in fact. Analysts and officials need to take stock of the current scramble for critical raw materials—and, ultimately, revisit assumptions about the factors most likely to prevent long-term supply of critical raw materials from growing to meet growing demand.
Even in the absence of geopolitical rivalry, the challenges associated with scaling up supply of raw and processed critical raw materials to meet higher levels of demand would have been formidable. Complicating factors include fundamental uncertainty as to the pace of the digital and energy transitions, with their knock-on effects for both how much material will be needed and, quite possibly, which materials are needed in greater quantities in the first place.
On top of this are geological considerations including the fact that some critical raw materials are byproducts of other less-wanted materials, that long time frames needed to bring some mining facilities online, and the central roles that uncertainty and difficulties in financing play in scaling up production. Without denying the contribution that greater recycling and the adoption of circular economy practices can make, on its current trajectory, supply expansion for most critical raw materials is likely to be sporadic.
One consequence is that periodic outbreaks of market disruption are on the cards. Whichever long-term strategies are adopted by governments need to be designed with this disruption in mind. Opportunists should not be allowed to capitalise on any short-term shortages, price hikes, and the like. Anyone expecting or demanding that markets for critical raw materials unfold over time in a predictable manner simply hasn’t read enough about the mining industry. This is going to be messy. Yet, we do not counsel despair.
The ensuing scramble for critical raw materials is the subject of this report, the 31st prepared by the Global Trade Alert team. Part I of the report examines the very notion of a critical raw material and what factors underlie the expected shortages and volatility in world markets for these goods. The pros and cons of enumerating lists of critical raw materials is discussed, not least given the tendency of some producer groups to claim their materials deserve state largesse. Given the frequent mention of Rare Earth materials in deliberations on critical raw materials, a chapter is devoted to alleged attempts to weaponise trade in them.
Part II of the report provides detailed evidence on the unilateral policy intervention undertaken by governments towards critical raw materials. Here we examine if there is a mismatch between the narratives used by policymakers to characterise their policies towards critical raw materials and the actual policy mix chosen. A subsequent chapter is devoted to steps taken by governments, sometimes in concert, to produce or secure critical raw materials abroad. Having found these approaches wanting, we advocate an approach to thickening over time markets of critical raw materials.
In policy deliberations, it is mistaken to view market structures and international sourcing patterns for critical raw materials as immutable. They can evolve over time guided by market-supportive government intervention. Still, the fundamental uncertainty facing demand for critical materials as societies undertake the digital and energy transitions means that, whatever steps are taken to thicken markets over time, there will be occasional shortages and market disruption. Private and public sector decisionmakers should expect such disruption and take mitigating measures in advance such as, where viable, stockpiling.
The Global Trade Alert team at the St. Gallen Endowment for Prosperity Through Trade contributed to the production and dissemination of this report. This report was written by Simon J. Evenett and Johannes Fritz.
To read the full report, please click here.