WITA’s Friday Focus on Trade – June 23, 2023




Friendshoring Critical Minerals: What Could the U.S. and Its Partners Produce?

In the wake of the Russian invasion of Ukraine and amid heightened tensions with China, the United States and its key partners are making a concerted effort to diversify and friendshore clean energy supply chains, relocating them to countries with shared interests or values. G7 countries are focusing especially on the critical minerals that are needed for renewable electricity production and batteries.
In June 2022, the United States and its G7 partners launched the Partnership for Global Infrastructure and Investment (PGII) to build clean energy supply chains. They also signed the Minerals Security Partnership to produce, process, and recycle critical minerals. Subsequently at Davos, in January 2023, European Commission President Ursula von der Leyen announced that a key pillar of the EU’s new industrial strategy will be global partnerships to access inputs needed for industry. This builds on existing EU initiatives, such as the European Battery Alliance and the Critical Raw Materials Act, which both aim to onshore and secure supply chains.
These initiatives mark the emergence of a phenomenon we call “joint industrial policy:” when states coordinate their industrial strategies at the international level and build supply chains collaboratively. Joint industrial policy entails states working together to secure supplies of needed technologies and create markets in support of net-zero industries in their home countries.
The push for collaborative strategies for critical minerals raises important questions: how much critical minerals could the United States and its partners produce, and where should they focus efforts to diversify and rebalance clean energy supply chains?
…The scale of the challenge is incredible. Even aggressive growth in the mining sector would leave democratic countries drastically short on critical minerals supply. Thus, while all democratic countries could achieve critical minerals independence in most areas based on reserves, increasing production to achieve clean energy targets for 2030 would require unprecedented action.
China’s ability to restrict the export of solar inputs and critical minerals demonstrates that crucial clean energy technologies and inputs could become unavailable to the G7 and its allies. At the same time, excluding China from supply critical minerals is simply not possible in the short term. Therefore, a clear and coherent strategy for focusing and aligning joint industrial policies among the United States and its partners is needed.

05/03/2023 | Bentley Allan, Noah Gordon, and Cathy Wang | Carnegie Endowment for International Peace


Why the Proposed Brussels Buyers Club To Procure Critical Minerals Is a Bad Idea

The European Commission has announced draft legislation that would establish a centralized purchasing mechanism for critical minerals (“critical raw materials,”in European Union [EU] parlance), such as bauxite, cobalt, lithium, and nickel. These materials are critical inputs to green energy infrastructure, electric vehicles, and military technology. Their availability and cost will determine in large part how rapidly crucial climate change mitigation technologies can be adopted. The European Union is deeply dependent on imports of both raw and processed critical minerals and materials and thus highly exposed to global prices and price volatility.
The door appears to be open for the United States or other EU trading partners and like-minded countries to join, although the term club is also being applied to negotiations over trade deals—such as the limited US-Japan free trade agreement—designed to manage trade between major economies that are also critical mineral importers. But many of the top producers of critical minerals are not developed economies. Countries like Bolivia, the Democratic Republic of the Congo, Guinea, and Indonesia are key exporters and/or have massive exportable mineral resources.
Decarbonization is not the only impetus behind the proposed Brussels buyers club. Both the European Union and United States view China’s dominance of critical mineral supply chains as a national security issue, because these minerals are key inputs to modern military technology. Access to strategic resources—the resources necessary to field modern militaries and the economies that sustain them—has always informed national security strategy; the issue has been given increased urgency by disruptions of energy supply chains stemming from Russia’s invasion of Ukraine and weaponization of its oil and gas exports and reports that China is considering banning certain rare earth mineral and magnet exports in response to US and Dutch export controls on leading-edge semiconductors and fabrication equipment to China.
The proposed buyers club could yield several benefits for the European Union, including preventing outbidding between EU-based purchasers, sending more accurate and transparent demand signals, and facilitating coordination with broader economic and security priorities. But for reasons ranging from intra-EU politics to challenges inherent to running cartels, such a buyers club may be politically and economically unworkable. And if successful, it would shift an important share of the economic benefits of green energy transitions from mostly developing and middle-income economies to the European Union, undermining putative commitments to just energy transitions at the global level.
Supply chains for critical minerals desperately need widening to meet projected global demand and tackle climate change mitigation. A purchasers club would not be a step in the right direction.
05/31/2023 | Cullen S. Hendrix | Peterson Institute for International Economics

Lessons from Germany’s Visit to South America’s Lithium Triangle

Free trade is the cornerstone of a competitive economy as it contributes to the prosperity of any nation and creates socioeconomic benefits. It also drives job creation and fosters a more efficient and competitive industry. 
In the words of Benjamin Franklin: “No nation was ever ruined by trade, even seemingly the most disadvantageous.” 
Over the last decades, not only were nations not harmed by trade, but they have been reaping unimaginable benefits, which have transformed the standard of living and afforded them greater access to competitively priced goods.
The Arabian Gulf region is an important global trade hub that depends heavily on exporting oil derivates and raw materials to the world. After oil and gas, the chemical and petrochemicals industry is the second largest industry in the region and plays a vital role in the Gulf Cooperation Council economies. The value of chemical trade flow in the GCC reached $88.6 billion in 2021, with exports accounting for $68.6 billion: an increase of 56.5 percent in value in 2021 compared to the year before.
Off the back of this growth, chemical trade is emerging at the forefront of the regional agenda. In 2021, the region set a new record with its trade surplus reaching $53.7 billion (the highest since 2009).
Furthermore, growth in the GCC chemical industry translates into better job creation in the region. In 2021, the chemical sector accounted for 53,900 direct and 107,800 indirect jobs, and 48,500 induced jobs — or a total of 210,200 jobs.
While regional chemical trade has been buoyant over the last three years, opportunities to improve the chemical industry’s international trade position certainly exist. But to achieve this, the policymakers’ role is of paramount importance if we are to see growth in the share of free trade agreements and preferential trade agreements between the GCC and its trading partners. Such deals are increasingly being seen as beneficial to GCC’s economic growth as well as the sustainability of the regional chemical industry. From helping to raise living standards to attract foreign investment, fostering innovation in manufacturing, and connecting businesses with people, free trade deals have an unmatched potential to make industries more sustainable, improve revenues, generate more jobs for the local population, and facilitate the development of advanced technologies.
Free trade agreements will help the region’s downstream players to boost their innovation output and become more competitive globally. Robust provisions on intellectual property rights protection that potentially go beyond the standard protection envisaged in the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights would reduce costs of trading in IP-sensitive goods and promote innovation in sectors, such as the chemical industry. 
Free trade deals not only reduce and eliminate tariffs, but they also help to overcome behind-the-border barriers. As a result, companies can focus on producing and selling goods that best utilize their resources, while other businesses import scarce or locally unavailable goods and raw materials. It is a win-win situation for all. There is good news for local industries too. FTAs are proven to help small and medium-sized businesses to become more competitive and less reliant on government subsidies. Just imagine the sheer value that free trade agreements can unlock — for local communities, consumers, and the overall economy.
While it must be recognized that FTAs could reduce government revenues, which come from existing customs duties, this reduction in revenue would be offset by enabling GCC commodity exports to gain access to protected markets. Gaining access to new markets will in turn enhance the netback for regional exports and generate higher revenue for chemical firms, which are wholly owned by GCC governments.
The international trade landscape has been undergoing a series of tectonic shifts in the face of changing chemicals supply and demand centers, emerging economies claiming a larger share of international trade, world events, such as the war in Ukraine, supply chain challenges, the COVID-19 pandemic, and increasing protectionism.
So, what opportunities lie ahead for new FTAs? The GCC region has the highest intraregional trade share and intensity with China, India, and Turkiye. It has lower trade costs with this group of countries when compared with other economies. Consequently, free trade agreements with China, India, and Turkiye will prove to be beneficial.
If the GCC is signing or planning to sign such an agreement, it would be essential to know which goods are the most efficiently produced and select the most profitable sectors to maximize gains.
In a recent white paper issued by the Gulf Petrochemicals and Chemicals Association, we shared exclusive insights that can help policymakers evaluate the potential economic impact of a free trade agreement. It is a must-read for anyone looking to enhance their understanding of FTAs and their vital role in the chemical industry and the region.
To conclude, as we look to the next decades when the global population is projected to exceed 9 billion by 2050, demand for chemicals and agri-nutrients will continue to rise, creating unprecedented pressure on the industry to deliver its goods to an exploding global population. The GCC chemical industry has strong potential to benefit from the global increase in chemical demand, projected to double by 2050 and provide life-enhancing, safer, cheaper, and more durable chemical products to communities across the world.
02/26/2023 | Scott B. MacDonald | The National Interest

Raw Materials Critical For The Green Transition

Excerpts from Przemyslaw Kowalski and Clarisse Legendre’s policy analysis on global critical minerals trade, relating to green energy development.
The significant increase in prices of non-energy raw materials during the COVID-19 pandemic can be partly explained by a shift of global demand from services to goods. Demand shifted away from transportation, recreation and hospitality services, which were affected the most by the pandemic-related social distancing restrictions, towards goods, in particular towards ‘home nesting’ products, products required to renovate homes, and products consumable from home such as electronic equipment, recreational equipment, food, and beverages as well as retail trade. These types of products rely on raw materials needed for their production. In addition, supplying raw materials depends crucially on international trade and transport, particularly sea transport, which were significantly perturbed during the pandemic and have not yet fully recovered.
In addition, amidst the partial recovery from the impact of the COVID-19 pandemic, the Russian invasion of Ukraine in February 2022 resulted in new challenges to international trade and the global economy, and to international supply of those agricultural and industrial raw materials for which the two countries are historically important traditional suppliers. 1 As of mid-2022, prices of many kinds of imported non-energy commodities were at, or close to, their historically high levels. This was the case for all major categories of industrial raw materials, including precious metals, non-ferrous minerals and ores, minerals and ferrous metals. Aluminium, copper, tin, gold, zinc, for example, recorded the highest price levels since the early 1990s (and higher than on average all traded commodities), while for other metals such as lead or silver, prices are approaching historical highs recorded in the aftermath of the GFC.
More broadly, as a repercussion of some of the disruptions during the COVID-19 pandemic as well as Russia’s invasion of Ukraine in February 2022 and other growing geopolitical tensions, some countries have started analysing their reliance on different imported products, including on raw materials, to identify those that could cause disruption in production or consumption in case of unexpected interruptions of supply, or those that could be used as tool of coercion or might create national security risks. Analysing such dependencies is challenging because there is no common understanding at what point trade linkages—for raw materials or other products—might give a rise to a concern. Some new on-going work is being undertaken, including by individual countries and international organisations such as the OECD to explore how different types of dependencies have developed historically, what the main drivers have been for changes, and at what point such dependencies could give rise to concern.
…A few metals continued to dominate the value of global exports of the critical raw materials in the last decades. The top 10 traded critical metals (iron and steel, gold, copper, aluminium, zinc, nickel, silver and platinum, lead and palladium) accounted for on average 94% of the value of global exports of critical raw materials in both 2007-09 and 2017-19. The remainder was accounted for by the other twenty three materials on the critical raw materials list and there was very little change in the ranking of shares of trade of these less traded materials. Lithium, cobalt, silver, manganese, titanium and palladium saw their shares increase, but from very small bases. In contrast, the share of gold increased from 11.4% of the value of global trade in critical raw materials in 2007-09 to 25.1% in 2017-19. At the same time, relatively large decreases in shares were recorded for nickel (-1.7 percentage points), platinum (-0.9), aluminium (-0.9), molybdenum (-0.5) and pig iron (-0.3).
Zooming in on growth rates reveals that the value of trade of critical raw materials was expanding faster (average growth rate of 38%) between 2007-09 and 2017-19 than trade of all merchandise products (31%) and trade of all raw materials (35%). Trade of some of the critical raw materials, which currently account for small shares of global critical raw material trade, has been increasing the most rapidly. For example, lithium—which still accounted for only 0.2% of the value of global critical materials trade in 2017-19—recorded the largest increase of all critical raw materials (438%) in the investigated period, and manganese, natural graphite, cobalt, titanium, lead, rare earths elements as well as arsenic and zinc all recorded higher than average growth rates.

04/11/2023 | Przemyslaw Kowalski and Clarisse Legendre | OECD


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