Turning critical mineral melee into a neat queue
Fortunes made in the (literally and politically) dirty business of mining; importing countries persuade, intimidate and bribe exporters to supply them first; the fascinating spectacle of an EU bilateral trade deal being amended to relax restrictions on preferential domestic supply – it's all there. There have been some juicy new developments. China announced last week that it was restricting exports of the metals gallium and germanium that European, Asian and American manufacturers use to make various high-tech products. (As noted by Karthik Sankaran, veteran markets guru and inexhaustible source of globalization-related jokes, it is quite embarrassing that the EU is running out of items named after France and Germany.) On Friday, the EU, which won a World Trade Organization ruling against Indonesia's nickel export controls only to see Jakarta put the case in limbo by appealing to the WTO's Appellate Body (AB), which doesn't work, he unsheathed a shiny new trade dispute weapon, the “enforcement regulation.” The legal instrument allows Brussels to impose compensatory trade sanctions without an AB hearing.The conventional wisdom is that export controls defeat themselves by stimulating supply elsewhere. The best cure for high prices is high prices, cartels contain the seeds of their own destruction, you know the drill. It is certainly Job Function Email Database true that there is a big push to increase production. Precedents and habits are being overturned. Germany, a country where the Greens run the economy ministry, is now reopening mines that closed a quarter of a century ago. It is also true that previous attempts to corner the markets corrected themselves. In 2010, China imposed export quotas to divert its supply of rare earths to domestic manufacturers, but changed course in 2015 after a combination of mines were opened elsewhere, minerals were smuggled out of China and a WTO case before the US The thing is, though, it still gave Chinese manufacturers a few years of preferential supply, and in fast-moving green technology sectors, that could be all it takes to gain a global advantage in technology and processes.
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How can importing countries respond? Jennifer Harris, who recently left her post at the White House as senior director of international economics, said in last week's FT that a common suggestion, the EU, US and Japan, explicitly or implicitly, establish a "club of buyers" to control prices and guarantee supply, was likely to prompt exporters to form a counterbalancing cartel. A better solution, he considered, was an agreement with exporting and importing countries to stabilize prices and supply. Good idea, but the Biden administration isn't exactly known for his firm commitment to good faith international cooperation, as I wrote last week about his proposed Green Steel Climate Club. And of course, there's always the specter of a second term for Donald Trump, and only God knows what he thinks about it. It seems to me that the entertaining free critical minerals quiz has a while to run.
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