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Kurt Cobb

Kurt Cobb

Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has also appeared in The Christian Science…

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Escalating Geopolitical Tensions Begin To Chip Away At Globalization

  • While interdependence through trade has been considered a deterrent to war, recent geopolitical developments such as the Russia-Ukraine conflict and tensions between the U.S. and China indicate that this belief is being challenged.
  • Trade sanctions and resource control disputes, such as the U.S. banning microchip sales to China and Russia's influence over the uranium market, reveal the precarious nature of economic interdependence in the face of escalating tensions.
  • The current trajectory of deglobalization could have significant implications for the availability of cheap imported goods and crucial resources, indicating a shift away from the previously envisioned integrated global economy.
Globalization

The most salient fact about natural resources such as minerals and fertile soil is that they are unevenly distributed around the world. That means some countries have far more than they need and others are desperately dependent on imports.

Some writers think that trade between nations of resources and practically everything else leads to an interdependence that makes war much more costly and thus less likely. Others believe that the many causes of war—for example, a desire to dominate, fear of being attacked (leading to pre-emptive war), ethnic rivalries and grievances, and the desire for direct control of resources—often negate concerns that the cost of war will exceed its benefits.

After the relative quiet of the post-Cold War era during which the world's economies integrated into one global market, major powers and their leaders are again weighing the two arguments. Russia, of course, decided that its fear of being surrounded by NATO-allied countries outweighed the possible economic consequences of war (though it's not clear that the Russian government realized the far-reaching effects its war with Ukraine would have on its trade).

Earlier this year an American general predicted war with China by 2025. The U.S. Department of Defense (DOD) said that the general's views do not represent those of the DOD. Not surprisingly, the DOD stated that it prefers peace in Asia.

The Chinese government reacted with predictable furry in a publication run by the Chinese Communist Party. But the Chinese government continues to push its claims in the South China Sea and the East China Sea. And, of course, it continues to insist on incorporating Taiwan into China at some yet-to-be determined time in the future. It should come as no surprise that valuable oil and gas deposits await those who control one or both of the seas mentioned above.

Among the contradictions of an interdependent world facing increasing geopolitical tensions are the continuing commercial links between 1) those with ongoing disputes involving commercial and territorial claims and 2) those at war. (I think it is fair to say that NATO is at war with Russia through Ukraine as a proxy.)

Fearing China's growing power, the United States banned the sale of advanced microchips to the Chinese. The Chinese have retaliated by initiating steps that will reduce the export of germanium and gallium (important to the manufacture of advanced microchips) and products containing them in a direct attempt to stifle the United States' ability to produce the very chips the U.S. ban applies to. Those minerals are also important for solar panels. The Chinese control the lion's share of the market in these two metals.

In 2022 29 percent of U.S. electronic product imports came from China. In the past few years China has been alternating with Mexico as the top destination for U.S. electronic exports.

And, this is just one narrow area of U.S.-China trade.

Trade between the United States and Russia has become even more problematic than that with China in the wake of the Russia-Ukraine war. And yet, despite sweeping trade sanctions by the United States, the country continues to rely on Russia for uranium to fuel nuclear reactors. (Nuclear power provides 20 percent of America's electricity.) Some 14 percent of the U.S. uranium supply comes from Russia, and the United States relies on Russia for 28 percent of its enrichment services. Enrichment services take raw uranium and separate out and concentrate the uranium-235 which is the only naturally occurring fissile material. Uranium-235 makes up only about 0.72 percent of natural uranium. The Americans are essentially taking uranium they purchase elsewhere and having the Russians enrich it. The Russians control half of all the enrichment services capacity in the world.

Hence, the Russians could potentially cause shortages and chaos in the uranium market and deprive some reactors of adequate fuel. So far, the Russians have chosen not to do that as it would mean foregoing revenue and essentially engaging in something that could be interpreted as an act of war.

The Russians seem less concerned about grain exports compromised by the ongoing Russia-Ukraine war. The Russians recently refused to renew an arrangement which allowed safe passage for Ukrainian grain exports via the Black Sea. Ukraine is the world's fifth largest exporter of wheat. Russia in the world's top exporter. Loss of Ukrainian exports sent wheat prices upward and could spell hardship for countries counting on those exports if no overland route is arranged for them.

Russia seems less dependent on imports from the United States and Europe than Europe was on Russian exports, primarily of energy resources such as oil and natural gas, before the war. It's important to note that trade between Russia and China and many other countries has been far less affected by sanctions.

The result of all this turmoil has been an attempt to bring manufacturing back to the United States (see here and here) and to incentivize domestic mineral exploration. China and Russia, countries with a large production capacity for manufactured goods and large production of natural resources, respectively, have gone hunting for new customers for their products. This diversification is, of course, the flip side of U.S. and European trade sanctions and U.S. and European attempts to become more self-sufficient as a result of lost imports.

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It's hard to see how our complex, interdependent globalized economy can thrive when major economies are essentially slowly withdrawing from it. The belief that the world's economies would become more and more integrated and interdependent with each passing day has now been punctured. That has implications for the availability of cheap imported consumer goods and for access to crucial minerals and energy resources such as uranium. The costs are already showing up in the marketplace and there doesn't seem to be any force that will change our deglobalization trajectory anytime soon.

By Kurt Cobb via Resource Insights

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