Changing Coordinates: Suez, Rare-Earth Metals And The Fate Of Globalization

Images of the Ever Given, the cargo ship stuck in the Suez Canal, blocking one of the busiest trade routes in the world, have gone viral all around the world. The cargo ship, 400 meters long and weighing 220 thousand tons, has run aground because of a strong gust of wind and sand, coming to obstruct the passage from one side to the other and creating a traffic jam that risks congesting ports across all of Europe. The Suez Canal crisis has triggered an increase in prices worrying logistics specialists, especially for the repercussions on the prices of consumer goods coming from China.

The resilience of globalization in the post-Covid world has been already proven to show signs of vulnerability during the first pandemic and again today with vaccines. On top of this, the crisis has been emphasized by the delay in the return and shortage of containers, with containers stuck on the wrong side and forced to go back East empty-handed. Therefore, the often-underestimated relevance of chokepoints slowing down supply chains has brought about raising concerns about the long-term implications of a continuous climate of East-West confrontation. The underlying question is: how much damage could a freeze on exports from China cause a hypothetical Western country in the future?

Likely, any eventual blockade of exports would predominantly aim at targeting the trading of rare earth metals. These minerals, essential for the production of virtually all electronic devices, of which China currently controls 80% of production, comprise 17 distinct chemical elements. Rare earth metals have strategic importance for a plethora of technological applications, including the making of NdFeB magnets, audio devices, MRI, and optical machinery and for the defense industry, with particular relevance to the aerospace and nuclear industries. The Chinese minister of industry and technological information proposed to establish stricter controls on the production and export of these minerals already in February. This would affect directly the U.S. economy, considering that even minerals extracted there must be shipped to China to be processed and refined.

Beijing started consulting experts to understand how long it would take the U.S. to secure alternative sources, and whether such an export freeze could help prevent or slow down the construction of F-35. More than 400 kg of rare earth metals is needed to build just one of these and companies such as Lockheed Martin and Boeing are already providing these and other weapons to Taiwan.

Therefore, for Chinese authorities, this would be a sufficient justification for imposing restrictions on the trading of these elements. After all, these actions are seen as intolerable interference in Chinese internal affairs and a not-overlookable threat to national security. However, one might think that restricting the export of rare earth metals would be counterproductive for the Chinese economy. In reality, this would not be the case: Chinese domestic demand is now so high that the government is even importing them from the U.S.A. and Myanmar. This means that minerals not exported in the case of restrictions would be easily absorbed by Chinese industries themselves.

The enormous growth of domestic markets in China means that the regime is less and less dependent on the West for the sale and consumption of its products. Therefore, the combination of the pandemic with the Suez Canal crisis can be considered eye-opening, showing the West’s almost total industrial and technological dependence on an unscrupulous and remorseless dictatorship. In recent months the Chinese government has shown that even a simple criticism expressed by a foreign government can provoke reprisals and disproportionate reactions in the form of a stop to import/export of products that are key to the economic strength of its enemies. As the most industrialized economies are literally becoming hostages of the Chinese regime, increasing their dependence on rare elements, the latter is becoming less and less dependent on Western know-how, configuring itself as the unparalleled pole for innovative project-making.

For how criticized, the “reshoring” of production lines, which, at least for the moment, is a fascinating yet not practicable hypothesis in short-to-medium terms, seems to be the only way forward. Shorter chains and insourcing production would mean having unbearably higher production costs, but these, in turn, would have the advantage of a more secure supply, which would allow the West to avoid returning to the pre-industrial age in the event of a total conflict with Beijing. Moving towards a higher degree of diversification, encouraged by regional free trade agreements, would also be consistent with the goal of the EU to promote a more sustainable economy. After all, as the Suez Crisis is showing, we remain anchored to narrow stretches and long chokepoints, where global games of power are played. If it is true that geography matters, and it will continue to do so even in an age when digital commerce seems to have taken over, the EU has to do whatever it can to start refocusing its trade on different coordinates, looking for alternatives to rare elements dependency inwards.

This, however, means that the EU has to find its own pole within itself, and not become once again the US lapdog. Whatever happens in the coming months with rare earth metals, Huawei, and all the other open fronts in the Sino-American conflict, it looks at all clear that the goal of achieving sovereignty now coincides to become technologically autonomous. This has become a priority, not only for China but for all major international players, the U.S. included. And it is not to be excluded that the consequences of this process might even bring conditions of progressive impoverishment to the American system itself, at least at the initial stage. That’s why the story of the clash between the U.S.A. and China, between the two major powers on the planet, invites us to consider the processes of globalization and inevitably leads to one conclusion: if we want to have a future, the world needs not less globalization, but more correct globalization.

Globalization has always been the most progressive force in human history. But if one does not decide to face its negative aspects, at least those that can be easily recognized and addressed, the growth of system risks and the emergence of political resistance will inevitably lead to the triumph of de-globalization. This will mean less multilateral cooperation on global challenges and ultimately a poorer, less inclusive, and less sustainable world. The results of large-scale changes in the last three decades have been the doubling of the per-capita income in the world, an army of 1.3 billion people pulled out of poverty, the increase of 10 years of life expectancy, and more than 50 Countries that have converted their regimes in democratic systems, providing, at least apparently, free elections. And yet globalization appears less popular than in the past for a very simple reason. The success of globalisation and the excess connectivity of increasingly complex systems leads to the spread of new forms of risk.

Large global financial centres generate financial opportunities, but the networks of financial hubs scattered around the world are also the source of the worst financial contagion or cybercrime. Servers, fibre networks, cloud systems and so on serve the digital economy, but they are also the vector of digital viruses, fake news, and disinformation. If airports and logistics grow, the risks of illicit trafficking and the spread of pandemics inevitably increase. Greater access to electricity and transport by the world’s population equals more pollution. The progressive use of antibiotics improves the health of the planet but increases the resistance capacity of germs and bacteria. The increased consumption of plastic ends up polluting the oceans and forcing us to eat fish saturated with micro-particles of plastics. And the list goes on and on.

It was not COVID-19 that derailed globalization, as some argue. On the contrary, the pandemic has only accelerated its transformation. Some forms of collaboration, such as that in the scientific field, have literally exploded with the spread of the pandemic. Also in the financial sectors, the flow of capital has seen more than 100 countries engaged in the search for support and financial resources from institutions and large international investors. The restructuring of large supply chains and the restoration of services and industrial production will not stop globalization. If anything, it will transform it. And the globalization of the future will inevitably be centred in East Asia, which has half the world’s population and boasts the highest economic growth rates on the planet.

But Asia is radically changing the international contexts in politics and economics. We have less global and less multilateral leadership ahead of us. Not surprisingly, many international institutions are looking for new identities and resources that give legitimacy and are now resorting to mandates for the reforms and renewal processes that need to be initiated. Large international industries operating independently from a state risk becoming the first sacrificial victims, or the most conspicuous ones, of the new wave of nationalisms. Going back to the pattern of globalization of the last two decades does not appear to be the winning move. It would risk taking us back into a pre-pandemic context, which precisely because of its system deficiencies has led us straight to the pandemic and to other now obvious threats such as climate change.

There will never be a wall high enough to defend against pandemics, climate change, nuclear catastrophes, or any other global threat. Simply because walls keep away investments, businesses, people, technologies, and block cooperation that we urgently need to both stop threats and stimulate healthy economic growth. That is why less globalization is needed, but also better globalization is needed, possibly led by a policy that is up to the threats and adequate leadership. In this context, relations between the U.S. and China are the privileged battleground. If the EU will prove smart enough, it will try to avoid getting too caught in this confrontation now and rather choose to bandwagon behind the winner later on. This, for how crude, is the reality: for the EU the safest move is to balance the two powers out, wait until they weaken one another, and then feed on the loser’s economics like a wake of vultures on a carcass.

Luca Giulini

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