- Food shortages risk creating political instability in existing hotspots like the Middle East and North Africa. Those regions disproportionately depend on the now-hamstrung Black Sea shipping route and have close economic ties with Russia and Ukraine (e.g., Egypt gets 70% of its wheat and meslin from Russia and Ukraine). This could put us on the verge of a new Arab Spring. And should that be the case, the US will be hard-pressed to respond in a way that does not detract from the competition with Russia and China that itself created this mess.
- China is actively competing for the world’s increasingly limited agricultural inputs. Over the past weeks, China has responded to the threat of global food shortage by accelerating purchases of US food products. As food becomes a strategic resource, will the US let that continue? Will it divert supplies to Europe (and if not, can US-EU relations hold up)? Will agriculture take over from telecommunications as the battlefield of US-China competition?
FACTORS: Are Europe’s Rare Earth Efforts Headed Back to Square One?
During its March 10 earnings call, Neo Performance Materials — a Canadian publicly-listed advanced materials company and key part of the incipient Europe-North America rare earth supply chain — disclosed a critical dependence on Russia: Neo’s rare earth separation facility in Silmet, Estonia, sources 70% of its rare earth material feedstock from Solikamsk Magnesium Works in Russia. The other 30% comes from Energy Fuels, a US-based company. Neo’s Estonia plant is Europe’s only commercial rare earth separation facility. And, while Solikamsk has not yet officially been sanctioned, Neo is actively preparing for that possibility. It reports being in talks with “half a dozen emerging producers” worldwide in an attempt to diversify its raw material supplies. But options are limited. China is out of the question: As Neo CEO Constantine Karayannopoulos explained, “China is not an option [as a supplier of feedstock] because it’s not allowed to export unseparated rare earth streams from China.” And Energy Fuels, a US-based company, does not have enough access to monazite, a critical input into feed material, to increase supplies. Without any alternative source of feedstock, Neo’s Silmet project will be out of luck. Its European buyers of downstream rare earth products will likely have to turn to China. That would set back Europe’s efforts to reduce reliance on China.
The bottom line: This is yet another example of why investments in supply chains should span the value chain — and start at the beginning. Mid- and downstream positioning means very little without upstream capacity to back it up.
MARKETS: US and UK reach steel and aluminum deal, pushing back against China’s global resource outposts
The US and UK agreed on March 22 to roll back Trump-era tariffs on British steel and aluminium. Under the deal, the US will allow 500,000 tons of steel “melted and poured” in the UK to be imported duty-free — with higher volumes subject to a 25 percent tariff. A 10 percent levy will apply to aluminium imports of up to 21,600 tons annually. These terms are not a surprise; they largely mirror the agreement formed between the US and EU last year. But one additional provision of the deal is notable: The requirement that the UK audit the financial records of all Chinese-owned British steel firms — and share the results with the US in order to assess Chinese government “influence” and confirm that the producer in question would not “materially contribute to non-market excess capacity of steel.” This is a direct reference to Chinese steelmaker Jingye Group’s 2020 acquisition of the British and Dutch assets of British Steel, a move through which Jingye sought to expand its technological capacity, international market presence, and access to downstream European nodes.
This clause echoes a provision in the US-EU deal that barred the transshipment through the EU and into the US of steel or aluminum products produced in China. Together, both agreements suggest that the US, EU, and UK are re-thinking their frameworks for international trade and international trade remedies to combat not just non-market players in China, but also their global outposts – and Beijing’s larger state-backed efforts to invest in resource production overseas. This is a good sign: The US, EU, and UK are coordinating, if with baby steps, to counter the Beijing’s economic distortions, and in a way that recognizes both the indirect and the international nature of China’s offensive.