能源转型和地缘政治：关键矿物是新“石油”么

EnergyTransitionandGeopolitics:AreCriticalMineralstheNewOil?

WHITE PAPER

APRIL 2024

Images:Midjourney,GettyImages

Contents

Executivesummary 3

Introduction 4

Supply 5

Demand 9

Unavoidable“unknowables” 11

Rolesofmarketsandpolicy 13

Conclusion 15

Contributors 16

Endnotes 17

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April2024

EnergyTransitionandGeopolitics:

WillCriticalMineralsbetheNewOil?

Executivesummary

Theenergytransitionwillcausebigshiftsindependencies–awayfromoilandotherfossilfuels,andtowardsaraftofcriticalmineralssuchas

lithiumandcopper.Willthistradingofplacesleadtopoliticallyandenvironmentallydangerousfutures?Thispaperoffersabroadframeworkforansweringthisquestion.Italsosuggeststhatmostofthefearednewdependenciesoncriticalmineralscanbemanaged.

Mostofthepolicyconcernsaboutcriticalmineralshavebeenaroundfearsthatsupplieswon’tkeeppacewithsoaringdemandandthatrawandprocessedcriticalmaterialsareoverly

concentratedinafewcountries,notablyChina.Formostcriticalminerals,however,therehasn’tbeenmuchincentivetoexpandordiversifysuppliesradically.Thatisnowchanging,andadequatenewsupplieswillplausiblyappear,withtheprobableexceptionofcopper,amineralwithalonghistoryofsupplystruggles.

Criticalmineralsandoilhavenotablydifferentdemandfactors.Foroil,theglobaleconomyhaslittleabilitytotemperdemandquicklyinresponsetoshortagesormanipulationsinsupply.Somebigoilsuppliersareresponsivetostateinterestswhentheymakeinvestmentandproductiondecisions,whichattimeshelpsthemmanipulatesupplies.

Bycontrast,mostcriticalmineralsareusedonlywhennewprojectsarebuilt.Withtherightpoliciesinplace,demandcanbehighlyresponsive.

Suppliers,knowingthis,arelesslikelyandabletocornerthemarket.

Moreover,mostmineralsuppliersrespondprincipallytomarketconditions,ratherthanstateinterest.Theriskstotheglobaleconomythatthecleanenergytransitionwillcreategeopolitical

tensionsovercriticalminerals–ashashappenedthusfarwithoil–arenotasgreatasfearedsolongasthemarketforcesthatgovernsupplyanddemandareproperlyharnessed.Innovationcanalsohelptemperdemand,ashashappenedwithcobaltwhereworriesaboutdependenceonslave

labourhaveledinnovatorstofindalternativestothemineralandtoidentifynewsourcesofsupply.

Thisreportidentifiesanarrayof“noregrets”policyinitiativesthatcanhelpensurethat“tradingplaces”doesnothaveadverseeconomicandenvironmentalconsequences.Amongtheseishelpingmarketsoperatemoreeffectively,suchasbycreatingmoretransparencyofdataabouttransactionsandtheencouragementofforwardmarketsthatwillmakeiteasiertosignalscarcityandfinancenewsupplies.

Introduction

Howlikelyisitthatthecleanenergytransition,advancingrapidlyinmuchoftheworld,couldreplacedependenceonoilandotherhydrocarbonsbydependenciesoncriticalminerals?Analystsandpunditsaredebatingthisquestion–andareoftencomingupwithanswersthatsetalarmbellsringing.

Thispaperacceptsaslikelythatdependenciesoncriticalmineralswillriseasthe“energytransition”causesabigriseintheneedforwiring,batteries,magnetsandotherkeyelementsofcleanerenergysystems.Intandemandwithtime,dependenceonoilislikelytowane.Butwillthisshiftindependenciesbebadnewsforgeopolitics,energysecurityortheenvironment?

Thisquestionhasbeenhardtoanswer,partlybecausedebatesareadvancingwithoutmuchofaframeworkforanalysis.Direforecaststypically

startwiththeexpectedsurgeindemandforcriticalminerals,withpredictionsoftenbasedonlittlemorethantheassumptionofexponentialgrowth.Butaproperlookatdependenciesrequireslookingathowthewholesystemforsupplyand

demandmightrespond,andhowinnovationsintechnologies,marketsandgoverninginstitutionsmightalterthoseresponses.Theearlydaysoftheoilcrisisinthe1970ssawsimilarerrorsinforecasting–withanobsessionwithsupply,the

assumptionofexponentialgrowthindemandandafailuretoaccountforhowthewholesystemmightrespond.Theseerrorsinforecastingcanleadtogravemistakesinpolicyandinvestment.

Thiswhitepaperisanefforttoofferapreliminaryframeworkforthinkingaboutsupply,demandandtrade-offsasthedependenceoncriticalmaterialsincreases.1Itlooksatsupplyanddemandin

turn,andarguesthatwhilemostoftheconcernsaboutcriticalmaterialshavefocusedonthelevelandconcentrationofsupply,themostimportantfactorsdrivingpotentialscarcityincriticalmaterialsareactuallyfoundintherealmofdemand.Itthenidentifiesanarrayof“noregrets”policymeasuresthatcanhelpmaketheinevitableshifttowardsmoredependenceoncriticalmineralslessdangerousfortheglobaleconomy,environmentandpoliticalorder.

1

Supply

Alarmaboutrisingdependenceoncriticalmineralsstartwithwarningsaboutsupply.Demandforthesemineralswillexplode,itisassumed,andthisanimatestwobigdependistaworries.

First,thesuppliesneededmightnotappearintime.Widelyusedprojectionsseelithiumdemandincreaseten-foldormore.2Ifthat’sthecase,wherewillallthesenewsuppliescomefrom?Forperspective,thedemandforoilonlydoubledfrom1970totoday–andmeetingthatriseindemandwaschallengingenoughforthewholeworld’soil

industry.Howwilllithiumproducerskeeppacewithamuchbiggerrateofexpansion?Second,productionisalreadyhighlyconcentratedinafewcountries,especiallyChina.

Theanalysisinthiswhitepaperfocusesonthe“bigsix”criticalmaterials–copper,lithium,graphite,nickel,cobaltandrareearths.3Someoftheseareusedalmostexclusivelyincleanenergyproducts(e.g.lithiuminbatteries)whileothersareusedinlotsofdiverseapplications(e.g.nickelinbatteriesandcorrosionplatingonmetals).

FIGURE1 Importanceofcriticalmineralsincleanenergytransition

Copper

Cobalt

Graphite(foranodes)

Lithium

Neodymium(asillustrationforrareearths)

Nickel

Solar Wind

Powergrids

Electricvehiclesandbatteries*

Hydrogen

electrolysers Nuclear Hydropower

Otheruses

Industry,construction,electronics,wiring

Consumerelectronics,steelalloys

Steelproduction,lubricants,pencils

Consumerelectronics

Magnetsforindustry,consumerelectronics

Steelalloys

EnergyTransitionandGeopolitics:WillCriticalMineralsbetheNewOil? 5

High Medium Little/norequirement,ornotapplicable

*Structuralsteelandaluminiumforelectricvehiclesarenotincludedasenergytransitiondemand,asthisisnot“additional”demand–thesematerialswouldbeusedinsimilaramountsininternalcombustionvehiclesaswell.

Source:ETC,MaterialandResourceRequirementsfortheEnergyTransition,2023.

Supplyvolumes

Willsupplykeepupwithdemand?Figure2showscurrentglobalsupplyofeachofthebigsixinvolumetricterms.Ofthese,copperisalreadysuppliedinamaturemarket(25milliontonnesofcoppercomprisesthecurrentannualsupply).Thelonghistoryofcoppersupplyiswhysignificantconcernsexistaboutnewsuppliescomingonlinetokeeppacewithexpecteddemand–theworldhasfordecadesstruggledtofindandproducecopperinlargevolumes,andthisstrugglewillgetharder.

Formostoftheothers,currentsuppliesaremuchsmallerandnorelevanthistoricalexperienceexiststotestwhether,withtherightincentives,newsuppliescouldmaterialize.Forexample,graphitesupplytodayisabout1.5milliontonnesforallpurposes,ofwhichonlyasmallfractiongetsusedincleanenergysystemslikebatteriesforelectricvehicles(EVs).Totalglobalcobaltsupply,abouthalfofwhichendsupinbatteries,isonlyabout200,000tonnes.

Anassessmentofsupplyrequireslookingatlotsoffactors–sourcerocks,theeaseofsitingnewmines,availabilityofskilledlabourandawidearrayof“aboveground”risks(e.g.politicalinstability)thatmightimpedeinvestment.Thatkindofdetailedspadework,donewidelyintheindustry,

isbeyondthescopeofthispaper.Butwhat’sclearfromlookingacrossallthesemineralsisthat

onlyoneofthem–copper–hasthekindoflarge,maturemarketwhereitispossibletodrawanyrobustconclusionsaboutthedifficultyofbringingsubstantialnewsuppliesonline.Volumetrically,theproblemofcoppersupplyisagenuineconcern.4Foralltherest,itishardtoassesswhethertherewillbechallengesinsupplybecausetheindustriesoccupyrelativelysmallnichesinglobalmining.

Lithiumdemandmightrise10-foldormore(dependingonforecasts),butfromabaseoflessthan1milliontonnestoday.In2023,thewholeworld’slithiummarketwasworthonly$5.7billion,5outofaglobalminingindustrythatisworthabout

$2trillion.6

Justbecausemarketprojectionsfornon-coppermineralsaresmalldoesn’tmakethemautomaticallyscalable.Butmostsignssuggestthatscalabilityhasjustbegun.In2022alone,therewasaone-fifthexpansioninglobalsuppliesoflithium–essentiallyallofitoutsideChina–assupplierssawacrediblemarketsignaltoexpand.7Inothercriticalmaterialsaswell,suppliesarewitnessingabigexpansionawayfromtoday’sdominantmarketsuppliers–suchaslargenewcobaltfindsinAustraliaandexpansionofrareearthproductioninCalifornia.

Theworldisjustbeginningtoseesignalsfortheneedtoexpandsuppliesandmanyoftheresponsesareencouraging.

Concentrationofsupply

Whatabouttheothersupplyworry:concentration?Thedataavailabletodaysuggeststhatthisisabigconcern(Figure2)andthatafewsuppliersandprocessorscontrolmostofthemarket.

Thetopthreeproducersaccountforbetween50%and90%ofminingandprocessing.

Forcomparison,theshareoftheOrganizationofthePetroleumExportingCountries(OPEC)in

worldoilproductionisjust40%,8andthissmallerconcentrationhasinspiredendlessworriesabouttheproducercartel’scontroloverglobaloilsuppliesandprices.ButthecomparisonwithOPECcan

behighlymisleading.Withoutmuchcartel-likebehaviourincriticalminerals,governmentsandbuyershavenothadmuchincentivetodiversifysupplies.Instead,theglobalmarkethasoptimizedaroundcostsofproductionandeaseofaccess

tosourcematerialssuchasinChileforcopper,AustraliaforlithiumandtheDemocraticRepublicoftheCongo(DRC)forcobalt.

Moreover,evenastheinfluenceofOPEConoilpriceshasbeenpronetoexaggeration,theabilitytoexertpricingpowerbycontrollingsparecapacityismuchgreaterinoilthanforallthecriticalminerals.Short-runelasticityofdemandforoilisverylowandthusmodestshiftsinthevolumeofsupplyleaveoiluserswithfewchoices,atleastintheshortterm,buttopayhigherprices.

Theonlycountrythathas,forasustainedperiodoftime,caredmuchaboutcontroloversuppliesofcriticalmineralsisthecountrythathasbeentheirbiggestuser:China.Notsurprisingly,Chinahascreatedpowerfulpolicies,includingvitalfinancing,thathavecementeditsdominantposition–especiallyinprocessing,whichismucheasierto

controlbecauseitdoesnotrequirephysicalcontroloversourcerocks.Mostofthesepoliciesareaimedinward,toensuresupplyforChineseindustry.9However,couldChinacutofftherestoftheworldbyblockingaccesstocriticalminerals–inraworprocessedforms?

FIGURE2 Top3countriesforminingandprocessingofcriticalminerals

Shareoftopthreeproducingcountriesinminingofselectminerals,2022

RareearthsGraphiteLithium

Cobalt

Nickel

Copper

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

UnitedStates Russia China Australia Chile DemocraticRepublicoftheCongo

Indonesia Philippines Mozambique Peru China Madagascar 2019top3share

Shareoftopthreeproducingcountriesinprocessingofselectminerals,2022

RareearthsGraphiteLithium

Cobalt

Nickel

Copper

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

China

Russia

Chile

Indonesia

Japan

Finland

Canada Argentina Malaysia Estonia 2019top3share

Source:IEA(2023),CriticalMineralsMarketReview,2023.

Mindfulofthecomparisonswithoil,itwouldseemirrationalforChinatomanipulatethecriticalmaterialsitsuppliestotherestoftheworld–becausetherestoftheworldwillreact.Yetthereareexperiencesthatgivecauseforworry.In2010,ChinastoppedtheexportofrareearthstoJapan,10followingJapan’sarrestofthecaptainofaChinesevesselthathadcollidedwithJapanese

coastguards’boats.Intheeyesofmanyobservers,Chinacontinuestousethesethreats.In2019,

inthemidstofsevereUS-Chinatradetensions,

ChinesePresidentXiJinpingvisitedarareearthmine,remindingimportersthatChinaremainsthedominantsupplierofthesematerials.11Indeed,

in2023thecountryalsostrengtheneditsexportcontrolovergallium,germaniumandgraphite.12

WhileChinaattractsalotofattentiontoday,thedangersofexcessivedependenceonanysinglesupplierorprocessoraremoregeneric.Reflectingonthechallengeofsecurityin1913,theearlydaysoftheglobaloilmarket,Churchillimploredthat

securitycame“fromvarietyandvarietyalone”.Thesupplychainsofsomemineralshavemanynon-Chineseconcentrationsofconcern.Forinstance,Indonesiahasquicklyincreaseditsmarketsharefornickel(about40%now)attheexpenseofothersuppliers(notablyAustralia),thankstotechnology,policyandforeigninvestment.

Periodicstocktaking,discussedinmoredetailbelow,wouldbeabletoidentifythesetrendsandalsothekindsofpolicyandmarketarrangementsthatcouldencourageprivateinvestmenttosustainhigherlevelsofdiversity–asisdoneinmanymarketswheretherearefearsofexcessivedependenceonsinglesuppliersandconcernsaboutcompetition.

Whilethesepoliticalactscreatesomerisk,forthemostparttheyarepoliticalstuntsandexpertsinallthesegovernmentsknowtherisksnotjusttousersbutalsosuppliers.Toomuchactualmanipulationinsupplywillcreateresponsesbyothersuppliersandusers.

Considerlithium:mostproductiontodayandintothenearfutureisfromhardrockmining–a

processofmovingandprocessinglargeamounts

ofmaterialandwater,anditisoftendifficulttogainpermissiontobuildnewminesfastenoughtomeetrisingdemand.13Butlithiumcanalsobeextractedfrombrines,aprocessthatcouldbemaderadicallymoreefficient,requiringlesslandandalsoallowingfortheuseoflowergradelithiumdeposits,throughprocessesknownasdirectlithiumextraction(DLE).

ThelogicofDLEhasbeenknownforalongtime,andisnotwithouttrade-offs,suchaspossiblymuchlargerwaterinputs,buttheincentivetotestanddeployithasn’texisted.NowadiversearrayofDLEprojectsistakingshape,especiallyinplaceswheretherearenew,strongpolicyincentivestodiversifysupply–involvingstartupswithinnovativetechnologyalongwithlargeincumbentssuchasminingandoilandgasfirmsthathaveskillsinextraction,processingandsystemsengineering.14

Thesamelogicsofinnovationapplyformostoftherestofthecriticalminerals.Itistruethat

traditionalhardrockminingistakinggreatereffortsandyieldinglowerqualityores.Butinnovationisalsoprovidingnewmethodsofsupply,includingsuppliescreatedbyre-processingwastetailingsfromearlierminingefforts.

EnergyTransitionandGeopolitics:WillCriticalMineralsbetheNewOil? 8

2

Demand

Dependencyisafunctionofdemandaswellassupply.Aswithoil,itisrelativelyeasytoworrythatsuppliescouldfalter,andtheirconcentrationcouldcreaterisksofinterruption.Butaswithoil,someofthebiggestsurprisescomefromshiftsindemandandhowsupplyanddemandinteract.When

costsriseorsuppliesseeminsecure,themarketandpolicy-makersingovernmentcreatestrongincentivestomakedowithless.Whenthemarketcansendreliableforwardsignalsofscarcityandrisk,theincentivestobemorefrugalareevenmorepowerful.

Mostprojectionsforsoaringdemandarebasedonstaticorsimpleassumptionsabouttherelationshipbetweendeployinglotsofnewdevices(e.g.batteries,motors,generatorsandinverters)andcurrentmaterialneedsforeachdevice.Ifmaterialsarescarceandthereareincentivestodomorewithless,thosestaticorsimpleassumptionswon’thold.

Estimatingfuturedemandrequireslookingnotjustatthesheernumberofdevicesbutalsothreeotherfactors:efficiencyintheuseofcriticalmaterials,recyclingandsubstitution.

Byhelpingtoreducecumulativeprimarymaterialsrequirements,andincreasingtheshareofdemandwhichismetbysecondarysupply,efficiencyandrecyclingbecomecredibleavenuestoclosesupplygaps.Forinstance,theETCestimatesthata30%fallincumulativedemandforcoppercouldresultfromacombinationofreduceduseingrids,areducedbuild-outofwindandsolarinstallations,aswellasfromlessercopperuseinEVs.15Theseestimatesarehardtopindownandcouldwell

bequiteconservativebecauseexperiencewiththesetechnologiesatscaleisataveryearlystage.

Inrecycling,forexample,thereisn’tyetmuchreal-worldexperience–noryetopportunitiesforreal-worldinnovationandsystemoptimization–becauselargenumbersofdevicesbearingcritical

materialshavenotyetbeenremovedfromservice.

Thestorywithrecyclingalignswiththatofsupplyanddemand.Withincentives,marketscanrespond–atleasttoapoint.Thepotentialsarelargebecause,unlikeoil,mostusesofcriticalmineralsarenon-destructive–themineralplayschemicalrolessuchasthroughcatalysis.Itisnotconsumedintheprocess.(Bycontrast,withoil,destructionbyburningisthemainapplication.)Inprinciple,largeportionsofthecriticalmaterialsinthedevicesofthecleanenergyrevolution–suchassolarcells,windturbinehubs,electricvehiclesandbatteries–canberecycled.

Whatmattersforrecyclingareeconomicbenefitsandcosts–andthusincentivesandtechnology.16Today,abouthalfoflithiumbatteriesarerecycledafterremovalfromservice,andglobaltrade

inrecycling(focusedonChina)isimportant.17Studiesofrareearthspointtosimilarobservations

valuablematerialscanberecoveredthroughrecyclingbutthereoftenhasn’tbeenmuchincentivetotakerecyclingveryfar.18Inprinciple,mostofthecriticalmaterialscanberecycledtoveryhighdegrees,approaching100%insomecases.

Theoverallpictureforrecyclinghingesonthedifferencebetweenthesuppliesofrecycledmaterials(asearliergenerationsofcleandevicesareretiredfromservice)andthetotaldemandforcriticalminerals(withexpandingdemandfornewcleandevices).Recyclingcanplayasignificantrole,but

iftotaldemandformineralsisrisingsteeply,thenrecyclingfromdevicesthataccountedfordemandinyearspastcanneverbethedecisivesourceoftotalsupply.Evenwithbullishestimatesforrecoveryrates,recyclingcouldaccountforonlyabout10%ofthegloballithiumsupplyneededin2030.19

EnergyTransitionandGeopolitics:WillCriticalMineralsbetheNewOil? 9

Substitutionisalsoapowerfulforcethatcanbefeltquicklyinthemarkets.Ashifttosodium-ionbatteriesbeyond2030,combinedwithfasterbatteryenergydensityimprovementsandslower

growthinbatterypacksizes,isestimatedtoleadtoa40%reductioninlithiumdemandby2050.20

Thecommonthreadinthestoriesaboutefficiency,recyclingandsubstitutionistheinteractionbetweenincentivesandtechnologicalchange.Thecobaltstoryisinstructivehere.UntilconcernsabouttheDRC’sdominanceincobaltbecamewidespread,therewerefewconcernsaboutthemethodsusedtoproducecobalt.Theshiftingfocusfromsmallbatteriesinconsumerelectronicstolargeones

inEVsbroughtaboutnewconcernsaboutthescalabilityofsupply.Withnewincentives,innovationhasfocusedonshiftingbatterychemistriestomakeitpossibletoreduceoreveneliminatetheuseofcobaltincathodes.Today,asurgeintheuseoftechnologiessuchaslithiumironphosphate(LFP)batteriesisalreadydisplacingdemandforcobaltandnickelsignificantly.21

Thecontrastwithoilisquitestriking.Forexample:therehasbeen,fordecades,asearchforalternativestopetroleumforpoweringautomobiles.Thatsearchhasledtointerestinhydrogen,biofuelsandelectricity.Electricityhasbeenthoughttobe

awinneratleastthreetimesoverthelast120years;today,thatwinningpositionseemstobefirmlyestablished.Yettheratesofchangeremain

sluggish.Despitestronginterestinswitchingawayfromoilandaggressivepoliciestoachievethatoutcome,theuseofEVsdisplacedonlyaround0.7millionbarrelsperdayor1.3exajoule(Mb/dor1.3EJ)ofoilin2022.22

Examiningeveryuseforcriticalmaterialsandtherespectivepotentialfortechnologicalsubstitutionisbeyondthescopeofthispaperand,tosomedegree,unknowablebecausetheevolutionof

technologyisunclear.However,whatisclearisthatmanyspecializedapplicationsofcriticalmaterialsareamenabletosubstitutionwhenanincentivetofindalternativesexists.

Thesesolutionsdonotcomeintobeingautomatically.Theydepend,inpart,onreliablemarketsignalsforscarcity–inthecaseofcobalt,thosecameabitfrompriceandalotfromfear

ofregulationandlossofreputation(andothercosts)forwesterncobaltusers.Theydependontheincentivesforproductionofknowledge–

fundamentalnewideasaboutbatterychemistryare,inpart,globalpublicgoodsandwon’tbesuppliedadequatelywithoutfundingprogrammesdesignedforpublicbenefit.

Atthesametime,thisprospectofsubstitutionmaydiscourageinvestmentintheexpansionofsupplyofcriticalminerals.Allthesefactorsrequirepolicysignals.

EnergyTransitionandGeopolitics:WillCriticalMineralsbetheNewOil? 10

3

Unavoidable“unknowables”

Whiletheworldofanalystsagreesonawiderangeofissuesrelatedtoassessingsupplyanddemand,agreementisimpossibleinmanyplacesfromtoday’svantagepoint.

Itispossible,today,tobenonchalantaboutmostcriticalmineralsbecausemarketswillrespond–newsupplieswillemerge,anddemandwillrespondwhenpricesrise.Itispossible,aswell,tobealarmed–atleastaboutsomepartsofthemarket,suchascopper,wheresupplyanddemandseempoisedtomisalignandthemarket,onitsown,won’tfixproblems.

Thecorrectanswers,iftheywilleverbeknown,areunknowabletodaybecauserealmarketbehaviourdependsonsomanyfactorsandinteractions

thatareimpossibletopredictaccurately.Suchuncertaintiesareintrinsictoafast-moving

andrapidlychangingindustryandtheyaffectpolicystrategy,whichmustbedesignedforexperimentation,learningandadaptation.23

Thelistofunknownsislong.Belowarethetwomostimportantcategories.

Industrialpolicyandmanagedtrade

Shouldcountriestreatcriticalmineralsasamatterofcriticalnationalpolicyandrelyongovernmenttoorganizethemeansofproductionandcontrol?

Manygovernmentsarenowdoingthis.China,asmentionedabove,hasalreadyachievedadominantpositioninminingandespeciallyprocessingthroughactiveindustrialpolicy.Programmessuchasthosefordiversificationofcobaltsupplies,andespeciallythosefordiversificationofproductionmethodsandsuppliesoflithium,aremattersofnationalpolicyinwesterncountries.

It’snotclearwhetherthisnationalstrategicapproachworksbetterthanrelyingentirelyonmarketforces–orwhether,perhaps,forparticularcriticalmineralsandjurisdictions,amoreactive,interventionistapproachmightbebest.Oncegovernmentsintervene,cantherebeanypropermixofmarketforcesandinterventions,ordoespolicyquicklysupplantmarkets?

Today’sconcentrationofsuppliesinafewcountriesanduseofabhorrentminingmethodsistheresultofmarketsnotseeingtherightpricesignals.Fixingthatcouldbeataskforindustrialpolicy,withallitspotentialflawssuchastheproclivityofgovernmentstoidentifyandbackthe“right”solutions.Orit

couldbefixedthroughmarketreforms.Ifthelatterapproachistaken,thenthereformsadopted

willneedtobedesignedandimplementedinamultilateralcontextsincethesuppliesanddemandsforthesematerialsareglobal.

Alotoftoday’sconcernsrevolvearoundChina,inpartbecauseofbrewingtensionsbetweenmanyWesternnationsandChina,andinpartduetoactualconcentrations.

BecausesomuchofthemanagedtradedebatefocusesonChina,itisimportanttodealwiththerealitythatmostnationsareinnopositiontoisolateChina–theirhomesuppliesanddemandaremuchtoosmall,andthusanystrategythat

involvesdiversificationawayfromChinamustbeeithermultilateral(benefittingtheglobalmarket)orhegemonicandimplementedjustinthebiggestmarkets(e.g.theUnitedStatesandtheEuropeanUnion,andpossibly,Japan).

Anareaofemergingconsensusistheimportanceofdistinguishingbetweenonshoring,whichcouldcreatemorebrittlemarkets,anddiversification.

EventheaggressiveonshoringactivitiesbyChinahaveoccurredwithinaglobalmarket,andnoothercountryhasthesizeofnationalsuppliesanddemandthatcouldfacilitateahighlyautarkicnationalmarket.

Diversification,bycontrast,ismucheasiertoimplementinwaysthatdon’tunderminethevalueofmarketsignals.Asapracticalmatter,manynearshoringorfriendshoringpolicies–ifimplementedinthecontextofcontinuedopenglobalmarkets–willhavetheeffectofcreatingdiversification.

Thevalueofreliability

Theotherareaofmajordisagreemen