The workarounds abound

The looming trade wars will reorder but not restrict

A modern work of art

---

Inbound Trump issues all manner of tariff threats in China’s direction, continuing the technology export restrictions begun first by him and extended by Biden’s “small yard, high fence” (SY/HF) approach.

Xi has already begun counter-signaling that he will play his chips in the rare earths realm, where China dominates not so much in having but in processing.

From my second MOOC now up on edX:

Historical data says the US only has so much rare earths but is a major player in the global processing chain. China is number 1 in that processing chain (both in and out), reflecting its known reserves (yes) but more so its willingness to mine (bingo!).

America let that situation unfold for years, knowing full well we were submitting to an artificial dependency — as in, if we REALLY wanted to get self-sufficient in rare earths, we’d both look harder for it and we’d make the processing effort.

Now, with Xi banning certain rare earth exports to counter America’s similar efforts on high tech components, certain US industries are freaking out at the prospect. China is attempting to treat rare earths like the US is now treating high-tech components: threatening other players in the global processing chain with cut-offs if they allow these “parts” to make it to the other side (highest-tech US chip “parts” in the case of China and various Chinese rare earth “parts” in the case of the US).

In effect, both sides are signaling a willingness to temporarily sabotage what has long been a useful and profitable-for-all trilateral trade among China, the US, and SE Asia just like the US is threatening to do with a similarly arrayed semiconductor trilateral.

In many ways, these dueling trade battlegrounds rather perfectly reflect where globalization stands today in terms of demographic dividends — i.e., the biggest one going on right now is in SE Asia, so no surprise that, when the world’s two biggest economies go at it over trade, the end up fighting over who can most put at risk this era’s version of the “golden goose” (presently best exploiting SE Asia’s demographic dividend).

Thus, when Washington pulls out its SY/HF strategy, citing national security supply-chain vulnerabilities, China retaliates as best it can, per the NYT:

China dominates the global mining and refining of gallium, germanium, graphite and antimony, all of which it embargoed last week.

This is a complete mirror-imaging of our SY/HF strategy:

Alarm is rising among multinational companies doing business with China about Beijing’s decision last week to order a trade embargo on the export of four critical minerals to the United States. The central subject of concern is a provision extending the ban to companies in other countries that transfer minerals to American firms after acquiring them from China.

On some level, these tussles educate both sides about their interdependencies, which is good, with these efforts to deny access to competitors simply triggering do-it-yourself responses (China prioritizes high-end chip production advances and America gets back into the rare earths mining and processing business big-time).

It’s like both sides are targeting the other with their slow-motion beam designed to retard industrial development in some targeted fashion: Zap! Now your push to achieve industrial advantage X will take three times as long. Take that!

The end result?

A certain decoupling but likewise an expansion of global supply points and reserves, meaning the ultimate outcome is more global capacity and more global workaround possibilities — effectively limiting the utility of trade wars over the long haul.

America built a brilliant world system of trade based on our own successful at-home union-of-states model. It is far more resilient than anyone realizes.

But there are varying degrees of difficulty involved here in these responses: For the US to work its own rare earths is to leverage existing tech and figure out how to access new sources (something we excel at). But, for China to work out its most high-end chip production? That’s harder because it requires the most high-end innovation, which governments as a rule have a hard time simply ordering up — no matter how much money you throw at problems.

Then there’s something like food exports, which will get caught up in this trade war again, just like it did the first Trump administration. American farmers will lose access to China’s vast market because others (e.g., South American sources) can step up and step into that role — and somewhat permanently so.

Plus, we must factor in the whole shifting of climates around the planet having great impact on that whole who-can-grow-what-where dynamic. Climate change is dehumidifying the surface and super-humidifying the atmosphere (in general), while simultaneously drying out lower latitudes while “wetting” higher ones.

Mineral reserves and technological development don’t get geographically shifted around in that manner, so food, because of its close ties to water, is in its own category — as in, having extra water is having extra food.

But wait!

Evidence that America can succeed when it comes to fights over strategic materials crucial to emerging and future high-tech industries is seen in both lithium and now rare earths.

Until quite recently, we thought the world’s supply of lithium was far more concentrated than it apparently is. Then we discovered a huge reserve in Nevada AND our best universities are pioneering this method of extracting lithium from fracking wastewater.

Poof!

There goes the great “peak lithium” fear.

Now, we get additional word that the same extracting-from-energy-waste solution exists on rare earths (h/t mein Bruder Andy):

Millions of tons of coal ash left over from burning the planet’s dirtiest fossil fuel are sitting in ponds and landfills, able to leach into waterways and pollute soil. But this toxic waste may also be a treasure trove for the rare earth elements needed to propel the world toward clean energy.

Scientists analyzed coal ash from power plants across the United States and found it could contain up to 11 million tons of rare earth elements — nearly eight times the amount the US has in domestic reserves — worth around $8.4 billion, according to recent research led by the University of Texas at Austin.

It offers a huge potential source of domestic rare earth elements without the need for new mining, said Bridget Scanlon, a study author and research professor at UT’s Jackson School of Geosciences. “This really exemplifies the ‘trash to treasure’ mantra,” she said. “We’re basically trying to close the cycle and use waste and recover resources in the waste.”

What does this tell us?

It tells us that “resource wars” typically end up being more myth than menace on a global scale, thanks to continuing technological advances. As long as we don’t run out of innovation, workarounds abound.

So yes, now I have to go back to my second MOOC and update that slide on rare earths, suggesting the same sort of benign long-term trajectory that we can now spot on lithium.

None of this is to say that genuine harm won’t be done with any trade wars pursued, just that the education they trigger can be highly beneficial. What happens when you play the supply-is-king card is that you deeply incentivize your targets to innovate their way out of that risk.

Yes, it can take a great deal of time — like the West’s ultimately successful response to OPEC’s price shocks in the 1970s (described in America’s New Map, but the more globalization extends its networks, the faster the turnarounds unfold.

Now let me get a bit wild in my thinking: