The Return Of Resource Nationalism

It wasn't supposed to be this way. The fall of the Berlin Wall was to bring about one, integrated world market where goods and services freely traversed borders without the interference of meddling ideologues—where the agricultural, mineral and man-made treasures of one country would be available to anyone, anywhere who was willing to pay for them: oil, gold, diamonds, soybeans, palm oil, wheat, computers, software and myriad other products of the earth and of human endeavor.

It's not working out that way. Not every country completely bought into this idea of an almost frictionless international capitalist order overseen benignly by global organizations created by treaties adhered to by all the world's nations.

Among the most obvious is China. China has started to treat rare earth elements—which are critical to practically everything electronic these days—the way the Atreides family, a ruling family in the Frank Herbert's science fiction novel Dune, treats "melange," a substance that extends life and increases mental ability and only comes from one planet, one that the Atreides happen to control.

The Chinese dominate the rare earth elements market because most of what is mined worldwide comes from China. The country produces 80 percent of global output. But it also controls 85 percent of the processing capacity. The second figure means that some rare earths mined outside of China are sent to China for processing.

The Chinese, of late, have started to reorganize the industry, presumably to have better control of it. And events in the last year have shown that small disruptions and Chinese desires to make use of more and more of its rare earths in products it makes itself can have big effects on rare earth prices. When the Chinese have used their leverage in the past, prices skyrocketed.

Rare earths aren't the only commodities for which resource nationalism has come back in vogue. Some 90 percent of palm oil is produced by just two countries, Malaysia and Indonesia. A kerfuffle between the Malaysian and Indian governments regarding India's invasion of Kashmir led to a ban on palm oil imports from Malaysia. Resource nationalism can work both ways.

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Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular ...

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Gary Anderson 1 month ago Contributor's comment

Very interesting. But China reacted to American tariffs. We used to be for free trade, remember?

Texan Hunter 1 month ago Member's comment

Yes, but that's because there was a trade imbalance that needed to be corrected.

Gary Anderson 1 month ago Contributor's comment

If you read the most recent Mises article at Talkmarkets, you will see that a trade imbalance does not need to be corrected. I am not a Libertarian, but they are right about trade.