International affairs have not been as murky and challenging as they are now for decades. Because of many similarities one might feel the need to call it a “New Cold War”. Truth be told, the growing distinction between autocracies and democracies and the increasing bipolarity are undeniable parallels, but the context is quite different. At its peak, the Cold War was a global system of countries centred around either the United States or the Soviet Union, in its core an ideological contest between capitalism and socialism underpinned by the idea of total victory or total defeat fuelled by a pervasive arms race and bloody proxy wars that still haunt most of its victims. In contrast, what is going on now between great powers is better characterized as a competition which uses mainly economic tools to weaken ones adversary and limit their technological advancement in certain areas such as AI, space, defence or green technology.
New geoeconomic order?
What is currently going on between China and the U.S. is the result of Washington losing its international predominance because of its war on terrorism (Iraq and Afghanistan most notably) and the 2008 financial crush, which gave rise to increased technological, economic and military competition between the U.S. and its main adversaries. This is supported by Anthea Roberts who argues that the new geoeconomic order is best described as a macrolevel change in the relationship between economy and security in the international financial framework. His research notes that this new order has greater focus on relative economic gains (that one party gained too much power, zero-sum game) and their security implications on technology and military power. When the hegemon realizes its wakened position, and see interdependence as a strategic vulnerability, its favour for greater protectionism will increase, they note. The technological side of this new order is also mentioned by David Criekemans who looks at renewable energy as the main driver. He argues that investment in renewable technologies could form new centres of geopolitical power and result in a duo-multipolar system where China and the U.S. would play the deal breakers due to their investment into clean technology and their abundance of rare earth materials. As noted by Vakulchuk, this energy transition might push the international system towards more multipolarity as environmental NGOs and individual energy consumers have more power in this context, resulting in higher degree of decentralisation and more equal distribution of power compared to a fossil fuel-based system. So how geoeconomics, the “use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results”, as coined by Luttwak, can fit into this new order?
Minerals and power
When it comes to the 21th century the most important market is the one in the core of the energy transition. While green technology and sustainability market was valued at $10.32 billion in 2020, this is projected to reach almost $75 billion by 2030. Solar panels, wind turbines, electric vehicle (EV) batteries and other clean energy devices have one thing in common: critical materials. As noted by a report from the International Renewable Energy Agency (IRENA) the most important critical materials for the energy transition are copper, rare earth elements (REEs), lithium, cobalt, nickel and graphite. Their demand for the future is set to grow exponentially.
For instance, the boom in electric car sales is projected to result in a $59 billion worldwide market for lithium ion batteries, which was at $7 billion in 2018. The reserves for these materials can only be found in a few countries which is going to make them important or very much vulnerable players in international affairs in the future. As mentioned by the same report “Nearly 50% of world cobalt reserves are in the Democratic Republic of the Congo (DRC), 58% of lithium reserves are in Chile, 80% of natural graphite reserves are in China, Brazil and Turkey, while 75% of manganese reserves are in Australia, Brazil, South Africa and Ukraine”.
The stable supply of these critical or strategic materials are also important for national security reasons. As highlighted by the U.S. Department of Defense (DoD) the procurement of kinetic capabilities, for instance advanced and developed missile systems such as hypersonic weapons or directed energy weapons are increasingly dependent on secure defense-critical supply chains and strategic materials. That said, the western world, mainly the U.S. and western European countries, have been waging counter insurgency campaigns and stability operations against non-state actors so long that they forgot how war can look like. Indeed, the conflict in Ukraine is a sobering case study which highlights not only that war is primarily fought between humans but also the importance of artillery. This war of attrition, to gradually weaken the opponent by putting more rounds and rockets downgrade, in less time and at a greater distance, is the main characteristic of near-peer conflicts. In fact, those supporting Ukraine now have to face a new problem, namely that they depleted their own military inventories more than they anticipated. As noted by Politico, countries have to deal with the time factor of industrialized warfare to manufacture and replenish ammunition and weaponry stockpiles. As a result, the U.S. decided to dramatically ramp up its monthly production of 155mm artillery shells over the next three years. More precisely, “(it) will go from making 14,000 155mm shells each month to 20,000 by the spring and 40,000 by 2025.”
China is dominant in green technology and related supply chain in every way. According to an International Energy Agency (IEA) report China is responsible for 84% of global solar panel manufacturing, owns six of the top ten wind turbine manufacturing companies so its market share is more than 50% and is in control of top EV battery makers, thus having a market share of almost 60%. It is also processing 40% of copper, 60% of cobalt, almost 90% of REEs supply and mines 80% of graphite globally. This lack of diversity and dependence on foreign inputs could be hazardous for the DoD as it could affect it at the competition, industrial readiness and operational level as well. Not to mention that China could use intelligence to selectively deny materials to a supplier during a conflict with the U.S. and its allies. So the ongoing fight for the control of this sector, now led by Washington and its sweeping policy initiatives, is everything but surprising.
Strategic competition in the making
The current phase of the ongoing Sino-American rivalry is best characterized as a competition for technological supremacy. As noted above, China is the dominant player in green technology manufacturing and has great influence on critical material processing as well. Thus, Washington’s response whether it is proactive, reactive or both is targeting three pillars of China’s power: critical mineral mining and processing, green manufacturing and semiconductors. This article is only looking at the Defense Production Act (DPA), the Inflation Reduction Act (IRA) and the CHIPS and Science Act.
The aim of the DPA is to strengthen the U.S. industrial base for large-capacity batteries by boosting domestic industrial resources to support national defense and homeland security requirements. In this framework they issued the first critical minerals award for Perpetua Resources Idaho, Inc to establish an American source of critical minerals for missiles and munitions. With the $25 million the company will complete environmental and engineering studies to map out potential sources and challenges for critical minerals. Another way Washington wants to ensure the flow of these resources is through establishing stronger presence in Africa. During the U.S.-Africa Summit Washington committed $55 billion over the next three years compared to China’s $40 billion. According to various sources at least half of this money is going to be foreign direct investment (FDI), mostly targeting the mining sector. As a first step the U.S. signed a memorandum of understanding with the Democratic Republic of Congo (DRC) and Zambia, both countries have vast cobalt and copper reserves and deep Chinese influence, to bring funding and expertise into their mining industries. Not to mention, that a coalition of billionaires, such as Bill Gates and Jeff Bezos, announced a $150 million investment into Zambia’s copper and cobalt mine alone.
The Biden administration’s flagship policy initiative the IRA wants to make historical investment into the country’s social safety net from healthcare through education and to climate security. The aim of its state-led green industrial program of some $400 billion in federal funding is to reshore clean technology manufacturing to the U.S. As noted by the Financial Times under the IRA’s framework, Washington put extra tariffs on Chinese solar panel manufacturers who have been evading them by setting up operations in south-east Asia. European leaders called it an “unfair competition” and the “deindustrialization of Europe” after which Von der Leyen relaxed state aid rules for member states to counter the IRA and now leading member states are preparing to propose a new sovereignty fund to strengthen the European industrial base.
Another market, which is highly interconnected with REEs, is the semiconductor industry. Despite being incredibly vital for everyday electronic devices, clean technology and high-tech warfare, its supply-chain is highly vulnerable as almost 90% of the most advanced chips and 65% of semiconductors are made in Taiwan by TSMC. The CHIPS and Science Act provides $280 billion for American semiconductor research and manufacturing and 25% investment tax credit for capital expenses for manufacturing. Since its announcement it has spurred $200 billion in investments, which includes 13 new fabrication plants being built in the U.S. The aim is not only to reshore semiconductor manufacturing but also to hinder China’s chips industry and weaken its ability to produce high-tech weaponry. This is also proved by the sweeping export controls on advanced chips and chip-making equipment by the U.S. which decreased China’s imports by 40% compared to November 2021.
The pandemic and the Russian invasion of Ukraine reshaped our understanding of international affairs. Rather than advocating for more globalization nations had to realize the importance of energy and supply-chain security underlined by the reality of geopolitics. As highlighted by Commerce Secretary Gina Raimondo, Washington’s aim with its policy responses in terms of the Sino-American economic and technology competition is to tame China’s tech power, thus to take back or maintain U.S. advantage in certain fields. The question is if there are indications that the world economy is moving towards a new geoeconomic order. Shortly, yes. There are tectonic shifts in policies to reshore green technology, critical materials and semiconductors to the U.S. Not to mention that other leading nation such as Australia, Canada or the UK also joined the U.S. in significantly constricting Beijing’s access to their critical minerals or semiconductor sector. That said, it is only the beginning of this competition between China and the West. So the next question is how the EU is going to react. Is it ready to wage a trade war with the U.S? Or to sacrifice its advantageous relationship with China? Can it position itself in the middle at all with the Ukraine war and an ongoing energy crisis? We shall see in 2023.