In an ever-evolving global landscape, world leaders have turned their attention to critical issues such as supply chain resilience, economic diversification, and de-risking. These concerns arise from the growing threat of ‘trade weaponization’, particularly by China, which holds a virtual monopoly over Rare Earth Elements (REEs). As countries strive to safeguard their economies, recent developments – including India’s participation in the Mineral Security Partnership (MSP) – exemplify the responsive measures taken to address disruptions caused by COVID-19 and trade weaponization.
China’s retaliatory actions: A legal foundation for trade weaponization
The introduction of China’s new law on foreign relations has provided legal support for retaliatory actions, including the weaponization of trade. This has created a worrisome environment for countries that depend heavily on international trade, as non-tariff measures are being utilized as tools of coercion. China’s restrictions on Indian basmati rice exports and the recent curbing of gallium and germanium exports serve as examples of such measures. These actions demonstrate the potential for trade weaponization and underscore the need for alternative supply chains.
Yuan internationalization and de-dollarization: A boost to China’s economic influence
The internationalization of the Chinese Yuan and the ongoing de-dollarization efforts hold the potential to bolster China’s economic influence and further amplify the impact of trade weaponization. As China expands the reach of its currency, it aims to reduce its reliance on the U.S. dollar in international trade transactions. This shift has significant implications for global trade dynamics and has raised concerns among the Quad countries, G7 members, and experts alike.
Collaborative efforts: Countering coercion and unilateral changes
Amidst these challenges, it is increasingly clear that collaborative efforts and alternative supply chains are crucial in countering coercion and unilateral changes. The Mineral Security Partnership (MSP), which now includes India, serves as a notable example of such collaborative initiatives. The Quad countries and G7 members emphasize the importance of forging alliances and strengthening supply chains to reduce dependence on China’s dominance in rare earth minerals.
Addressing national security concerns: A targeted approach
National security concerns and protectionist measures have fueled fragmentation in global trade, posing significant economic challenges. To mitigate disruptions and decrease costs, it is imperative to adopt a targeted approach towards critical products vital for national security. By identifying and prioritizing key industries, governments can focus their efforts on building resilient supply chains while simultaneously addressing strategic security objectives.
The impact of ‘friend-shoring’ and multilateral institutions
While nations strive to secure their supply chains, concerns have been raised regarding the negative impact of ‘friend-shoring’ on global trade. This term refers to the practice of relying on close allies for essential goods and services. While it may initially appear as a viable solution, ‘friend-shoring’ can lead to a lack of diversification and increase vulnerability to disruptions in the long run. Furthermore, the credibility of multilateral institutions, such as the World Trade Organization, comes into question as countries seek alternative paths to protect their own interests.
Merging resilience and national security policies
The merging of supply chain resilience with national security policies has led to confusion surrounding the concept. However, it is essential to recognize the inherent link between a robust supply chain and national security. By ensuring the resilience of supply chains, nations can safeguard their economies, protect critical industries, and maintain stability in the face of emerging challenges.
In conclusion, the need to enhance supply chain resilience, achieve economic diversification, and mitigate the risk of trade weaponization is more crucial than ever. With China’s dominant position in rare earth minerals, alternative supply chains and collaborative efforts become imperative. Governments must adopt targeted approaches that prioritize critical products for national security while remaining cognizant of the potential pitfalls of “friend-shoring.” By embracing these strategies and navigating the complexities of a changing global landscape, nations can forge ahead towards a more secure and prosperous future.
