all-of-the-above

In the wake of the coronavirus pandemic, emerging supply chain challenges across all sectors, Russia’s unprovoked war on Ukraine, as well as trade and geopolitical rifts between key global players deepening, many have asked whether the age of globalization, which followed the end of the Cold War, is over.

With the world having become increasingly interconnected and interdependent in the years that followed the collapse of the Soviet Union, fears that globalization is dead are likely overblown, but, as the Wall Street Journal pointed out earlier this year, it is certainly changing.

The world is becoming more fragmented, and, as Jared Cohen, president of Global Affairs and co-head of the Office of Applied Innovation at Goldman Sachs wrote earlier this month, “in the 2020s, everything is geopolitical.”

As he outlines: “Each great power has a privileged position in the global economy, and they all face new risks and uncertain futures.” 

He elaborates:

“The United States is leaning more into its status as the holder of the world’s reserve currency, using the dollar and related payment systems to sanction adversaries and competitors. China is leveraging dependency on its position in supply chains. And Russia—with nowhere near the power of China or the U.S., but with more appetite for risk—has wielded energy to intimidate and coerce its neighbors and limit global support for Ukraine. There is no country or multilateral organization that has the capacity to arbitrate these tensions.”

With the above-referenced events at the top of this decade and the accelerating global push towards net zero carbon emissions a new class of states have entered the spotlight in the global geopolitical realignment – the “geopolitical swing states,” and their role could grow exponentially in the coming years.

Goldman Sachs’s Cohen defines a geopolitical swing state as “critical to the world economy and balance of power” but without “the capacity by themselves to drive the global agenda, at least for now.” He adds that “as long as the tensions between the U.S. and China continue to get worse, they will have outsized abilities to navigate geopolitical competition and take advantage of and influence it.” 

According to Cohen, there are four – often overlapping — categories of geopolitical swing states:

• Countries with a competitive advantage in a critical aspect of global supply chains;
• Countries with a unique ability to make themselves attractive for nearshoring, offshoring, or friendshoring;
• Countries with a disproportionate amount of capital and willingness to deploy it around the world in pursuit of strategic objectives; and
• Countries with developed economies and leaders who have global visions that they pursue within certain constraints.

As Cohen concludes, “[t]he rise of geopolitical swing states may balance the great powers and help stabilize the global order. Their interest-based decision-making could be a source of consistency in uncertain times. Or their newfound prominence may increase global instability by putting more actors and variables in play. But even if today’s world is not yet multipolar, a rising group of countries recognize that they can determine the course of world events. Those geopolitical swing states are aware that their power may be unsustainable, or event fleeting and they are determined to take advantage of the current window of opportunity.”

While the rise of the geopolitical swing states has business implications for multinational businesses and investors, these trendlines are have real-world implications for U.S. stakeholders from a policy perspective, and, in the critical mineral resource realm, underscore the importance of a comprehensive all-of-the-above approach to securing critical mineral resource supply chains.

As Cohen closes:

“For years, geopolitics mattered more to certain industries than others. Now they matter to everyone.”

The sooner U.S. policy stakeholders realize this and pursue a comprehensive “soup-to-nuts” approach that embraces nearshoring, offshoring, and friendshoring, while also focusing on bolstering the domestic critical minerals framework, the better.

Against the backdrop of the accelerating global push to net zero carbon emissions, a volatile overall geopolitical climate and a new EPA proposal to tighten tailpipe emission standards U.S. stakeholders are looking for ways to secure critical mineral supply chains.

The expectation is that with the proposed EPA rules requiring automakers to reduce carbon emissions by 56% in their 2032 models compared to 2026 models in place, 67% of new light-duty car purchase will need to be electric by 3032.

The so-called battery criticals – nickel, lithium, graphite, cobalt and manganese – hold the key to this development, but the push to secure their supply chains is, as followers of ARPN well know, fraught with challenges.

A case in point is nickel.

While a “relatively benign supply profile” kept nickel off the U.S. Government’s first List of Critical Minerals in 2018, the metal’s increased usage in EV batteries, and the USGS’s expanded criticality criteria to include materials with only a single domestic producer along their raw materials supply chains – identified as having a single point of failure – led to nickel’s incorporation into the 2021 update to the U.S. Government Critical Minerals List.

With the underground Eagle Mine in Michigan – currently the only U.S. primary nickel mine in operation – near the end of its lifecycle, stakeholders look to Michigan’s near-neighbor Minnesota, home to the Tamarack Nickel Project in Central Minnesota which is expected to start the environmental review process this year, the proposed Twin Metals underground mine which has been embroiled in an ongoing legal and regulatory battle over the years, and the PolyMet Mine in Northeastern Minnesota.

See ARPN’s recent post entitled “Critical in Spite of ‘Relatively Benign Supply Profile?’ A Look at Nickel” for more.

Earlier this week, as the House Committee on Natural Resources Subcommittee on Energy and Mineral Resources held an oversight field hearing “Examining the Mineral wealth of Northern Minnesota,” AXIOS Pro (subscription only) zeroed in on the congressional politics on the push to bolster the U.S. supply chain for the battery critical, pointing to the fact that “both Republicans and Democrats are pressing the Pentagon to use the Defense Production Act (…) to boost domestic nickel output” according to letters obtained by Axios.

As Axios’s Jael Holzman writes, the letters build off Biden’s 2022 DPA invocation to “liberate wartime authorities and funding U.S. minerals projects in a bid to unshackle the nation from foreign metals,” and the Defense Department replied to one of the letters stating that “the Department is actively engaging with companies across the United States and our allies to secure our critical mineral supply chains using DPA funds, including for nickel.”  

While recent headlines talk of a nickel glut considering Indonesia’s booming nickel output, these narratives must be taken with a grain of salt with the specter of resource nationalism and potential cartelization on the rise.  News from Moscow and Kiev indicate that and end to the war between Russia (a key global nickel player) and Ukraine is nowhere to be seen, and U.S. relations with China are deteriorating.  Faced with ever-growing geopolitical volatility, working with our allies, as per the DOD response to the congressional letters, to strengthen supply chain is an important piece of the “all-of-the-above” puzzle, but it is no panacea.

As ARPN has consistently argued, for the U.S. to achieve the lofty – and now even loftier – goals of net carbon neutrality we must embrace “a push to secure critical mineral supply chains from ‘soup to nuts’ to borrow a term used by Energy Secretary Jennifer Granholm. That means ‘all of the above,’ including domestic production and processing of metals and minerals like nickel.”

Clearly, the State of Minnesota has potential.  However, as Natural Resources Committee Chairman Rep. Pete Stauber (R-MN) said after the subcommittee field hearing:

“[I]f we’re going to unlock the full potential of our resources and secure our domestic mineral supply chains, we need the political will to implement permitting reform.”

With consensus on the need to secure critical mineral supply chains mounting on both sides of the political aisle, here’s hoping the political will to make tough choices and overcome the perennial “not-in-my-backyard” sentiment will follow suit.

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