Aurelia Butler

Stay informed with free updatesSimply sign up to the More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK economy rebounded partially in August in line with economists’ expectations, driven by a recovery in the services sector, according to official figures.Gross domestic product was up 0.2 per cent in August compared with the previous month, according to data published by the Office for National Statistics on Thursday.The rise followed a sharper contraction of 0.6 per cent in July when economic activity was largely disrupted by strike action and wet weather.The figures suggest the economy, which expanded in the past three quarters but remains under pressure from high inflation and borrowing costs, could struggle in the coming months.“The economy entered a broad-based slowdown in late summer, which has deteriorated further in recent months,” said Yael Selfin, chief economist at the consultancy KPMG UK. “The UK economy continues to feel the strain from elevated prices and high interest rates, with the full impact of past tightening still to be felt,” she added. In August, the economy was smaller than its 2022 peak last May, indicating the persistent effect of high inflation and borrowing costs on UK output.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.On Thursday, Bank of England rate-setter Swati Dhingra told the BBC that high interest rates were damping growth, affecting the lives of the young and more vulnerable people in particular. “The economy’s already flatlined. And we think only about 20 per cent or 25 per cent of the impact of the interest rate hikes have been fed through to the economy,” she said. Dhingra, who has voted against further rate increases since joining the Monetary Policy Committee in August 2022, also noted that, like high inflation, “interest rates will also typically impact younger, less educated people more”.The BoE held interest rates at 5.25 per cent, signalling the peak of borrowing costs after almost two years of rate rises. Further signs of the impact of high borrowing costs on the economy came on Thursday from the Bank of England’s credit condition survey, a quarterly survey of banks and building societies.It showed the proportion of lenders reporting an increase in household defaults on mortgages over the past three months minus those reporting a decrease, rose to 43 per cent, the highest since the second quarter of 2009. Default expectations for the next three months were even higher. Sanjay Raja, economist at Deutsche Bank, said he expected “growth to turn sluggish through the next few quarters with the UK economy walking a fine line between recession and stagnation”.Services output rose 0.4 per cent in August 2023 and was the main contributor to GDP growth, spurred by the professional services and education sectors. Education activity was disrupted in July due to walkouts by teachers across the country leading to school closures.Samuel Tombs, economist at Pantheon Macroeconomics, said the muted rebound in August reflected increased output in the education and health sectors as strike disruption receded, “rather than underlying momentum” in the wider economy.Output in consumer-facing services, such as entertainment, bars and restaurants, fell 0.6 per cent in August and remained 4.3 per cent below its February 2020 levels, before the Covid-19 pandemic. Kitty Ussher, chief economist at the Institute of Directors, said the fallback showed that “recent interest rate rises are causing households to budget carefully in the face of rising mortgage costs”.Manufacturing output was down 0.8 per cent in August, while construction registered a 0.5 per cent fall. This marked a continuation of the contraction of the previous month. More timely business surveys, such as the purchasing managers’ index, forecast further downturns in manufacturing and construction output in September. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of Martin Sandbu’s Free Lunch newsletter. Sign up here to get the newsletter sent straight to your inbox every ThursdayGreetings. The annual meetings of the World Bank and the IMF, that convene the world’s economic policymakers to Marrakech this week, will not create many headlines. The tragedy in the Middle East will overshadow whatever they may agree. It is a sad illustration — as it also was with the recent earthquake in Marrakech itself — of how the global economy is buffeted by external shocks that standard modelling has little hope of helping us understand. Today I offer some thoughts on how to think about the global economy in this changing world.The short-term work must go on, of course, and the multilateral financial institutions are duly publishing their reports and forecasts. The IMF’s World Economic Outlook, for example, sees the global economy as merely “limping along”. No wonder, with interest rate rises beginning to bite, cost-of-living pressures still high and China still seemingly in real estate crisis freefall (see the IMF’s chart below).The news is not all bad: the IMF shows that in many countries, the recovery from the pandemic has led to greater earnings equality in many countries, notwithstanding inflation.But when uncertainty is this high we paradoxically gain more from assessing the global economy at a more distant horizon. There can be no doubt that we are undergoing deep structural changes and are not going back to some status quo ante. What we end up with is even more uncertain than short-term forecasts, of course. But while those are at most qualified quantitative guesses, for the longer term we can try to identify patterns in the forces of change, which could be more informative than short-term prognostication.I would like to focus on three overarching characteristics of the direction of economic change. The first is fragmentation — the raising of new economic barriers between countries and the end of the globalising impulse that has defined the world economy for nigh-on 40 years. The second is increased volatility — whether from intensifying climate events, more frequent and hereto unthought-of geopolitical shocks, or built-in instabilities in financial markets that we are discovering as interest rates go up.The third characteristic is more of a catch-all category: I think of it as the rise of the supply side. The increased volatility and shocks we face seem increasingly likely to affect the supply side and the structural make-up of the economy. The supply side is also the main site of the return of state activism in economic management. From largely focusing on demand management (through independent central banks) and redistribution of the fruits of growth (through tax and benefit policies), governments have now embraced a responsibility for shaping the structure of the economy and the direction of growth. This new activism applies to huge policy areas ranging from geopolitical resilience (building domestic microchip supply chains), decarbonising the energy system, and managing the digital transition of our lives and livelihoods. If these are three sensible headings around which to organise our thinking about what is happening, it is obvious what the potential economic risks could be. The potential cost of fragmentation is that of duplication — the cost of establishing and maintaining many “near-shored” value chains when a single global one would do. That of increased volatility is higher insurance cost, in the broad economic sense of resources that have to be diverted from alternative uses in order to guard against or mitigate damage that now may occur more frequently. And the potential cost of supply side dominance is inefficiency: the risk that as governments become more involved in managing supply-side disruption and structural change, they have more opportunities to choose bad policies.These risks are, however, conceptual. In practice, it is a lot harder to know how things will actually play out. Take fragmentation. As I have argued before, what we are most likely to see is not “deglobalisation” but intensified “regional globalisation”, that is to say, more and deeper integration within economic blocs, even as links may weaken between blocs.That this will be costly tends to be taken as an article of faith. But that really depends on what the optimal scale of the supply chain is. Perhaps the world can only efficiently fit one producer of the most cutting-edge microchips. (Or perhaps that number is none, given how it seems no such factory has ever been set up without ample public support.) If so, repatriating supply does come at an economic cost. But it seems unlikely that this is true for most sectors — say, electric vehicles. Given the size of a typical car plant, it’s hard to see what scale economies can be gained from producing, say, 50mn cars annually in China, that aren’t already maxed out when each of North America, Europe, and China produce 10mn-20mn each.So, estimates that fragmentation will lead to a particularly high cost — such as the IMF’s modelling that trade disintegration could cost 7 per cent of world gross domestic product — must rely on ambitious assumptions about how big is big enough to exhaust economies of scale. But this is deeply uncertain. It is plausible that more intense regionalisation is less efficient than “full” globalisation — but it is also plausible that it need not be.(Of course, trade can also be driven by differential resource endowments in different countries — but most modern trade is a matter of the most efficient use of technologies that become cheaper to use the larger the market. And to the extent the draw of full globalisation has been cheap labour in poor countries, note that this has served as a substitute for automation and other technological upgrading — and is therefore a cause of slow productivity growth.) Volatility is more unambiguously costly — especially the real, physical volatility caused by things such as more frequent extreme weather events or acts of war. A greater share of society’s resources will have to be devoted to physical investments that protect against shocks (think flood defences and food and medicine stockpiles), and both financial insurance and countercyclical policies must be expanded. Note, however, that fragmentation could mitigate volatility. If there are three regional supply chains instead of a single global one, there are alternatives when one link in one chain breaks. The new supply side dominance could also be helpful. The state’s increased role does not only bring the risk of inefficiencies — it can also contribute to greater stability, predictability and hence productivity. Policies can be designed so as to reduce volatility and uncertainty for businesses, for example by committing to a long-term path for carbon prices (like Norway does) or by credibly promising to create a market for certain goods (like the US’s Inflation Reduction Act does).All of this is deeply unknowable. But it helps, in the face of uncertainty, to systematise our ignorance. Knowing what we do now know is, after all, a form of wisdom.Other readablesNumbers newsRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekdayGood morning. Today is the second of three weekly collaborations with Columbia University historian Adam Tooze. Ethan and I depend on Adam’s Chartbook newsletter for the global political and economic context we need to write Unhedged. Subscribe! Today the topic is the multipolarity thesis: the idea that the world has shifted from unipolar US leadership, or a bipolar world organised around “Chimerica”, into a world of multiple, shifting, partial, often temporary alliances. If multipolarity is indeed gaining momentum, the consequences will be far-reaching. We are keen to hear readers’ thoughts: [email protected] and [email protected]: in finance, it’s still a unipolar worldIn a recent series of articles, the Financial Times described multipolarity in terms of “the rise of the middle powers” or, more pithily, the “à la carte world”. A quote from commentator Nader Mousavizadeh gives one neat summary of what that means: The fact that the relationship between Washington and Beijing has become adversarial rather than competitive has opened up space for other actors to develop more effective bilateral relationships with each of the big powers but also to develop deeper strategic relationships with each other.Unhedged has its doubts. It is true that the inclination of the US to project power around the globe seems to have diminished a bit under the past three presidents. But does the multipolarity thesis really add much to this basic observation? Politics is not our area, however. What we can argue with some confidence is that in the realms of finance and markets, the world is as unipolar as ever and possibly more so. Here, the US remains indispensable, and we do not see this changing any time soon. This is not, we hasten to add, necessarily a good thing for the US or the world. But it remains a fact, and a fact of major economic and political significance.  Part of the appeal of the multipolarity thesis stems from the fact that the US share of global output has shrunk. This is inarguable, but neither new nor accelerating; in fact, it is an old trend that has stalled in recent years, when multipolarity has (in theory) taken hold. In the past decade, the US and eurozone share of world GDP has fallen less than a percentage point each:In any case, too much is made of relative output shares. What is more important to global markets is the centrality of the US financial system and the dollar.To understand the dollar’s power, consider the ideal features of a globally dominant currency. Karthik Sankaran, an FX markets veteran, says it must be “unfailing”: a universal and fungible asset, invoicing and liability currency. That is, it must be widely accepted, fungible between financial assets and real-world goods and services, and useful for invoicing transactions and underwriting loans across borders.Once a currency boasts these features, network effects make it sticky. So it is with the dollar and, to a lesser extent, the euro. Take invoicing, how cross-border trade gets settled. Even if a transaction is happening far away from the US, both sides have an incentive to agree on a standard “vehicle currency”, to minimise volatility and transaction costs. Once a global invoicing standard is set, it is annoying and expensive to change. This is why the dollar and the euro have seen rising invoicing use, even as the US and eurozone become less significant trading partners. In cross-border lending, too, the dollar’s real competitor is not the renminbi, but the euro:Some dedollarisation proponents point to the renminbi’s rising share of global central bank FX reserves. This chart ran in the FT in August:You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.This is an important change, perhaps accelerated by US sanctions policy, and some analysts believe the dollar share dip is deeper than the chart above indicates. But the move is not yet decisive, and it is worth remembering that central bank reserves exist less as discretionary investments than as tools to defend a country’s home currency. The dollar makes up one leg of 88 per cent of all FX transactions, compared with 31 per cent for the euro and 7 per cent for the renminbi. As long as that remains broadly true, the dollar share of reserves can only fall so far.Almost as important as the dollar are US Treasuries, the ultimate safe asset, indispensable as a haven, benchmark and collateral. The notion that American political or fiscal folly is about to unseat the Treasury is decades old, but has become popular again in the past year or two as US deficits have ballooned and Treasury yields have risen. But Treasuries will retain their crown; the pretenders to the throne are not up to the job. Europe has no Treasury equivalent because of its lack of a true federal structure. China’s closed capital account and opaque markets make its debt unappealing to global investors. Japan’s capital markets are too shallow to rival the US.If you want to own a nation’s liabilities, you have to think about the political stability and growth profile of that country. What nation offers a better combination than the US?The final bulwark of US financial dominance is deep, open, stable capital markets that are home to the greatest companies in the world. The premium that investors are willing to pay to own the equity of US corporations (and of international corporations listed on US exchanges) have only grown in recent years:Correspondingly, over the past 10 years, US companies’ share of global market capitalisation has grown from 37 per cent to 42 per cent, according to the Financial Industry Regulatory Authority. Yes, China’s IPO market has grown to rival or surpass the US’s in volume, and large regional companies like Saudi Aramco choose local markets to list. But when a truly global company comes to market, there is only one option. Witness the recent US listing of Arm, formerly a UK technological “champion”.The openness and depth of US markets, and the legal stability they provide, and the sheer size of the country’s economy — along with the fact that countries such as China and Germany have built export-driven, surplus economies — make the US the centre of gravity for global capital. Money wants to come to America. The size of foreign claims on US assets is unlike anywhere else in the world:As finance professor Michael Pettis convincingly argues, the flip side of this is massive US public and private debt, so America’s capital gravity is at best a mixed blessing for its citizens. But nonetheless it makes clear the indispensable role of the US in the global financial system.Adam, we are keen to hear if you think the multipolarity thesis is true outside (or inside!) the financial domain, and how the financial and political economy pictures fit together. Chartbook: Multipolarity can run on the dollarYou make an excellent case for the continued dominance of the dollar in the global financial system. Like you I’m a sceptic when it comes to dedollarisation. The dollar’s centrality confers considerable power on the US. The impact of sanctions can be seen from Venezuela to Russia and Iran. Short of outright confrontation, the global dollar cycle shapes the fortunes of the entire world economy. China’s economy developed from the 1980s onwards, like that of Japan and postwar western Europe before it, within a world economy centred on the US.But none of this means that multipolarity is a myth. Power is always relative. Even in the 1990s, the era we now think of as unipolar, it was China that decided to fix its exchange rate against the dollar at an extremely competitive rate, creating what some analysts dubbed Bretton Woods 2. That was a decision taken in Beijing not Washington, and China stuck to its guns despite considerable pressure from the US. A quarter of a century later, China’s exchange controls are as effective as ever, marking a major carve-out within the dollar system. And Russia has just tightened its capital controls to enable it to continue its war economy in the face of western sanctions.Capital controls are certainly no panacea. As you note, they limit the attractiveness of China’s financial assets and can lead to painful macroeconomic imbalances. But they also give Beijing (and now Moscow) a degree of control over the balance of payments. They limit the dollar’s influence and that in turn radiates out to the large array of countries that trade intensively with China, whether that be Russia, Brazil or Saudi Arabia.China was able to uphold its position not only because of its authoritarian regime, but also because in the 1990s and 2000s its strategy of cheap exports and trade surpluses sucked American interests in. US businesses, consumers and taxpayers learned to like a world of “twin deficits”. So deep was the symbiosis that Niall Ferguson and Moritz Schularick coined the phrase Chimerica.The best way to think of today’s multipolarity is as the shattering of Chimerica. China’s ramified network of raw material supplies are no longer seen as efficient parts of global supply chains, but as a sinister geoeconomic network of influence. The boon of cheap imports morphs into the “China shock” that has forced America and its allies into a defensive crouch. Meanwhile, Brazil and South Africa tout the Brics bloc as an alternative to western power and African borrowers’ attempt to balance China against the west.Much of this multipolarity talk is clearly exaggerated. I agree that we should be sceptical about rather artificial measures such as purchasing power parity-adjusted GDP. But the huge shift in the balance of the world economy is undeniable. Take the climate crisis. Emissions of CO₂ directly reflect industrial activity, energy use and land clearance. Today, developing and emerging market economies account for 63 per cent of CO₂ emissions. India’s total emissions exceed those of the EU. China’s emissions are twice those of the US. This is multipolarity written in the starkest terms. And it has huge implications for the future. If we actually achieve an energy transition it will by necessity be multipolar and its main drivers will be China and the emerging markets. Western investors and technology may play a supporting role. But for all the talk about “climate finance” very little money has materialised. Right now, Chinese investment and low-cost technology are dominating the energy transition, which has triggered a defensive reaction from Europe and the US.Multipolarity brings into the open what the Chimerica vision buried, namely political and geopolitical differences. The South China Sea has become a militarised zone. And the old battlefields of the cold war have sprung back to life, from Ukraine to Yemen by way of the Caucasus, Syria, Israel and Palestine. On the face of it, this is another dimension of power in which the US actually has huge superiority. But as you note there is little appetite in Washington to actually use that power and that is hardly surprising after the disastrous experiences in Afghanistan and Iraq. Others are more willing to take risks. Regional players like the Saudis and Emiratis know they can count on US connivance and support. Others like Russia’s Vladimir Putin, or Turkey’s Recep Tayyip Erdoğan, simply feel strong enough to flaunt or even directly challenge the US.Multipolarity reveals itself in trials of strength. It consists in being able to uphold an independent strategy with considerable impact at least in your immediate neighbourhood. That does not depend on global metrics. It certainly does not depend on achieving parity with the US, let alone overtaking it. It depends on having relative freedom of action in your immediate neighbourhood and being able to outlast your local antagonists and the bigger powers that may be interested. The dollar system does indeed remain powerful, but barring the imposition of a new geopolitical order, that is not by itself sufficient to contain the forces of uneven and combined development.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is head of macro research at BNP Paribas Asset ManagementWe are on the cusp of a change in central bank tactics. Rates may still rise a little further, but we are probably close to the end of the hiking cycle. The focus is shifting towards keeping rates at these high levels, potentially for an extended period. If policymakers want the market to embrace the “long hold” narrative, so that financial conditions stay tight and policy continues to exert downward pressure on inflation, they will need to provide a credible explanation as to why rates will stay high for an extended period. Forward guidance without a rationale may not anchor rate expectations for long. That rationale may not be easy to come by.The policy rate is not a very powerful tool. A standard quarter-point change in rates has a very modest impact on inflation. It should take very little news about inflation to trigger an offsetting change in interest rates. For rates to remain unchanged for the next year or more should therefore require that nothing much happens. It would be a surprise if the volatility of recent months suddenly gives way to an extended period of macro tranquillity.An extended hold at the peak of the rate cycle is arguably even more unlikely than an extended hold when rates are close to the neutral rate. It took an eye-watering surge in inflation to justify raising rates this far, this fast. Policymakers are trying to drive inflation back to the target but the pace of decline would have to be verging on the glacial to justify keeping rates at this restrictive level for an extended period. However, the month-to-month rate of change of prices has already cooled significantly. And if rates are held steady as inflation expectations start to fall back then real interest rates will rise and the policy stance will paradoxically tighten as inflation falls.   We know monetary policy is persistent in practice. Reversals are unusual: hikes rarely follow soon after cuts. Policymakers may choose to wait until they are confident that the first cut of the coming easing cycle will not be reversed before they act. But that means waiting until there is enough news to justify multiple cuts before delivering the first. Investors may therefore be comfortable with the idea that the hold could survive for some time, but that when the hold ends it will be followed by a sequence of cuts.Nor should we think about an extended hold as a “higher for longer” mirror image of the strategy that central banks pursued over the past decade. Rates were on the floor back then despite the anaemic inflation outlook because the perceived costs of stimulating the economy further with negative rates or more asset purchases were thought to exceed the benefits. Rates were lower for longer because policy was at an effective lower bound. The same logic does not apply here. There is no effective upper bound.An extended hold starts to look more plausible if central banks have underdelivered and failed to complete the hiking cycle. It should take a lot of downside news on inflation to convince investors that cuts are warranted if they believe that the policy rate has deliberately been set too low today. But now the hold is under pressure on the other side. It should not take much upside news to trigger expectations of multiple hikes if rates are set too low today.Conversely, an extended hold looks less plausible if central banks have over-delivered and rates have been set above the level warranted by the current inflation outlook. If investors believe rates are too high to begin with, then it should take very little news that inflation is falling, or unemployment is rising indeed, to trigger expectations of multiple cuts. On balance, it seems more likely that policymakers have over- rather than underdelivered. Many if not most policymakers appear to have been in risk-management mode. Rates have been raised above what looks necessary given the most likely path of inflation. These “insurance hikes” provide some protection against the risk that inflation proves highly persistent — or, if you prefer, that the central banks’ models are wrong. When that risk recedes, policy should adjust. “Insurance hikes” should then be reversed, not held for an extended period.If central banks do pivot from hike to hold then they will need to give clear and credible communication if they want to anchor rate expectations on an extended hold. Above all, central banks need a coherent narrative that links the old plan with the new plan. It is hard to explain how you are in risk management mode one day and committed to an extended hold the next.  More

Stay informed with free updatesSimply sign up to the More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The idea that global trade is back to an era of great powers and geopolitics is now firmly entrenched in policymakers’ minds. Given the energy shock from the Ukraine war, the demand for critical minerals for the green transition and the fragility of agricultural production, there’s a specific fear that the world economy is being fragmented in a zero-sum battle for scarce raw materials and food.Now, it’s certainly possible to scare yourself thinking about the risks to global prosperity of a new cold war between rival blocs centred on Washington and Beijing. But past experience and present observation suggest strategic attempts to corner commodity markets are often countered by adaptable companies and pragmatic governments.The IMF, whose annual meetings are taking place this week, has long warned about geofragmentation. In their latest assessment, the fund’s economists estimate the impact of commodity markets splitting into geoeconomic blocs centred on the US and Europe on one side and China on the other.For some raw materials, the shocks would be dramatic. Palm oil and soya bean prices in the China-centred bloc would rise by more than 500 per cent, with similar increases in the costs of refined minerals in the US-Europe area.Even then, the overall global impact on output isn’t cataclysmic. Low-income countries, often dependent on food imports, would see a decline in gross domestic product of 1.2 per cent, but overall global GDP would fall just 0.3 per cent.And to get these results requires wildly implausible political bipolarisation. The IMF modelling assigns countries to blocs based on their voting record at the UN. This, for example, puts Brazil in the US-Europe grouping — one of the reasons that soya bean prices in the China bloc rise so quickly in the simulation. In fact, Brazil, the world’s largest soyabean exporter, currently sells about 70 per cent of its output to China. The idea that Brazil would cut off sales to China — a fellow member of the Brics middle-income grouping — for political reasons merely underlines the lack of realism in this thought experiment.In practice, commodity exporters are generally following an entirely sensible geoeconomic strategy of ruthless pragmatism. Governments that commit to one customer on political grounds leave themselves open to dependency and exploitation. Playing one off against another produces dividends.Chile, the world’s second-biggest producer of lithium for electric batteries, was assigned to the US-Europe club in the IMF simulation. In reality, it sells much of its minerals to China. But the Chilean government has dangled the prospect of more exports to Europe to gain concessions in an EU-Chile trade deal, with the result that Brussels softened its usual hard line against favouring local producers to let Chile sell lithium cheaply to its own domestic processing industry. Indonesia, courted by both China and the US for its nickel, has used its strong negotiating position to compel trading partners to invest in processing plants.In any case, the power imbalances behind geopolitical fragmentation are nothing like those of the first cold war. The US does not have the overwhelming financial or military power to help topple inconvenient governments in commodity-producing countries, as it notoriously did to Guatemala’s president Jacobo Árbenz in 1954 over his plans for land reforms in US-owned banana plantations.Even if commodity markets are politically bifurcated, simple supply and demand mean price increases from trade restrictions will create their own long-run solutions. Simon Evenett, who runs the Global Trade Alert project at the University of St Gallen in Switzerland, notes that rising output of rare earths minerals — though admittedly not the refined product — has reduced China’s ability to control global supply to its adversaries. In 2015, China produced more than 80 per cent of the world’s rare earths. By 2021, massive expansion in mining elsewhere, including the US and Australia, had pushed its share down to 58 per cent.Governments attempting to control commodity markets also often find the cost to themselves too much to bear. It’s now evident the G7’s price cap of $60 a barrel on Russian oil sales has not crippled Vladimir Putin’s war machine. Part of the reason is Russian circumvention, including running a “dark fleet” of oil tankers. But the effect of the policy was always going to be limited given the G7’s desire to prevent global oil shortages destroying their own economies. Similarly, when China imposed trade restrictions on Australia in 2020, Beijing was forced to exempt Australia’s lucrative iron ore exports, for which it did not have enough other sources of supply.You hear a lot more from politicians about geoeconomic fragmentation than you see it in commodity markets and value chains. Of course, these are early days: governments can go a lot further to break up markets, and companies take time to adjust to new realities. But there’s thin evidence so far that we’re back in an era where great powers are carving up the world’s food and mineral riches between [email protected] More