About July 2015
Certain resources are finite: The world has only so much copper, for example. What happens if the United States finds it doesn’t have enough?
Resource optimists argue that while resources are in principle finite, they are also commonly replaceable. The world has only so much whale oil, but essentially nobody uses it anymore thanks to the development of petroleum. If and when a resource becomes scarce, its price rises, and incentives to find substitutes will grow. As a result, while individual corporations or investors may feel the pinch, economic development continues or even accelerates.
Pessimists counter that certain resources are exceptionally hard to swap out: There are no good substitutes for potable water. Or for many of the rare earth elements now ubiquitous in consumer electronics. Worse, they argue, a wealthy government determined to lock up the market on certain resources would find it all too easy, particularly if the rest of the world were disunited and unaware of the threat.
Dambisa Moyo is a pessimist. She’s also our lead essayist this month, and she outlines how she believes that China in particular is well-positioned to win an oncoming race for the world’s limited resources. Her lead essay this month draws on her book Winner Take All: China’s Race for Resources and What It Means for the World, and it paints a frightening picture of the world’s remaining resources falling into the hands of an unsympathetic and all too determined competitor.
Is she right? As we do each month, we have invited three other experts to discuss various facets of the issue. They are Cato’s own director of foreign policy studies, Justin Logan; president of the Eurasia Group and foreign affairs columnist Ian Bremmer, and Reason magazine science and technology correspondent Ronald Bailey.
Dambisa Moyo sounds the alarm about China’s claims to the world’s natural resources. As its population advances economically, the Chinese government has kept pace, and then some, in securing natural resources that can be used in its domestic industries. These moves have consequences for the rest of us, she argues, in part because international conflicts over resources commonly turn violent. Increasingly, China wields market power and sets global commodity prices. Although Moyo does not profess to have all the answers, she believes the question is well worth asking: How should the rest of the world respond? One solution she recommends is to redirect spending from national defense to research and development - although even this may only be one piece of a much larger strategy.
Justin Logan is considerably more skeptical that China constitutes a grave threat in a resource-hungry world. He looks at several Chinese economic projects and finds their results haven’t been as successful as anticipated. Political and military tensions may well exist between China and the United States, but, he writes, they do not appear to be driven by economics. Commodity shortages have not been as damaging as feared, and China’s response to them has been less fearsome as well.
Ian Bremmer agrees that China’s international economic policies are driven by the need to soften domestic opposition. He laments that there is no single international institution that regulates investment competition and scarce global resources. But China’s actions have to be understood both as attempts to secure commodities and as attempts to find new markets for its industrial products. Like the United States and others before it, China may find itself increasingly committed to managing world conflicts in the process. Finally, the most important vulnerability that China poses to the rest of the world is not that it will continue to rise, but that it may fall: Should the people turn on the country’s leadership, China’s future would be highly unstable.
China would do well to abandon its attempts to manage world resources: they aren’t paying off, says Ronald Bailey. He invokes data from the study of economic supercycles, during which the world economy deploys new technologies in response to new and changing resource demands. This data suggests that the world economy has now priced in China’s rise as a manufacturing power - and even managed to supply more or less the mineral resources it will need. Commodity prices were high at the peak of the cycle, but they have since fallen, and there is no reason to think that things will change very soon.
Related at Cato
Free Trade Bulletin: ”Chinese Free Trade Is No Threat to American Free Trade,” Simon Lester, April 22, 2015
Policy Analysis: ”China, America, and the Pivot to Asia,” Justin Logan, January 8, 2013