Puzzling out the supply chain.
Image by David Crockett, Shuttlestock
Friend-shoring? Yes, friend-shoring.
Dear Members
Good Morning!
Another Sunday morning here in Cleveland Heights, Ohio. Rather than looking out on a world covered in snow and nippy temperatures (with a wind chill of -30°F/-34.4°C), today is positively balmy! The thermometer is registering 41°F. I continue to have absolutely no idea what’s with this weather.
Over the last couple of months, I have been examining some aspects of how, in terms of policy, Canada and Australia are looking at critical minerals (mainly metals) and supply security. In brief, Canada appears to be favouring “protection”, whilst Australia favours “promotion.” But what about the US?
This being one of my shorter letters, I shall eschew diving deeply into the whole subject of “onshoring”—there is so much to write about—and, rather, look at another type of “-shoring”: friend-shoring. Yes, I really did write that — friend-shoring!
Back in the ‘00s, the basic and tacit assumption was that any (or all) critical minerals could, ultimately, be bought. From whomsoever — but especially, if all else failed, from our friends and allies: if they had ‘em.
As the 10s drew to a close, the soundness of such an assumption became debatable. Strained relations with China (formerly a veritable cornucopia of strategic minerals) aside, friends and allies were becoming more and more cognizant of the need to secure their own supply chains—whether domestic or international — to fulfill their own (growing) needs.
Whatever one might think of Mr Trump, the importance of ad-dressing such issues was something of which he (or at least his administration) was much aware. And, indeed, of the need to formalize a little the country’s supply “partnerships” with allies. One of the early results was the establishment of ERGI (Energy Resource Governance Initiative).
The initiative “broke cover” in mid-June 2019. And, looking back on it, its appearance puts into context reports at the time of not only Canada talking with the US about critical minerals, but also initiatives by Australia on this front. According to the “Fact Sheet”1 put out by the US Department of State at the time, “Energy Resource Governance Initiative” (ERGI) is a U.S. Department of State, Bureau of Energy Resources (ENR)-led effort designed to promote sound mining sector governance and resilient energy mineral supply chains.”
Its three “strategic objectives” included engaging “resource-rich countries on responsible energy minerals governance” and meeting “the expected demand for clean energy technologies.” But perhaps the most “indicative” of the objectives was that which sought to “support resilient supply chains.”
Three months after the initiative’s launch, not only was there a Department of State Energy Resources Governance Initiative “Event” in New York, but former secretary Michael Pompeo2 also had a few words to say.
Perhaps surprisingly, some of them were telling. His most telling (and they remain telling) being the following:
“So the question is, from where and how will we get the minerals we need? Most are sourced from a small number of coun-tries vulnerable to political instability, governance challenges, and malign influence from foreign actors … We want to ensure that these important mineral commodities remain free from international coercion and control.”
State reported that, at the event, in addition to Mr Pompeo speaking, ENR’s assistant secretary, Frank Fannon, “facilitated a conversation among founding partners [but not Canada] and other participant countries including: Argentina, Brazil, Democratic Republic of the Congo, Namibia, the Philippines, the Holy See and Zambia” in which “the participants discussed on shared challenges and opportunities for improving governance standards in extractive sectors to meet anticipated demand for energy resource minerals.” I am not sure what the Vatican’s contribution to the conversation might have been!
Now, more than three years later, despite the obviously good intentions at the time and passing no judgement on Pompeo’s skills, how constructive the initiative might have been, or is, remains doubtful. Certainly, none of the countries mentioned above became partners. And, indeed, no new partners have joined, and a visit to ERGI’s site3 somewhat bathetic.
However, more encouragingly, with its establishment announced in June last year, we now have the Minerals Security Partnership4 (“MSP”) “an ambitious new initiative to bolster critical mineral supply chains”.
To quote from State’s press release: “The goal of the MSP is to ensure that critical minerals are produced, processed, and recycled in a manner that sup-ports the ability of countries to realize the full economic development benefit of their geological endowments.” 5
If nothing else, the partners alone provide “substance” to the partnership. They include: Australia, Canada, Finland, France, Germany, Japan, Italy, the Republic of Korea, Norway, Sweden, the UK, the US and the European Union. Anybody can, in theory, become a member. In practice, neither China nor Russia has been invited!
The tenet behind the partnership is, basically, that, if you can’t produce it (and, thus, onshore it), a friend/ally already does. Or can. And you can get it (friend-shore it) from them. According to Jane Yellen, US Treasury Secretary, in a “fireside chat” with Canada’s Deputy Prime Minister and Minister of Finance Chrystia Freeland: “Friend-shoring is the idea that countries that espouse a common set of values (…) get the benefits of trade so we have multiple sources of supply and are not reliant excessively on sourcing critical goods from countries where we have geopolitical concerns.”6
Maybe the most important aspect of MSP’s “creation” is the aim of formalizing (and increasing the scope of) both current and future relationships. Friend-shoring already exists in the world of critical minerals. For example, between the US and Canada around titanium production and between Norway and the European Union around critical raw materials and battery technologies.7
However, as a “statement of intent” by its partners, the MSP sends a very clear message to both China and Russia. Whether the partnership can deliver on that message remains to be seen. Hopefully, it can. In any case, I shall keep you posted. (Especially as to what the Department of Defense is up to in this “space” when it comes to investment abroad.)
With that, I should like to bid you farewell from Cleveland Heights for another month.
And I remain, as always,
Yours
Tom Butcher
12 February, 2023
©2023 Tom Butcher
1U.S. Department of State: Fact Sheet—Energy Resource Governance Initiative, 11 June 11, 2019, https://www.state.gov/energy-resource-governance-initiative
2As this letter was written, news emerged that former secretary of state Michael Pompeo had been engaged as strategic Advisor to USA Rare Earth LLC (USARE), a prospective downstream integrated US magnetic rare earths producer.
4U.S. Department of State: Minerals Security Partnership, 14 June, 2022, https://www.state.gov/minerals-security-partnership/
5Ibid.
6Reuters: Column: U.S. forms ‘friendly’ coalition to secure critical minerals: Andy Home, 30 June, 2022, https://www.reuters.com/business/energy/us-forms-friendly-coalition-secure-critical-minerals-andy-home-2022-06-30
7European Commission: Remarks by Vice-President Maroš Šefčovič at the press conference with the Norwegian business press, 27 June 2022, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_4153
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Tom Butcher is Director of ESG at Van Eck Associates Corporation (“VanEck”). The views and opinions expressed herein are the personal views of Tom Butcher are not presented by or associated with VanEck or its affiliated entities.
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