Bloc factor

Why Western metallurgy, mechanical engineering, and electronics may take a blow soon

NATO has once again started to inflate the narrative about the threats posed by China to the alliance and the necessity of containing Beijing. In the European theatre of military operations, Americans and their partners are also flexing their muscles. The arms rattling taking place in various regions suggests that the fragmentation of the global economy along bloc lines is a very realistic prospect that may happen in the near future. Experts from the International Monetary Fund (IMF) have conducted research to model the future of various regions based on the availability of resources — raw materials and foodstuffs. The findings indicate that the USA and the EU are facing challenging times ahead.

Tentative possibility

The IMF’s trade split model is certainly somewhat tentative. The world was divided into political blocs based on the voting on the UN General Assembly resolution concerning Russia and the Ukrainian conflict on March 2nd, 2022. The resolution was supported by some states which can be tentatively classified as the Western coalition of the USA and Europe. There were abstentions, including China and India, while Russia and a number of other countries voted against it. IMF analysts categorised them as conditionally belonging to the Eastern bloc of Russia and China.
Undoubtedly, the global economy has never experienced a rigid fragmentation. Even during the most acute phases of geopolitical confrontation, trade in goods between blocs has persisted. 
There always remain a certain number of neutral countries that exert a limited economic influence on the antagonists. There remain various trade channels for mutual commerce. Nevertheless, it can be observed that, perhaps for the first time since the 1970s — when the notorious Arab oil embargo took place — raw materials are used as a tool for economic pressure, and in increasingly harsh and uncompromising forms. The number of sanctions in raw material markets has doubled since 2021, with a clear trend toward expanding these restrictions. Therefore, the split of international trade in raw materials and foodstuffs represents a very plausible scenario.

Not by energy alone

Events in the oil and gas markets traditionally dominate the headlines. However, the fragmentation of the energy sector might be less impactful than initially perceived. While there are certainly leaders in hydrocarbon extraction, its production is geographically distributed fairly evenly across the planet. Thus, both blocs could manage to sustain their needs for this resource, although market regionalisation may have potentially adverse effects on volatility and pricing strategies. Within the blocs, certain producing countries may gain greater influence than they had in a globally integrated supply market. On the other hand, not all raw materials are traded exclusively on exchanges. Significant quantities of oil and gas are shipped under long-term agreements, both at corporate and intergovernmental levels. Therefore, it seems likely that pricing factors could be adjusted at a bloc integration level.
However, there are minerals crucial for production. For instance, 85 percent of tungsten production is located in China, along with 70 percent of rare earth metals and 65 percent of graphite. The Eastern bloc also leads in the production of antimony, barite, chromium, silicon, and magnesium, all of which are vital and indispensable for micro- and radioelectronics, a wide range of special alloys, and refractory materials — components, without which practically no industry can function — and catalysts for the chemical industry. Consequently, in the event of a complete severance in external trade, it is primarily the high-tech sectors in the West that would suffer the most. 

Over half of the world’s lithium is mined in Australia, with 24 percent sourced from Chile and 12 percent from the People’s Republic of China. Approximately 67 percent of cobalt is extracted in the Democratic Republic of the Congo. These resources are essential for mechanical engineering and the production of electric batteries. 

Interest in the African continent

The thing is that this IMF model is based on a rather tenuous criterion of voting on just one resolution. Furthermore, this event took place two years ago. A great deal has changed since then. A whole necklace of countries in Latin America and Africa no longer unequivocally support the USA—EU bloc.
Indeed, IMF researchers recognise that a number of countries may shift from one camp to the other, or even maintain neutrality while co-operating with both global poles. From this perspective, the raw material security of the so-called Eastern bloc appears quite robust, perhaps with the exception of palm oil, cocoa, and soya. These are important commodities, but not critical ones if there is an abundance of other food products available.
It is worth noting that Belarus, China, and Russia have made considerable progress in their collaboration with many African nations, including in enhancing the food security of the region. This is fundamentally important.
Food security is one of the key factors in the foreign policy of states and undoubtedly serves as a significant argument for establishing economic relations. It can be stated with confidence that a meticulous competition for key resources is currently underway. Today, as evidenced by the IMF data, alternative integration structures, which encompass Belarus, China, Russia, and their partners, appear to be quite promising in comparison to the Western bloc.

Gateways for co-operation

The ongoing localisation process in the global economy is a fact. The interaction between states is becoming measured, limited, and to some extent, politicised. However, it cannot completely cease. This has never happened, even during the most dramatic and tragic periods in human history.
Almost all models of extreme fragmentation of the global economy demonstrate that complete polarisation is fundamentally impossible. There will always be critical raw materials and products that economic centres will continue to exchange. It is evident that there will be countries acting as gateways for interaction between the economic poles. In this regard, Belarus has every chance and capability to serve as a business hub. The current unfriendly rhetoric prevalent in global politics should not be misleading. Sooner or later, a détente occurs, and Belarus is ready for it. The visa-free regime, for instance, is one element of developing the business sphere.

Today, our country is arguably one of the most convenient places for business negotiations and consultations for partners who, by a geopolitical twist of fate, have found themselves on the opposite economic sides. There is a strong likelihood that, in the near future, Minsk will acquire the status of a Eurasian business platform.

By Vladimir Volchkov