The scale and significance of resource trade

The markets for critical resources have always been political.¹ States have often taken action to preserve access to resources for their own economies – whether through direct interventions or via proxies such as state-owned enterprises or sovereign wealth funds. The political economy of natural resources is increasingly shaped by the large, structural shifts across the world – whether in a changing natural environment or in the deepening interrelationship between resource systems, or in the rebalancing of global income and power. As an engine of globalization, trade continues to lie at the heart of challenges to rules-based governance of natural resources.

During the resource boom, a decade of high prices, and demand, exposed many of the gaps in the rules governing global resource trade. Unilateral interests were manifested into large-scale foreign resource investments and acquisitions, and a proliferation of export controls put additional pressure on global markets and hurt consumer countries. Excessive price volatility signalled a system under strain. Although some of the immediate pressures have since eased, concerns remain about price volatility and short-sighted interventions returning in light of growing threats posed by climate change and water scarcity. Collaboration will also be required to overcome barriers to critical infrastructure expansion. If lower prices undermine the case for investment in physical, and governance, structures, there is a real risk of resource insecurity returning to the fore in the 2020s.

The scale of resource trade

The volume of natural resources traded globally has increased over 60 per cent since the turn of the century, reflecting and reinforcing new economic and geopolitical realities and bringing new environmental and social challenges – as well as opportunities. During the commodities boom of the first 13 years of the 21^st century, rising demand from emerging markets coupled with increasing concerns about the long-term availability of natural resources drove an increase in both the value and volume of resource trade. Recently the growth in resource trade has slowed, even declined in value terms. Although this is largely a result of slower global, particularly Chinese, economic growth, there are also hopes that it represents an increase in the decoupling of economic expansion from resource use. Despite volumes, and particularly prices, having fallen in recent years, natural resource trade volumes remain historically high and of great importance to the global economy, geopolitical relationships, and environmental and social sustainability.

Since the 1970s, even as global population growth, and economic growth, have decelerated, the use of resources has continued to accelerate. As a consequence resource-productivity has been falling.² Between 1970 and 2010, the annual global extraction of materials tripled from 22 billion tonnes to 70 billion tonnes.³ At the same time, the importance of resource trade has increased. By 2010, trade in resources had increased 2.5 times since 1980, compared with a 1.8 increase in resource extraction and use over the same 30 years; in other words, resource trade has become more significant not only in absolute terms, but relative to domestic use too. As new centres of demand emerge, trade increasingly facilitates access to, and the redistribution of, geographically-concentrated natural resources.

The United Nations Environment Programme (UNEP) estimates that approximately 15 per cent of the resources extracted and used by the global economy in 2010 were traded.⁴ For fossil fuels and metals, around half of all production of these commodities were traded. But directly-traded resources are dependent on even greater volumes of resource extraction; the production of 10 billion tonnes of directly traded goods in 2010 required 30 billion tonnes of total material extraction.⁵

Environmental implications

There are growing impacts of resource production, consumption, and trade on the environment and on sustainable development. Geographically, as global economic dominance shifts from the West to the East and from the North to the South, patterns in resource trade are also shifting with many traditional resource-exporting emerging economies also becoming significant sources of demand, particularly as they industrialize and move up resource value chains, exporting larger volumes of manufactured goods. Nonetheless, final resource use continues to be very uneven - North America and Europe have the largest per capita ‘material footprints’; the North American average is more than 10 times the African average.

If existing trends continue, global resource extraction is forecast to increase from 85 billion tonnes in 2015 to 186 billion tonnes by 2050. On a per capita basis this represents a 71 per cent increase in resource use.⁶ Unchecked, this could lead to irreversible environmental damage, with extraction destabilizing critical ecosystems, eroding biodiversity, and destroying carbon sinks. Such volumes of extraction, coupled with energy-intensive processing and transportation of resources, would undermine any prospect of stabilizing the climate or realizing the Sustainable Development Goals (SDGs).

Concerted efforts to improve resource efficiency and address climate change could, according to UNEP analysis, reduce extraction by as much as 28 per cent relative to the 2050 baseline, and cut greenhouse gas emissions by 60 per cent relative to 2015 levels.⁷ This will require significantly more efficient use of primary raw materials and increasingly replacing them with secondary raw materials - those that are reused or recycled after their initial use, for example scrap metals, spent plastics, and biomass.

To this end, a number of encouraging initiatives are beginning to emerge. In Europe, the European Commission adopted the Circular Economy Package including an EU Action Plan at the end of 2015. In China, a decade’s worth of scaling-up circular economy demonstration projects is beginning to generate city- and provincial-level impacts.⁸ At the G20, Germany is using its 2017 presidency to give greater prominence to the sustainable use of natural resources, placing the issue on the G20 summit agenda for the first time and proposing a new international resource efficiency initiative.⁹ This builds on both the 2016 Chinese G20 presidency’s focus on green finance, and the 2015 German presidency of the G7, under which heads of state called on member countries to raise their ambitions in promoting resource efficiency, and launched the G7 Alliance on Resource Efficiency as a new forum for cooperation.¹⁰

Over the coming decades the nature of resource trade will become subject to ever-more scrutiny. As climate change alters the geographic distribution and economic availability of some resources, new patterns and trading relationships will emerge and international trade will increasingly be required to substitute ecologically inefficient resource-uses with those with more benign ecological footprints. Areas of relative resource scarcity may become increasingly dependent on the transfer of natural capital from more abundant areas, especially as the decreasing accessibility and increasing cost of resource inputs progressively constrain future production. Resource transfers and substitutions will be particularly important where ‘stranding’ occurs and where natural resources lose their economic value. This may result from either physical loss or damage caused by climatic extremes, or due to domestic, export partners', or multilateral regulatory changes associated with the Paris Agreement, the SDGs, or other environmental legislation.

Technological developments also have the potential to disrupt existing resource production and trade patterns, and their environmental impacts. Innovations in materials science and information technologies could dramatically alter production methods and costs, and shape future demand for resources. For example, coal demand is likely to contract, but increased dependence on lithium-ion batteries could see increased dependence on cobalt trade from the Democratic Republic of the Congo and other sub-Saharan African countries. Expansions in ‘circular’ and ‘sharing’ economic configurations may reduce the need for trade in some primary resources, but increase trade in secondary materials and goods. Developments in distributed manufacturing and urban farming or closed-loop agriculture might bring some food production closer to home, and consumers may find their diets reorienting away from animal products towards alternative sources of protein.

In any event, the shifting and amplifying competitive pressures that resource producers and consumers are increasingly facing will continue to require strong and effective regulatory regimes and institutions - sustainable resource trade will be undermined if environmental governance is weak.

At a time when the global economy is more dependent than ever on complex resource trade relationships, and as environmental concerns and biophysical limits increasingly constrain availability, trade is a frontline for potential conflicts over resources. Export controls intended to prevent sharp domestic food price inflation in many producer countries, for example, ended up amplifying price spikes in 2008 and 2011. A number of key raw materials suppliers - especially manufacturers - such as China and Indonesia, have previously resorted to export controls as part of a broader move towards more explicitly interventionist industrial policies.¹¹ However, even short-term export restrictions can backfire if they precipitate similar actions in other producing countries, driving up prices and creating a collapse in confidence that spreads from one resource to another.

In the wake of two globally significant votes in 2016, by the UK to leave the EU and by the US to elect Donald Trump to the US presidency, concerns over increases in protectionist measures and large-scale trade wars have re-emerged. In the case of the US, apprehension arises from the strident protectionist and anti-NAFTA (North American Free Trade Agreement) rhetoric used by Trump on the campaign trail and the US' withdrawal from the Trans-Pacific Partnership early in his presidency. The risk of a trade war between the world’s two largest economies, the US and China, remains,¹² and the G20, which is opposed to protectionism on trade and investment in all its forms,¹³ has cautioned the US against rising protectionism.¹⁴

As inter-regional dependencies increase, misperceptions around natural resources also risk fuelling tensions and undermining cooperation on environmental issues. More than ever, the shifting dynamics, and politics, of global resource use and trade need to be understood, so that policymakers and businesses can make informed decisions regarding sustainable resource use and develop cooperative approaches to avoid resource conflict and deliver environmental security.

These are challenges that can only be achieved through cooperation. Given the complexity of resource market interdependencies and the multifaceted nature of the actors involved, solutions will need to involve producers, consumers and processors, as well as regulators and investors. Fostering mutually advantageous models of collaboration and cooperation in resource markets will increasingly rely on a complex mesh of progressive norms, guidelines, investment standards, and supply-chain transparency and traceability measures. Pioneers will be required to demonstrate how to decouple resources from economic performance – but here too there are opportunities to collaborate on trade rules, innovation and piloting the circular economy.