Good morning,
The chief economist of the European Bank for Reconstruction and Development has a message for business leaders in the U.S. and Europe with protectionist measures and industrial policies on the rise: Be careful what you wish for.
Beata Javorcik doesn’t like restrictions to trade. The Yale-trained former World Bank economist is a rather conventional trade economist in that sense. So is her organization, the EBRD. But her observations are astute in this era of global AI and green tech competition. She reminded me this week that when the U.S. banned the export of advanced AI chips to China this fall, China responded in kind. It restricted Chinese exports of graphite to the U.S., adding to the bans of gallium and germanium exports Beijing had enacted in the summer.
China dominates the global production of all three elements, which are critical for the production of electric vehicles. Hence Javorcik’s warning.
“We looked at these critical raw materials, and the Western block controls relatively little of them,” Javorcik told me, recounting the findings of a recent EBRD study. “So geopolitical tensions and the threat of fragmentation of the global economy are not only costly and risky when it comes to economic growth, they also risk the success of the green transition.”
“If you look at all critical products, 30% are now under some sort of [trade] restriction. In 2015, it was 5%,” she said. It’s difficult to identify new suppliers on short notice. Developing new mines and refining capacity takes time, she noted, while export restrictions can have immediate effect.
The take-away for executives, she told me, is that “you need to talk about the dangers of economic fragmentation,” as their threat is real and bound to lead to further trade restrictions. In such an extended deglobalization scenario, she warned, no one is set to win.
Separately, the World Economic Forum kicks off next week in Davos, Switzerland. In WEF’s annual risk survey, out this morning, global executives highlighted “increased interstate conflict” among their top five short-term risks for 2024. In the critical election year 2024, “misinformation and disinformation,” and “societal polarization” also made the cut.
Climate-related risks, by contrast, have all but disappeared from the short-term outlook, although they still dominate the list of long-term risks. And also missing at Davos this year are DEI and ESG. Not a single session mentions either acronym, which confirms our—and the WSJ’s—analysis that the latter, at least, has become a “dirty word.”
More news below.
Peter Vanham
peter.vanham@fortune.com
@petervanham
