Leibowitz: Are we ready for what's next?

Our trade and economic activity for the last year has not been aimed at expanding trade and understanding, but on restricting trade as a national priority. This affects not only China, but Russia, Iran and other countries. We now see that even North Korea has stepped up its geopolitical activities, reportedly sending troops to Russia as part of its war against Ukraine. 

Relations with Russia and Iran have been close to non-existent. Iran is a strategic adversary in the Middle East.  International trade has been hamstrung by attacks in and near the Red Sea by Iranian-backed Houthi rebels based in Yemen, and readers already know about two other Iranian surrogates, Hamas and Hezbollah. The U.S. aims to prevent escalation of those conflicts while backing Israel and Ukraine in their fights. The efforts to accomplish both objectives is akin to holding two wolves by the ear; both are likely to get away. 

China has had a bad year, economically. China’s economic growth has lagged well below the 5% growth in GDP targeted for the economy by President Xi Jinping. Since the lifting of the “zero COVID” policy restrictions in late 2022, growth has been very disappointing. 

The Chinese government is still wrestling with the challenge of fixing costly policy mistakes. Because the domestic economy (especially, but not solely, real estate) is lagging, China has massively increased exports of nearly everything China makes, which is a lot. Other countries receiving increasing amounts of China’s exports are starting to complain about injury to their economies. Increasingly, China is wrapped up in disputes with other countries about its increasing exports, which threaten industries in the importing countries, such as the United States, the United Kingdom and the European Union. 

Another vulnerability of China is its dependence on long supply lines. Chinese manufacturers must depend on materials in short supply.  Oil, petrochemicals, advanced semiconductor chips are imported in large and increasing quantities. 

In 2018, China declared it would no longer accept imported waste material (such as plastics). The Chinese government explained that the country wanted to develop a greener economy and that accepting other countries’ waste would inhibit that development. But in 2021, China lifted the ban on iron and steel scrap, in order to hasten the development of a greener steel industry.

China has created a new entity, called the China Resources Recycling Group, to build it recycling capabilities. It is a state-owned corporation that seeks to efficiently collect scrap, especially metals and plastics. One of the reasons for this elevation of recycling is that China wants to be less dependent on imports of raw materials, such as iron ore and petroleum. Plastic waste can lessen dependence on imported oil, and steel scrap can lessen the need to import iron ore.

While increasing domestic recovery of waste materials for recycling can help lessen dependence on foreign suppliers, it would not be nearly enough to end dependence. If the current slide in economic relations between China and the West continues, China will need to develop domestic or alternate sources of raw materials and energy (especially coal and petroleum) to fuel manufacturing. Hence the draw to increase purchases of petroleum from Russia and Iran. 

China, in short, has a conflict with itself, professing to adopt a green economy and at the same time doubling down on traditional fossil fuel as an energy source. 

The election is nearly over. Like everyone, I have no idea who is going to win. But after Nov. 5, the issues facing us will still be there.  Geopolitics and economics are no longer separate. They are intimately intertwined. 

There is a reckoning coming for all of us. The imperatives of national security and economic prosperity sometimes reinforce each other; but right now, they seem to be working against each other. Perhaps something sudden and unforeseeable will shake the world to its foundation. Based on the current shape of things, major confrontations could be in our future. It’s best to get ready for that.

Already, more geopolitical confrontation is apparent in Europe, the Middle East and Asia. Economic confrontation can be managed in theory, but that will require making compromises. There does not seem to be much appetite for compromise in China or the U.S. at the moment, but that could change with events. 

Once we get past Nov. 5, we need to develop an economic agenda that addresses the strategic challenges and encourages economic growth as an alternative to conflict. That will require mutual acceptance of both countries’ needs and goals. This is a challenge that we must meet, but the tools and personalities both in the U.S. and around the world may not be ready.

Editor’s note: The views, thoughts, and opinions expressed in the content above belong solely to the author and do not necessarily reflect the opinions and beliefs of Recycled Metals Update or its parent company, CRU Group.