Thursday, September 2, 2010

America Is Losing the Resource Wars...

America Is Losing the Resource Wars...

"Any sufficiently advanced technology is indistinguishable from magic." - Arthur C. Clarke

Clarke's Third Law, coined by the late Sci-Fi master himself, Arthur C., captures perfectly the world we live in today - where the way we phone a friend, fire off a memo or a missile all owe to technologies whose inner-workings most of us understand no better than the ape-men in the opening scene of Clarke's classic, 2001, A Space Odyssey.

And for the vast majority of us who wouldn't know a line of software code from an Egyptian hieroglyph, we're quite comfortable living lives touched by magic. But our virtual world has real roots in a range of arcane minerals, metals and elements found on the Periodic Chart, and distributed unevenly under the Earth's crust....

Technology's modern magic rides on these materials. Sometimes it's a few flecks and bits, like the specialty metals and minerals in the typical cell phone - Nokia "mines" old cells for metal scrap - looming large only when multiplied across many millions of devices. Other times, it's measured in millions of tons, like the rare earth elements required to build electric car batteries or wind turbines or guidance systems for smart bombs.

But for all the wonder in our technology, there's very little magic in the way the world extracts the primary resources necessary for our new gadgets, which involve pulling them out of the ground and teasing them out of the waste rock in which they're encased.

In fact, the only magic is our belief that global markets will deliver the right resources to the right manufacturers just in time to deliver us the next-gen technology we didn't know we'd need.

The logical response at this point is to plead exigency; after all, if you don't have the resources here at home, you've got to get them somewhere. That's what the global economy is for.

True enough - if a nation in fact lacks a resource base to draw on. But that's not the case for some metals and minerals the U.S. presently imports.

As cases-in-point, consider these critical materials:

Rare earths. The U.S. is currently 100 percent dependent on foreign supply, while the People's Republic of China - which accounts for 97 percent of all current global rare earths production - announced new limits on rare earths exports. Yet the U.S. hosts 13 percent of the world's known reserves, and was the world's dominant rare earths provider from the 1950s through the 1980s. A few companies are seeking to revive rare earths mining in the U.S. As they work their way through the bureaucratic maze, will U.S. policy lend them a hand, or merely wish them good luck?

Rhenium (critical to high performance commercial and military jet engines). U.S. producers presently account for 12 percent of the world's supply, despite the fact that the U.S. is home to 45 percent of the world's known reserves.

Cobalt (used widely by systems developers serving U.S. space, air, land and sea forces). We presently produce zero in the U.S.. Content to recover and refine scrap, we import more than 80 percent of the cobalt we consume each year. This summer, the U.S. Congress passed an amendment identifying cobalt produced in DRC Congo as a Conflict Mineral, requiring publicly-traded U.S. companies to demonstrate that their purchase of cobalt does not fund the war chests of Congolese military factions. Yet the U.S. hosts a larger known cobalt reserve than any of the countries from which we import, including Russia and China.

Zinc (of which Pentagon contractors consume more than 50,000 tons each year, in systems ranging from missile telemetry to torpedo propulsion). While the U.S. presently imports 73 percent of the zinc we use, we possess more known zinc reserves than the three countries from whom we import, combined.

None of this is to sidestep the critical calculations that determine the economic viability of extracting and refining these metals and materials. But we're not factoring at all for the national security implications of extended resource dependence. Put simply: If as a matter of policy we choose not to incentivize resource extraction of U.S. reserves, are we comfortable with the "price" paid in terms of a skewed foreign policy toward our supplier countries - or the risk of a sudden supply disruption?

To be sure, the U.S. can't provide 100 percent of domestic demand for any of the resources mentioned above. But why would we be content being 80 to 100 percent dependent on foreign sources of supply? Can we do so indefinitely?

Other countries understand the consequences of resource access and are taking action. Russian miners bought the U.S.'s only active precious metals mine in 2003, and Moscow has made resource control a critical lever in Russian foreign policy. China is actively buying into metal and mineral companies in Africa, Australia and North America, even as it restricts reciprocal investment in its own resource sector. On the demand side, South Korea is stockpiling more than a dozen strategic metals and minerals while Japan is quietly doing the same, as its metals-dependent companies pursue partnerships with foreign providers.

Meanwhile, back in the U.S., aside from a few members of Congress and Pentagon officials, few policymakers would put strategic resource access on their list of concerns.

A quick look at the headlines - a double-dip recession, Iran's ongoing nuclear quest, tricky end-games in Iraq and Afghanistan - suggests we don't have an appetite for one more crisis or source of conflict. But as long as we have an appetite for the gadgets of 21st Century comfort and communications - and as long as our 21st Century military has a need for Killer Apps fashioned from scarce strategic resources - we'll need to take an interest in this mysterious stuff our modern dreams are made from, and the steps necessary to secure their supply.

Believing in magic won't be enough.

Daniel McGroarty, principal of Carmot Strategic Group, an issues management firm in Washington, D.C., served in senior positions in the White House and at the Department of Defense....

Weak America Means a Dangerous World, and utter corruption in America means the end of the American dream....and all the disinformation that goes along with this myth....

By Michael Mandelbaum

This month marks the second anniversary of September 15, 2008, a date that will be remembered as one of the worst moments in the history of the global economy. On that day US investment bank Lehman Brothers collapsed, triggering a major financial crisis and dramatically worsening a worldwide recession whose effects are still being felt.

The date also matters in the history of international politics, accelerating what is destined to be the most important international political trend of the second decade of the 21st century: the growing financial obligations of the United States government. Coping with these obligations will limit the resources available for American foreign policy, thereby reducing the nation's international role. Because that role is so important - the United States acts as the world's de facto government, providing to other countries many of the services that governments typically furnish to the societies they govern - this will have a major, and in all likelihood dangerous, impact both on the global economy and on international politics. That impact is the subject of my new book, The Frugal Superpower: America's Global Leadership in a Cash-Strapped World.

In the years leading up to the Lehman collapse, the United States substantially increased its national debt. To cope with the financial crisis that the collapse brought about, and the deep recession that it aggravated, the US government borrowed more money, further expanding this debt. Most ominously for the country's fiscal future and for its foreign policy, the bill the American government expects to pay for its principal entitlement programs for the elderly - Social Security and Medicare - will soar in the decades ahead with the retirement of the 75 million members of the so-called baby boom generation, who were born between 1946 and 1964.

Because the government will not be able to borrow all the money necessary to meet these obligations, and because the cost of paying the interest on trillions of dollars already borrowed will rise sharply, the US will have little choice but to raise taxes and reduce benefits for all citizens. In these circumstances, the domestic support for foreign policies of all kinds will fall sharply. Americans will feel considerably less generous than in the past about providing the funds for their country's foreign policy, and the government will have less to spend on it. Consequently, the United States will do less in the world in the future than it has in the past. This will transform international relations.

The events of September 2008 and thereafter have already eliminated an important international economic role of the United States. With Americans spending less and saving more, their country has ceased to be the world's consumer of last resort, on which other countries can rely to buy the products they make for export. Another major international economic role is still intact, but because of mounting national debt, looks increasingly shaky: The dollar remains the world's principal currency, but as much because of the lack of a viable substitute as because of affirmative global confidence in American economic dependability. That confidence is beginning to waver. The long-term continuation of the special status of the American currency in world markets is not assured.

As for international politics and international security, some tasks that the United States has carried out will almost certainly be eliminated. The use of American military forces to protect people persecuted by their own governments, which the United States undertook in Somalia, Haiti, Bosnia and Kosovo, will not be repeated. Nor will the strenuous military effort to foster political stability and democracy in which the American government is engaged in Afghanistan and Iraq be launched elsewhere or even continued in those countries for much longer.

The deterioration of the US fiscal condition will also affect the American defense budget. By one estimate, the US accounts for about 45 percent of the world's military expenditures. Pressure to reduce these expenditures will increase over time, which will, in turn, affect the rest of the world because most defense spending supports missions that are of major importance to global security. Specifically, the personnel and weaponry paid for by the defense budget make a US military presence possible in three crucial regions - East Asia, Europe and the Middle East.

In the first two regions, that presence helps keep order by serving as a buffer between and among countries that are not actually hostile to one another but that harbor fears that hostility might someday arise. The American security role in Europe reassures the Western Europeans that if Russia should attempt to intimidate them, the United States will protect them as it did during the Cold War. At the same time, the American military presence in Europe and the enduring alliance with Germany reassure Russia that Germany itself, which invaded Russia twice in the first half of the 20th century, will not become an aggressive military power again.

The similar US role in East Asia reassures the countries there that they have a means of counterbalancing China, while reassuring China that Japan, like Germany an American ally and one that invaded and occupied the Chinese mainland in the 20th century, will not reprise its past pattern of conquest. The American military presence in both regions, although reduced from Cold War levels, enables the countries in each to feel that their region is safe and that they can behave accordingly, just as a policeman on patrol imparts a sense of security to a neighborhood. Any draw down of US forces in Asia will add to the nervousness of the countries of the region, which face an increasingly powerful and assertive China.

In the Middle East, American military power serves to contain Iran, whose government is deeply and openly committed to, and works actively for, overturning the existing political and economic arrangements in the region. An American military presence in some form will be necessary to deter Iran as long as the clerical regime holds power in that country, a presence that will be all the more urgently needed if that regime succeeds in its efforts to acquire nuclear weapons.

Growing US debt, and the measures necessary to cope with it, will make it more difficult to sustain American military deployments in each of these regions, and a substantial reduction of American forces in any of them could well have adverse political and economic consequences. An American withdrawal from East Asia or Europe could produce heightened suspicion, perhaps leading to arms races among the countries of these regions, which would threaten trade and investment in both. A diminished American presence in the Middle East could trigger a regional war, which would threaten the availability of its oil, on which the global economy depends.

In short, the impact on all countries, not only the United States, of the growing financial obligations of the American government could be serious indeed, especially since no other country or group of countries is willing or able to do what the United States does around the world. With so much wealth destroyed and with the sharp downturn in production, the direct, short-term economic consequences for the world of the September 15, 2008, events have already been severe. The indirect geopolitical consequences could, over the long run, turn out to be even worse.

Michael Mandelbaum is the Christian A. Herter Professor of American Foreign Policy at The Johns Hopkins School of Advanced International Studies. This essay is adapted from his new book, "The Frugal Superpower: America's Global Leadership in a Cash-Strapped Era," published by PublicAffairs.

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