Not all that long ago the prevailing wisdom in economic circles was that where things were made hardly mattered. What really mattered, instead, was how much something cost.
But in recent years that has changed – and changed in a big way. Now countries around the world are racing to secure the minerals and materials they need to build the technologies of the future. Where something is made matters, in other words.
That, at least, was the gist of Rachel Reeves‘ policy of “securonomics”, unveiled here in Washington in a speech three years ago. Her point was that unless countries like Britain try to secure their supply of certain ingredients for making technology and energy, they will leave themselves more vulnerable to future crises.
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So you might have thought the chancellor would have been disappointed to have heard from Sky News that one of the central firms in Britain’s push to build a domestic critical minerals infrastructure, Pensana, had decided to scrap plans for a UK rare earths refinery, choosing instead to locate its plant in the US. However, the chancellor seemed quite sanguine when I caught up with her on the fringes of the International Monetary Fund’s annual meetings here in the US capital.
Indeed, she seemed almost reassured that the investment had gone to the US, another G7 nation, and pointed to a series of prospective investments in lithium and tin production elsewhere in the UK. She said that when it came to the trade deals done this year, “we are the envy of the world” – words that some might construe as hubris.
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Even so, there is a deeper question: why are so many industrial companies abandoning the UK? There are some straightforward explanations, among them the fact that power prices in Britain are higher than any other leading economy. Yet Pensana’s chairman, Paul Atherley, said that energy costs were not the deciding factor in its decision to relocate to the US.
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Instead, the bigger issue is that while European governments have talked the talk on reindustrialising, they have not put significant sums of money behind those pledges. In the case of rare earths, the suite of critical minerals needed for production of high power magnets in electric car motors and wind turbines, the reality is that at current global prices, it is essentially impossible for UK companies to compete with China.
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In the universe we used to inhabit a few years ago, in which the location where something is made is essentially irrelevant, the logical conclusion was that everyone should try to source their rare earth metals from China. And that’s more or less what happened, with the upshot that 90% of refined rare earths are produced in China. So… what to do?
The US response has been straightforward: the administration has pledged to pay a guaranteed price for rare earths from its leading domestic producer, MP Minerals. No such pledge exists in the UK or Europe, making it incredibly difficult for aspiring companies to raise money and build a business.
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The Chancellor seems to show little interest in matching the US on this front. And so it’s nearly inevitable that Pensana and other companies will migrate to where they can expect to net a decent price for their products.
That is why this episode matters so much. It is an early test for “securonomics” – of whether it is more than just clever word. Whether it will actually turn the tide. So far there’s not much evidence that that is happening.
