Resource Nationalism Is Contagious

Since WWII, the world has been in a globalist age, where commodities could flow freely around the planet, according to the needs of private enterprise. But in the wake of the nationalist uprising and COVID-19, governments are looking for ways to hoard their resources and use them as bargaining chips.

The mining sector, for instance, is seeing significant changes in the way that it does business. In East Africa, for example, there’s a growing trend towards resource nationalism. The state is taking more control over the extractive sector of the economy and trying to use it as a political bargaining chip. As it does this, neighboring countries are following suit, imposing retaliatory measures. Sometimes, this can take the form of subsidies for the incumbent industry or mean high tariffs on products from other nations.

It’s not just Africa, though, that is seeing political changes in its resource sectors. Latin American countries are also doing something similar, with executives attempting to control the oil and mining sectors.

In the West, we have seen a resource nationalism of sorts, but one that appears to have backfired. For years, the US administration pursued fracking as a viable way to achieve energy independence from the rest of the world. But as the coronavirus makes clear, the price still has to make the activity sustainable. If it falls too low, it must close down or face massive losses.

Resource nationalism makes the world poorer, but it is increasingly becoming a prominent feature of the international trade system. Some countries are doing it overtly, while others covertly. Some nations continue to cling to the globalist ideal, while many are pursuing nationalist policies while continuing to reassure internationalist partners.

What this means for workers in these industries remains to be seen. In some cases, the need to get top-level legal representation will rise. But it will probably lead to an overall improvement in working conditions, even if there are fewer jobs to go around. Politicians will allow these industries to generate special rents that wouldn’t apply, were they market-facing.

Resource nationalism doesn’t necessarily need to entail traditional commodities either. Over the last few months, we’ve seen it creep into other aspects of international negotiations regarding the fight against COVID-19. Countries have been fighting over everything, from who should get PPE to the first people to receive vaccine treatments. Suddenly, companies have been re-nationalized, with each state carefully guarding their pharmaceutical giants. Whereas the narrative was once integration, it has now become patently domestic.

The majority of commodities will continue to fall in price as the economy craters – perhaps with the exception of gold. Thus, smart market participants will increasingly look to short commodities likely to experience a dearth of demand.

On the other hand, some commodities will see their value rise. Food, in particular, is likely to come under pressure by increased demand as the virus spreads.

Resource nationalism would be an adverse outcome overall, but we may be heading in that direction. Rolling it back will probably take decades.