I'm Scott. I'm Bill. And we're the Trade Guys. We're listening to the Trade Guys, a podcast produced by CSIS, where we talk about trade in terms that everyone can understand. I'm Alex Kisley, and I'm here with Scott Miller and Bill Reich, the CSIS Trade Guys. Thanks for listening to the Trade Guys. On today's episode, we break down the Trump administration's latest moves on critical minerals, as well as the evolving situation in Cuba, where the administration is threatening tariffs on countries that continue to supply oil to the island. Then we turn to Europe and new steps to tighten sanctions on Russia ahead of the fourth anniversary of the full-scale invasion of Ukraine. All that and more on today's episode of The Trade Guys. All right, guys, we have a lot to cover today, so let's dive in. We're going to start with an issue that's dominated the policy conversation in Washington over the past week, and that's critical minerals. On Wednesday, the State Department convened a major ministerial summit on the issue, and the day before, forgive the shameless plug here, CSIS held a forum alongside that ministerial featuring Secretaries Burgum and Lutnick, as well as a wide range of senior administration officials and international delegations. All of this talking about securing the critical mineral supply chain. Amid this flurry of activity, President Trump announced a new $12 billion critical minerals stockpile called Project Vault, which will be focused on civilian industrial needs and will be funded by a mix of private capital and loans from the XM Bank. At the same time, the administration signaled a broader effort to stabilize global critical minerals markets through potential partnerships with Mexico, EU, and Japan centered around setting price floors to counter market distortions. So Scott, there's a lot going on here. It's a huge issue, and I want to dive into it with you. But maybe we can start with this term we've heard a lot this week, this price floors and how it relates to Project Vault. So let us start there if we can. There's not much to read on the issue. I would make that as the opening caveat. We're inferring this from things that have been said at press conferences. Of course, at the mothership, CSIS hosted a magnificent series of events. So those of you hunkering for more information, this is a good time just to log on to CSIS.org. The front page is loaded with information opportunities. And a hat tip to our colleague, Gracelyn Baskarin and her team in the Critical Minerals Project down in the DSD department, as we called it, CSIS. It did a terrific job pulling that off. So yes. Very impressive amount of content there. It's really well done. In any case, so we've got this idea of, I think the way to look at critical minerals is we used to call them rare earths and realized they're not that rare as a share of the earth's crust. They can be found a lot of places. They're messy to process. They're difficult to acquire, but they are critical, essential ingredients in some of the most sophisticated materials. And these are materials that have both civilian use in aerospace or many applications and high technology applications, but also have a remarkable array of uses in defense materials. So they're vitally important for both the U.S. economy being a high-tech economy that it is, but also the U.S. defense business. So that's very important. And what you have is a situation where China has a dominant position in both the extraction and processing of these materials. And it's, in the words of U.S. antitrust law, it's abusing its dominant position and managing prices and managing export restrictions and things like that, that fit its policy goals but are not characteristic of an open market. I think what the administration has proposed in both the sectoral trade agreement and the Project Vault is a way to address that, to get development of materials in domestic industries, get the extraction or mining and processing of these materials done in a way where the availability is not China or nothing. In order to do that, there have to be some management on the downside of pricing so that the companies have the incentives to follow through. There also has to be some reform and permitting and lots of other things. For me, the most entertaining and imaginative part of this was to use the Export-Import Bank, which is an export finance organization. A number of government-owned corporations that would include the Postal Service and the Federal Deposit Insurance Corporation. You can name a lot of them, but the Export-Import Bank is a U.S.-owned government-owned corporation that is in the business of providing export financing, essentially. Export guarantees is a whole series of activities related to sales of U.S. products abroad. I don't know if it's all legal, but it does have a board that's appointed by the president, confirmed by the Senate, and that board has positioned themselves to make use of loan guarantees to support this very effort, which I think is fascinating given that the Export-Aware Bank nearly went out of existence. In fact, it failed to meet most of the teens in the last decade or so because it didn't have a core. It suddenly became controversial and it couldn't do much, but now it found a new use. So it's kind of exciting to see what might happen. It's, I think, exactly the right thing to do. With respect to the multilateral agreement, there's much less known about that. It does bear a resemblance to sectoral agreements that were conducted during the Yorga round of the GATT. I was very involved in the chemical harmonizations agreement. There was a zero for zero sectoral agreement on pharmaceuticals, several others as well. And these were MFN run through the WTO or its predecessor. And it's an interesting way to get people together to the lower tariffs and sectors. You can also use to apply disciplines. Members have to agree to not apply economic coercion in their sales or something like that. They haven't said much about where it goes. It's familiar from that standpoint, but yet to be defined. Bill, you have a lot of questions on this one, don't you? Well, some questions and a couple of comments on what Scott said. The Exxon Bank, what's happening is really kind of a continuation of something that President Biden started, which was to reinterpret the bank's mandate as permitting financing of domestic production if it was going to lead to exports. That's the new interpretation, which broadens the bank's mandate. and what Trump is doing is kind of a further expansion of that. There were not a lot of eyebrows raised when Biden did that. They didn't operationalize it in an enormous extent. I think they did a few deals, but it does suggest that there's a mission creep going on here, if you will. And it's interesting that a lot of what's going on now is being pushed by the Republicans, who were the people really responsible for the bank's authorization expiring back in the teens, which is scotland referred to and it was known at that time and conservative circles rather derisively as the bank of boeing because a big chunk of its financing went to uh boeing to finance well the money doesn't go to boeing the the loans go to the foreign purchasers right of the planes but the people that were upset about it 10 years ago seemed to be okay with this expansion so we'll go with the flow well one of those was delta airlines which was had a long-term purchasing agreement with Airbus. So there was a little confusion commercially within the U.S. industry. This is why I don't go on Delta, because they tried to destroy the bank. And I think that was, it may have been, well, it was more revenge for them. I don't think they suffered, but neither here nor there There unanswered questions on the vault and unanswered questions on the agreements On the vault there seems to be a good bit of planning behind this It just hasn all come out So I not worried that this is some half-baked scheme that nobody's thought about. I think we just don't have the information right now, but it will emerge over the next few days, I imagine. I don't have a clear understanding of the basis for withdrawals. This is designed for the private sector. There is, in fact, a critical minerals repository. I almost said suppository, but repository. It's a different conversation, Bill. That's in the health department. Different repository for defense critical minerals. This is for civilian use. Who gets to use it and what the terms of use are remains to be fleshed out. The big thing that seems to be missing is a list of the minerals that are going to be covered, which is not a small issue. And some of these minerals are, you know, a little goes a long way. So you don't have to stockpile, you know, 8 million tons of lithium. On the other hand, some of them, like copper, you know, a lot goes a long way. And it'll be interesting to see what they include on the list, which will also send some details about how quickly the money gets used up. Because if you're going to buy something like copper, where the price has been going up significantly, along with gold and silver, then the $12 billion is going to get exhausted, I think, fairly quickly. The other issue that Scott alluded to that is missing, certainly from the vault, I mean, it wasn't supposed to be included in the vault, and we'll see what happens on the minerals agreements side, is the question of processing. And what most people have concluded over time is, as Scott started out, saying the minerals are not scarce, they're not rare, they're not evenly divided across the earth. We have some, we don't have all of them, but they're around. where China has the near monopoly is on the processing or refining capability. And the vault does nothing for that. And whether the minerals agreements that have been signed do something on that remains to be seen, but it's not clearly a part of all that. And that gets to the price floor issue, which is, again, a question of pricing of the minerals. I think not the question yet, anyway, of the processing of the processed commodities. these. There, I would disagree a little bit with Scott about the analogy with prior WTO sectoral agreements. The other agreements are the ambition was zero for zero. The ambition was tariff-lowering, market-creating. This is tariff-raising because the context is different. The concern here, which has been aptly demonstrated by Chinese practice, is what the Chinese have done in this case is when somebody builds a plant or begins to do something with minerals, the Chinese come in and price undercut them. Of course. And make it impossible then for the American facility or whatever facility is to make any money. So that facility goes bankrupt and then the Chinese can raise the price. This is classic monopolistic behavior. And this is exactly the kind of thing that our antitrust laws were designed to prevent. China, of course, is not subject to U.S. antitrust law. So we have to think about this a different way. And the idea of the price floor, rather than- Give it to us in layman's terms here. What does this mean? Well, the idea is that basically, I think it's more like a customs union. If you're in the group, it's going to be a zero terra for a low terra. So we and the EU and to the Japanese, if this is done, and that's not done yet, but if it is done, we will sell to each other cheap, zero taros. There will be an external tariff coming in on minerals coming from parties that are not in the group, meaning China. So if China wants to sell into, in this case, Japan, Europe, the United States, anybody else we can get to sign, they will pay a high tariff, which is designed to prevent them from undercutting the domestic price. And if it's done properly, it may work. once again blows up the MFN concept, the most favored nation concept. But we're long past worrying about that. That's being destroyed for years. Well, you have duopoly pricing. You have the pricing with the customs union trades at, and then you have China price. Essentially, that's the way it's designed to work. Yes. There's also some provision, sort of an anti-volatility provision, because if you think about it, while it may well have the desired effect of preventing the Chinese from undercutting Western prices and thereby putting Western competitors out of business. At the same time, it's going to mean higher prices for companies that need to buy these minerals. So it's going to be inflationary. And it might be, depending upon how things develop, highly inflationary if there's a rush to buy all this stuff. So they've added a clause that says that if you're going to, in the case of the vault where you're going to be withdrawing minerals, they've said, if you're going to withdraw minerals, you have to do it at the price you're providing, but you also have to commit to do it again later on at the same price. So that's designed, I think, to deter price volatility in case there's a rush on some particular mineral and the price spirals upwards. This is designed to make sure that it stays within bounds. We'll see if that works too. I think the biggest hangup on all this is still going to be the processing question, which I don't see really answered in any of it. The rest of it, it seems to be to be potentially a sensible approach. Well, I'm glad we spent some time on this today because this is such a huge priority for the administration and has risen to one of the top issues in Washington. It's something we talk a lot about within CSIS and the events this week, I think, underscore just how critical this issue has become, no pun intended. But let's move on. So we are going to take a look now at Cuba, where in recent weeks, incoming oil shipments have effectively dried up following U.S. military action in Venezuela and increased pressure from the Trump administration on Mexico, which has now halted its own oil exports to the island. And as of this recording, Cuba has not received an oil shipment since January 9, believe it or not, according to the Financial Times. And on January 29th, President Trump signed an executive order that opens the door to tariffs on countries that supply oil to Cuba, invoking his authorities under IEPA, of course. The suspension of oil deliveries has contributed to worsening power shortages across the island over the recent weeks and is now raising serious concerns about the humanitarian consequences of these policies. But I want to focus on the tariffs angle here first. Bill, give us a rundown on what's happening here and how are countries going to respond to Trump's threat of tariffs? Well, they've not, with the exception of Greenland, which was, I think, an inflection point, there hasn't been a lot of resistance to the terrorists. There's been a lot more sucking up than there has been pushing back. This is kind of a very specific case. There weren't that many countries shipping oil to Cuba anyway. And so- It was Venezuela and then Mexico. Venezuela and Mexico used to be Russia, but that has subsided. I mean, Russia has been their lifeline for decades. And Russia has said it will do what it can to continue to support. But yeah, Venezuela and Mexico are one and two. Russia has their own problems right now. So we'll see how that... We'll cover that in about five minutes. Yeah, we'll see how that goes. But as of today, there was apparently another major blackout in Cuba. The estimate is they've got two to three weeks of supply left before they run out completely. And I think what that means, and Alex, you alluded to it at the end, is there's a humanitarian disaster in the making here if they can't get energy to keep their economy afloat. And I think that if you look at the administration, my sense is this is mostly a Rubio play more than it is Trump or anybody else. He's been hostile to the Cuban regime. His family is from Cuba has introduced numerous pieces of legislation when he was in the Senate trying to tighten the embargo was at odds with the Obama administration which was trying to loosen it We see what happens You know people know the history of this We had a total embargo since 1962. And guess what? The regime is still there. Yeah. And they just blame us for all their problems. Yes. We've given them an excuse. Every time anything goes wrong, it's because of the Americans. And now that will actually be true. It wasn't a Wasn't always true in the past. Yes. Now, U.S.-Cuba relations have always been the closest thing to a family feud in American politics. I mean, it really gets down to a group of people who were basically were exiled by the Castro regime when Batista fell and the island went communist. Most of them wound up at that era in South Florida and have been a very important and quite potent political faction since then. So American politics works like it's supposed to. And that tension between Cuba and the United States is much more personal than you might suspect if you haven't been close to it. And that's true for a lot of Cuban Americans. So that's a reality. Now, it's hard to match the Venezuelan price that Cuba was paying for Venezuelan oil, which, as I understand, was free. Venezuela was getting some things in return, like Maduro's security force was all Cuban. That didn't work out so well. And I think a lot of their medical doctors are Cuban. But having said that, Cuba was clearly one of the big losers in executing Maduro's arrest warrant. So what we do next, I would hope there's a little room for a carrot as well as sticks. The sticks are probably mandatory, given the politics. But some humanitarian outreach wouldn't be crazy at this point. The people on the island are desperately poor. And while you may have a goal of regime change, I don't think preserving hostilities at the price of human life is a good bargain. So I hope there's some of that. It's hard to tell. I worked on this when I was at the NFTC. We were opposed to the embargo, full disclosure. And it'll be interesting to see how the politics of this play out in Florida, actually also in New Jersey, where there's a decent sized Cuban population. Remember Senator Menendez? Yes. Who is right up there with Rubio and wanting to stick it to the Castro regime. Always a bipartisan co-sponsor. Yes. Right. Neither of them in the Senate right now. Good point. But there are successors. The politics of this, though, is more complicated, I think, these days than it started out to be. In the beginning, the Cubans that went to Florida after Castro took over were largely upper-class Cubans who would have their property expropriated by the government. And this has been a sore point ever since. And there's still a bunch of them alive. And basically, they want it back. That's not likely to happen. But the interesting thing about that is that if you skip down to a generation or two, down to the grandchildren and the great-grandchildren, what we learned when we were working on this is their attitude is something different. They are not really interested in getting the family estate back or the family factory back. They're a lot more interested in going back to Cuba to visit their grandmother. or their cousins or other relatives that are still there. And when George W. Bush tightened up the travel restrictions, which Obama subsequently loosened and which Trump, I think, is tightening again, when Bush tightened them in the aughts, there was a good bit of pushback in Florida because what he basically did was make it harder for second and third generation Cubans to go visit their relatives. And there were no, there weren't any political implications. They just want to go back and see relatives. So I'm not entirely sure that trying to squeeze the Cubans to the extent that Trump is trying to squeeze them is going to be as popular in Cuba as you think it is. It will be with the old folks, no question. They've been living for this moment for 62 years, but I'm not so sure that their children and grandchildren feel the same way. We'll see how that plays out in the congressional election, where it'll probably be an issue in Florida and in New Jersey and probably nowhere else. Right. Well, there you go. I'm determined to have a USMCA angle to every episode here for the foreseeable future. So put yourself in Mexico's shoes here. I don't think that they've made any sort of formal announcement that they're halting their oil shipments to Cuba. Of course, in practice, they've done that. Is there any calculus here on their end around USMCA renegotiations from your perspectives? I don't think there's any margin at this point of poking the bear. I mean, look at what happened on civil aviation with Canada. It was just, you know, kind of a waste of bureaucratic energy, but there's no upside in it. So I guess is they're going to manage it quietly. And, you know, if they've got contracts, the contracts will be honored. It's not a lot of volume. At least Mexico didn't have a lot of sales volume in Tequila, but there's a void to fill from Venezuela. It'll be interesting to see. I agree with that. I think Trump has said that the Mexicans have said they'll stop shipping. Scheinbaum hasn't exactly said that, but it appears that they've stopped shipping, at least temporarily. We'll see how that plays out. I'm concerned that the way this will play out, because the regime is not just going to say, oh, we give up and send in the Americans to take over the country. Unlikely. This is going to turn into a humanitarian disaster. And when you've got hospitals closing down because they don't have electricity. Bad luck. And they can't operate the equipment. And you can't get ambulances to people that are in distress because they don't have any gasoline. That makes the news. And then a lot of people are just going to say, you know, why are we doing this? We're harming a lot of innocent people who don't have any political stake in this. And no power to change it. But they're the victims. Yeah. And I think that projection for oil running out within 15 to 20 days was made maybe a week ago. Yes. So this is, I think this story is going to unfold here pretty quickly, perhaps over the next week or two. Heading to go over the cliff. Yes. Yes. No kidding. No kidding. All right, guys, let's wrap up today with a roundup of activity in Europe with a look at the recent EU-India deal and at recent steps to tighten sanctions on Russia as we approach the fourth anniversary of the full-scale invasion of Ukraine. Kind of unbelievable we're at that point here. Let's start with the sanctions look. Here, there was news late last month that EU member states reached an agreement to block all Russian gas imports by late 2027. And the EU is working on its 20th sanctions package with proposals, perhaps including, among other things, restrictions on metals, further restrictions on Russian banks and oil companies, restrictions on crypto and financial entities and countries assisting Russia's sanctions evasion. So, Scott, give us a rundown of what's happening here. After almost four years of escalating sanctions, Russia's economy is struggling, but it's still able to finance its war effort. And shameless self-plug here for the second time in this episode, our colleagues Seth Jones and Riley McCabe released a great paper earlier this month looking at the state of the war and the Russian economy. So listeners, give a look to that. It made quite a few headlines here in the United States. But Scott, what's going on here and what's the approach for Europe? Are they trying to cripple Russia or are they just trying to isolate themselves here from or insulate themselves from further dependence on Russian oil and other items? It seems to me they're fighting the good fight as they see it. But I never convinced an elected official of this. But diminishing returns are something that occurs in every field of economic activity. And that goes for sanctions too. And I do think that European sanctions have reached the point of diminishing returns. They didn't deter much in the first place. They probably caused some difficulty or pain, but we're way past the curve, as the mathematicians would say, has an asymptote at zero. And so if we're not there, we're headed there pretty closely. There just isn that much left where Russia has a key dependence and where there is unanimity among EU members to impose the sanctions which is one of the key requirements The backdrop of this as far as I concerned is the fact that regardless of sanctions, Europe remains a massive importer of hydrocarbons, just to keep warm and keep the lights on. Roughly, European power consumption in total is 60 exajoules a year. That's total consumption. 40 of that 60 exajoules, so two-thirds is oil gas, gas liquids, and natural gas, and coal. So four hydrocarbons, two-thirds of consumption. Of that 40 exajoules of hydrocarbons, 34 are imported. Six are produced in Europe. Unbelievable. 34 exajoules of power is basically all the natural gas consumed in the United States. It's a massive amount. So no matter what happens, no matter what is sanctioned, Europe is a huge consumer of the very hydrocarbons that are being produced in a global market. It's why the sanctions have been so hard to enforce. So that's, I think, the backdrop of all this and one of the reasons that diminishing returns have truly set in. Bill, what's your take? Well, a couple of things. First, if you look at the data, there's been an impact. I'm looking at a little table here. The Russian share of EU energy imports. Yes. And in first quarter 2022, that is sort of more or less before the war, nearly 26% of their oil was from Russia. Now it's one and a half percent. Yeah. So there's been an effect and we're part of that. We sell natural gas to them. Yeah, sure. Gas is down from 38.3% Russian to only 10% Russian. Coal is down to zero. LNG is down the least from 18.1%, 12.7%. So there's been an impact. The thing that I'm interested in is how they're going to go about doing this. The internal politics are maybe evolving. We'll see. I mean, God alluded to this. The problem children are Hungary and Slovakia, both of which are adjacent to Ukraine, and both of which are much more dependent on Russian energy sources than the other 25 countries. Lately, there's been an effort by the Slovakian Prime Minister, Prime Minister Fiko, to reintegrate into the EU and to get on better terms with his counterparts. We'll see how far that goes, but there seems to have been a mood shift in Bratislava. And Orban, Prime Minister of Hungary, has an election coming up in a couple months. Trump just endorsed it today, incidentally, which we'll see how much good that does. not a surprise endorsement. Not a surprise endorsement. He's one of Trump's favorite people. There is, once again, as there was the last time, I think, a consolidated opponent, a consolidated opposition opponent who most recently has been leading in the polls. But that doesn't necessarily mean that they'll win the election. We'll have to wait and see. But it suggests that it's possible the internal politics of this may be changing in a way that will make it easier for the EU to toughen its sanctions. The thing I've been looking at is the price cap, because right now there is this complicated price cap mechanism in which the Europeans enforce reducing Russian imports by putting limitations on European maritime service providers like insurance people and shipping people. They can only support shipments of Russian oil if it is below the price cap. That's not been fully honored, and that poses lots of problems. The Europeans are apparently now considering just banning European service providers from providing these services to Russia. That would be a lot tougher than the price cap. We just say, European insurance companies, European shipping companies, which supported 90% of Russian oil shipments before the invasion, that would really make, I think, strike a blow against the Russians. So if Europeans do that, I mean, I take the point about diminishing returns. That's the general economic principle that I subscribe to. In this particular case, I think there's some more returns that they could diminish. We'll just have to see how that plays out. If they decide to go ahead, this may actually matter. Well, I want to thank you for that explanation and your view there. I want to end today. There's an item we didn't get to last week. it was the EU-India trade deal. And I suspect that most of our listeners are well-read on it at this point. But if I could get your quick takes on any big takeaways that you see from that and what's happened between India and the United States in recent days. Opportunity for a side-by-side comparison, which is odd. So similar agreements completed on similar timing. So I have not seen paper on either. Well, there will be paper on it next week because my column is going to be on exactly that subject. And I'm going to look into it. This was brought to my attention by one of our listeners, actually, John Magnus, who is, I think, a great consulting partner. So those of you that are looking for consulting services, think about John, but is also one of those people who's really good at thinking outside the box. And one of the things he pointed out to me is this is a rare case where you've got two back-to-back deals, EU India, US India, both done within two weeks of each other. So it's an ideal opportunity to compare and contrast. There's a lot of caveats. The facts aren't all out. We know from experience with other deals that with Trump, these deals are never final. So you can't really draw a firm conclusion. And three, especially with India, there's always an implementation question. No matter what they agree to, will they actually do it? And even if they do it, will they slow roll it? If you look at the EU tariff cut agreements, most of those have a 10-year phase in. So we're not talking about dramatic immediate change in that case anyway. But, you know, a quick look at the two, I think an easy conclusion to draw would be that we got more and gave less than the EU. And I have to think about whether that is really true or not, but that's an initial action. And if we did get more and gave less. What does that say about Trump's strategy vis-a-vis the European strategy? Good question. And fortunately, you're doing the show prep for next week. So thanks for the column. All right, guys, we'll leave it there. We're recording this before the Super Bowl, but this will air the day after the Super Bowl. So congratulations to the Patriots or congratulations to the Seahawks on a great game or a miserable game. We don't know, but we're going to leave all options open here. The three of us are on to the Winter Olympics. indeed oh that's right bill favorite winter olympic sport curling say curling oh yeah curling that is that's just it's just fun to watch i felt i felt that was okay scott oh well i have to go with the biathlon drive by norwegians all right i guess my other one would be the uh bobsled and the skeleton these downhill things on these ice tracks are wonderful to watch well that's the Winter Olympics. It's a little, it's a little bit like, like NASCAR where you're really watching to see who flips out and that's great. It gets killed, but it's still impressive. And the talent that goes into it is impressive to watch. That's the old saying about the Winter Olympics. It's 100 different ways of sliding and slipping. Yep. Stay tuned. All right. All right, everybody. Thanks for tuning in. We'll see you next week. Thanks. Bye-bye. you've been listening to the trade guys a csis podcast for more audio content visit csis.org slash podcasts thanks for tuning in
