Allies and enemies: On the political determinants of trade in critical minerals

Abstract

While trade in critical minerals is increasingly shaped by geopolitical tensions, most existing studies emphasize economic factors and overlook the role of political alignment. This paper addresses that gap by examining how political dissimilarity – measured through UN voting patterns – affects bilateral trade in critical minerals, which are essential to renewable energy and high-tech applications. Moreover, we distinguish between supply-side and demand-side characteristics. On the supply side, we differentiate between processed and semi-processed products and between products traded in concentrated and diversified markets. On the demand side, we classify minerals based on whether they are used in energy and digital applications or not. Employing a gravity model over the period 1995–2022 and the Poisson Pseudo Maximum Likelihood (PPML) estimator, we account for zero trade flows and heteroskedasticity. Our analysis reveals that political dissimilarity with China and the United States is an important determinant of trade in critical minerals, particularly for semi-processed products, those used in energy and digital transitions, and products with more geographically concentrated markets. At the product level, minerals such as nickel, cobalt, vanadium, molybdenum, copper, and aluminum appear especially sensitive to strategic considerations. Finally, our findings are robust across different model specifications.