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Though much is still to be settled, the agreement on access to natural resources struck between the US and Ukraine looks to be the first tangible deal that Donald Trump has secured since he became President.
We know that he ranks his dealmaking ability highly – that was the big message from his bestselling book The Art of the Deal, ghostwritten by Tony Schwartz and published in 1987. We know too that Ukraine is in an extremely weak negotiating position, so it should be a rollover for him. But is it? And why is America so intent on getting access to Ukraine’s raw materials?
Well, we can’t know whether it is a good deal or not as we don’t yet have the details, but Ukrainian President Volodymyr Zelensky has said the deal “is just a start, a framework, it can be a big success”. That success, though, “will depend on our conversation with President Trump” later this week. The outline is understood to include joint ownership of a fund where Ukraine will give the US half the profits of its state-owned resources, including minerals, oil, and gas.
Quite what Ukraine gets in return in security guarantees is up for negotiation, but at least it gives the US a very strong incentive to see that Ukraine retains control of the territory in which the minerals and other natural resources are located.
As for the European nations, including the UK, which have in total supported Ukraine to an even greater extent than the US, they have apparently been sidelined. Whether or not this turns out to be a good deal for the US and/or Ukraine, it does not on the face of it look great for Europe.
But why does the US want so much to get access to Ukraine’s resources? There is an obvious explanation.
At the moment China dominates the mining of several of the world’s most important minerals and the US wants to be less dependent on what it sees as its main rival in the global power game. Access to Ukraine’s resources evens up the balance a bit. But there are two counterpoints to that.
One is that if you look at the detail, while Ukraine’s resources are important in a European context, they are not that huge in a global one. The other is that the market for primary products is just that: a market. If a country has the money, it can buy whatever it needs – as Russia has demonstrated despite the sanctions imposed on it.
On the first point, the Ukrainian government has a helpful list of its global rankings as a producer of various in-demand minerals. It is the world’s sixth-largest producer of both titanium and kaolin (a clay used in porcelain manufacture), eighth for manganese and graphite, and 10th for iron, uranium, and zirconium silicate (a compound used in ceramic glazes as well as in foundries and nuclear reactors).
It also has a lot of coal, and until the war was the sixth-largest producer of wheat globally. If you look at reserves, rather than production, then the ranking may be higher, but it does not dominate anything. Just before Russia launched its full-scale invasion in February 2022, the country’s deputy minister of environmental protection and natural resources, Svetlana Grinchuk, said that Ukraine had “about 5 per cent of all the world’s critical raw materials”.
In any case, many of the resources are not easy to reach. Mining is a long-term and hugely expensive enterprise. A paper published last week by the Center for Strategic and International Studies in Washington DC pointed out that on average, it takes 18 years to develop a mine, and that it costs between $500m and $1bn to build both the mine itself and a separation plant for extracting valuable minerals from the ores which come out of the ground.
Further, no one really knows what resources are there, or where. There has been no modern assessment of rare-earth reserves; existing data relies on Soviet-era mapping of more than 30 years ago.
The other counterpoint is the market. Given this huge need for investment, the resources in Ukraine may turn out to be more expensive than alternative supplies. There is also the enormous risk that a mineral that is in demand at the moment may turn out to be less important in another 10 or 20 years’ time.
And as for the political risk of China controlling too much of the global supply of some much-needed commodity, one of the lessons of the sanctions put on Russia is that resources are fungible – they can be exchanged for each other because no matter where they come from, they are more or less identical.
Thus while Russia has been severely restricted in its ability to sell its oil and gas to the West, it has sold its output instead to India and China, which in turn have cut their purchases from the Middle East – which in turn have sold more to Europe, thereby replacing Russian supplies.
True, Russia got a slightly lower price from its new buyers than it would have got from its established markets, and Europe, as we are very well aware, had to pay a lot more to replace Russian gas thanks to its limited ability to import gas in liquid form. But the oil and gas kept flowing and oil prices are now lower than they were three years ago.
In The Art of the Deal, a lot of Donald Trump’s thrust is that you get a good deal by beating down the other party. The aim is to outsmart them. On the surface it may look as though he has done so here. But the reality may turn out rather different. A lot of investment will be needed from the US to make this work – and those rare-earth minerals are not so rare, after all.
I really hate the idea that successful business is about doing down the other people you are dealing with. It is true that some companies do that and, for a while at least, can do well. And it is certainly true that this is the way Donald Trump has operated. What’s more, he is proud of it.
But his real success has been as a showman, at which he is brilliant, rather than a property developer. Businesses he has been involved with, according to The Washington Post, have gone bankrupt six times – he claims only four – and that’s not a great record.
Of course there are apparently successful businesspeople who behave in a similar way, particularly early in their careers. But any economic relationship has to be based on outcomes where both parties win if that relationship is to last. So once a company, or an individual, gets the reputation of overplaying their hand, they will find opportunities dry up.
As you might imagine, The Art of the Deal has attracted a lot of academic scrutiny, and one of the best bits of analysis I have found comes from a piece by George Wu in the Chicago Booth Review. A key point is that Trump sees negotiation as a zero-sum game with a clear winner and a clear loser. That is sometimes the case, but this approach fails if what is needed is co-operation.
Wu writes: “The pugnacious tone also points to a big missing piece in The Art of the Deal as a primer for negotiation: the lack of any discussion about the role of relationships in negotiation and the process of discovering joint gains. Relationships are critically important in negotiations, because in most important business situations, the final agreement or contract just defines the potential value of a deal. The ultimate value requires implementing the deal, and that depends on people’s ability to work together.”
I always feel the big difference between sport and commerce is that in sport there has to be a winner and a loser, but in all durable business relationships both sides have to win. But I am afraid that business is too often portrayed in films and television as a combat, and an unethical one at that, and that undermines faith in the market economy.
So why did people continue to do business with Donald Trump, knowing how he behaved? The only answer I can give comes from a friend who had dinner with him about 30 years ago. He was running an investment company and Trump wanted to get finance.
“What was he like?” I asked.
“Exactly as he is now,” my friend replied.
“So did you do the deal?”
“Er, no,” was the answer.
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.
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