The Critical Raw Materials Act as a geoeconomic tool – Impacts in producer countries in the Global South

For an extended period, the European Union (EU) lacked a comprehensive international strategy to secure critical material supplies essential for the green and digital transitions, opting for a market-oriented laissez-faire approach. The European Green Deal and recent events, particularly the COVID-19 pandemic and the Russian invasion of Ukraine, underscored the critical role of supply chains for these materials. In response, the EU has introduced the Critical Raw Materials Act (CRMA), signifying a shift towards a new geoeconomic strategy. While initially conceived as a response to Chinese -and to some extent Russian- dominance, these policies also have far-reaching implications for EU-US relations and may significantly impact the EU's relationships with producer countries in the Global South. The first part of this paper examines and compares the evolving strategies of China, the United States, and the EU concerning the supply of critical raw materials for the energy transition. We identify four strategies—laissez-faire, reshoring, friendshoring, and diversification and co-industrialization. Laissez-faire involves relying on international markets to solve supply issues without specific public policies. Reshoring aims to bring production back to the country through various incentives, including protectionist measures, encompassing different value chain phases. Friendshoring focuses on ensuring material supply from geopolitical allies, utilizing trade policies to reduce economic barriers. Diversification and co-industrialization involve an active role in third countries by supporting investments abroad across supply chain phases while addressing sustainability challenges. The second part of the paper evaluates the potential impacts of the EU's new strategy, particularly the CRMA, on producer countries in the Global South. Geoeconomic decisions by Northern countries carry significant consequences for Southern nations, influencing the international division of labour and development prospects. We argue that a strategy emphasizing diversification and co-industrialization, promoting production diversification through non-trade policies, appears more effective and equitable in the long run. While elements of this strategy are present in the new EU's approach, the extent of their effective implementation remains highly uncertain.