The exorbitant privilege of the periodic table

Trade in critical metals essential for electrification has become centred on China over the last three decades. This column introduces a new framework in which network centrality depends on strategic decisions and investments. It shows that the central position of China does not originate from resource endowments but from processing capacity. Furthermore, supply shocks to these metals raise inflation in both the US and EU, with larger and more persistent effects than shocks to oil and gas. To ensure supply-chain security, the EU needs to focus on adding processing capacity capable of responding when supply is restricted.

The critical metals that underpin electrification – lithium, cobalt, nickel, copper, and a handful of others – now sit at the centre of one of the most consequential arenas in global economic policy. This was dramatised in 2025, when Beijing repeatedly tightened, suspended, and then resumed its export-licensing regime for several rare earths and the magnets built from them (CSIS 2026). Each turn has been narrated as a story of geopolitics and diplomatic brinkmanship. That framing, we argue, obscures a more durable economic truth: the leverage at stake is not a diplomatic improvisation but the return on a position at the centre of the trade networks for the metals of the energy transition — one that now confers on those metals something close to what the dollar’s centrality has long conferred upon the US.

We develop this argument in a new paper (Kirk et al. 2026), whose intellectual precursor is Albert Hirschman. In National Power and the Structure of Foreign Trade (1945), Hirschman showed how asymmetric trade dependence – a country’s reliance on partners for goods it cannot readily obtain elsewhere – can be turned into political and economic power. That insight has since been revived in the political-science literature on ‘weaponised interdependence’ (Farrell and Newman 2019, 2023) and formalised in economics by Clayton et al. (2024, 2026), whose framework shows how power rises with a partner’s dependence on inputs for which no ready substitute exists; recent work stresses, in the same spirit, that it is command of processing rather than of ore that confers strategic weight (Arezki and van der Ploeg 2025). This literature, however, largely takes network position as given. Our contribution is to open up that position itself. Using three decades of bilateral trade data, we show that centrality is endogenous – chosen through investment rather than fixed by geology – and, going beyond the frameworks on which we build, we tie network position explicitly to price-setting power and estimate, with a purpose-built measure of inflation pass-through, its macroeconomic consequences. It is this step, from the endogenous shape of a trade network to the size and persistence of the inflation it can transmit, that distinguishes our analysis from the economics literature and the wider weaponised-interdependence tradition.

The organising idea will be familiar from international macro-finance. A country at the centre of the international monetary system enjoys structural advantages out of all proportion to its economic size – an ‘exorbitant privilege’ – and that centrality was itself built, through institutions, market depth, and self-reinforcing network externalities, rather than bequeathed by fundamentals (Gourinchas and Rey 2007, 2022, Rey 2013). What we document is the commodity-market counterpart: a centrality in critical-metal processing that was likewise constructed rather than inherited, and that likewise confers structural power — here, power over prices rather than access to cheap external financing. In both cases, the centre of the network is an endogenous object, chosen through investment, not a primitive handed down by geography.

A hub built, not inherited

The starting point is a striking graph-theoretic fact. Using bilateral trade data for 13 metals essential to electrification – among them lithium, cobalt, nickel, and copper – between 1995 and 2023, we find that trade has reorganised itself into a hub-and-spoke architecture centred on China. Our measure of centrality, the Katz score that credits a country for the exports it channels both directly and indirectly through its trading partners, shows China overtaking the US around 2005 and pulling steadily further ahead thereafter. In the fossil-fuels network, by contrast, the two countries remain roughly on a par across the same span (Figure 1). Over three decades, one system has reorganised itself around a single hub while the other has not.

Figure 1 Katz centrality: US and China 

Note: Katz centrality of the US and China in electrification materials (e, solid) and fossil fuels (f, dashed), 1995–2023.

A second measure, the clustering of trading relationships, tells the same story. In a well-diversified market, exporters trade with a wide range of partners, including one another, keeping the network dense with mutually reinforcing ties. In electrification metals, this density has collapsed towards zero: cobalt from the Democratic Republic of the Congo, lithium from Chile, and nickel from Indonesia each now flow overwhelmingly towards China, and the suppliers no longer need to trade among themselves because all now route through a common hub. Fossil-fuel networks display no such collapse (Figure 2).

Figure 2 Trade-network clustering over time

Note: Median (black), 10–90% range (dark grey), and min–max range (light grey) of the local clustering coefficient, 1995–2022. (A) Electrification materials; (B) fossil fuels.

What renders this pattern consequential, rather than merely descriptive, is that it cannot be read off resource endowments: China holds very few of the underlying reserves of nickel, cobalt, or lithium. Its position rests on processing capacity, which had to be built somewhere since the geology lies elsewhere (Walsh et al. 2025). Indonesia offers the clearest illustration. A 2020 ban on the export of raw nickel ore, paired with Chinese-financed smelting investment under the Belt and Road Initiative, transformed the country within a few years from a raw-ore exporter into the source of more than half the world’s processed nickel, drawing China’s centrality upward with it. Reserve-rich incumbents such as Canada and Russia, lacking comparable processing capacity, saw their influence stagnate: reserves alone did not translate into leverage.

From network position to pricing power

None of this would matter economically were network position not translated into the capacity to move prices. We construct a simple model in which a hub country’s mark-up over cost – the extent to which a strategic supply cut raises the world price – turns on three considerations: the share of the market it intermediates, the ease with which downstream buyers may substitute away from the material, and the speed with which rival suppliers can expand output to close any gap. All three point the same way for electrification metals: the hub’s share is high, engineers cannot design nickel or cobalt out of batteries without sacrificing performance, and new mines and refineries typically require a decade or more to build. Oil and gas, by contrast, are cushioned by strategic reserves, spare capacity, and deep spot markets that keep alternative suppliers responsive and limit any single country’s pricing power. The very investment that builds a country’s mark-up builds, too, the price impact of its supply decisions.

We then bring this prediction to the data. Drawing on more than eight million news articles published between 2000 and 2024, we train a classifier to identify commodity-specific supply and demand disturbances for each material, building on the news-based approach of Lumbanraja et al. (2026) and extending it, for the first time, to individual metals rather than commodities in aggregate (see also Malliaropulos et al. 2025). We then trace, by local projections, how a representative supply shock propagates into inflation in the US and the EU over the following two years.

The headline result is striking. As Figures 3 and 4 illustrate, a one-standard-deviation contraction in the supply of electrification metals raises the cumulative level of CPI in both the US and the EU by roughly one percentage point – about twice the response to a comparable disruption in oil and gas – and the effect persists considerably longer. At the producer-price level, where the shock has not yet been attenuated by retail mark-ups, the gap often widens further. We estimate these effects for unexpected generic changes in supply, not for strategic cuts decided by the Chinese leadership.

Figure 3 US CPI response to supply disturbances

Note: Impulse responses (long differences) of US CPI to a one-standard-deviation supply contraction. Left: electrification-metals supply index. Right: fossil production-weighted supply index. Supply indices are AR(1) residuals. Newey–West standard errors.

Figure 4 EU CPI response to supply disturbances

Note: Impulse responses (long differences) of EU CPI to a one-standard-deviation supply contraction. Left: electrification-metals supply index. Right: fossil production-weighted supply index. Supply indices are AR(1) residuals. All panels include country fixed effects; Driscoll–Kraay standard errors.

Why the transition does not dissolve strategic dependence

It is tempting to read the retreat from hydrocarbons as a diminution of geoeconomic vulnerability. Our results suggest the contrary: the transition relocates strategic dependence rather than dissolving it – away from a dispersed, well-buffered hydrocarbon system and towards a concentrated, thin, and slow-to-replicate set of mineral processing chains. This is the commodity-market counterpart to the dollar’s ‘exorbitant privilege’ (Gourinchas and Rey 2007): a centrality built rather than inherited, conferring benefits – here pricing power rather than cheap financing – beyond anything endowments would predict. Unlike the dollar’s, China’s position remains comparatively young, and our model suggests it stays contestable. Because centrality is chosen rather than given, it may equally be competed away: diversified processing investment elsewhere, recycling, material substitution, and strategic metal reserves would each thicken the pool of alternative suppliers — the channel that determines how far any curtailment of Chinese supply moves the world price.

This bears directly upon the debate with which this column opened. To frame supply-chain security purely as a matter of ‘access to deposits’ (Javorcik et al. 2023) is to target the wrong margin: the EU and others possess accessible reserves of several of these metals but little processing capacity. Instruments such as the EU’s Critical Raw Materials Act move in the right direction, yet they will blunt Chinese pricing power only in so far as they add processing capacity genuinely capable of responding when supply is restricted, not capacity on paper alone. Strategic reserves for a handful of key metals would likely prove the fastest lever available, since they let the market absorb a shock at once, whereas new mines and refineries require years to come online. The cycle of truce and escalation now unfolding around rare earths will, in all probability, recur for other materials. Each round deserves to be read not only as an isolated negotiating tactic, but also as the exercise of a network position that both sides took years to construct.

Source : VOXeu