Geoeconomic fragmentation and commodity markets

We examine how trade fragmentation–defined as policy-driven reversal of integration into rival trade blocs–affects commodity prices, as well as country-specific and global welfare. Using a novel data set on the production and trade of 48 key commodities, we calibrate a partial equilibrium model for each commodity market to compare the outcomes in an integrated world with those in a fragmented one. Our results show that fragmentation can trigger sizable price changes, particularly for minerals critical to the clean energy transition–such as lithium, cobalt, and copper–as well as for key agricultural commodities, such as soybeans. The economic relevance of commodity trade fragmentation, measured by changes in consumer and producer surplus, varies between countries but can be substantial. For the world as a whole, offsetting effects across commodity exporting and importing countries imply modest total surplus losses.