Preface: Decades of economic structuring in favour of financialisation cannot be readily overcome in a short space of time. Real resource constraints create risks as the West seeks to address what it now calculates to be supply shortages in a growing range of upstream materials. In their haste and desperation, Western responses run the risk of resulting in either resources / effort being spread too thin (trying to do too much at once) and not making any real headway, or making disproportionate efforts in a handful of areas and giving rise to Dutch Disease effects where other parts of the economic system are stymied by resource shortages and rising cost. The reality is that there is no substitute for time. The case of tungsten is another example. The interconnected nature of supply chains, at a fundamental material and energetic level, is a key theme in my my book, Thermoeconomics in a Time of Monsters, which is now available on Amazon. It is available as a Kindle ebook, or as a paperback or hardback. This essay on tungsten is part of the ongoing research program seeking to understanding the nano, micro, material and chemical foundations of global geopolitical economics.
In the escalating arena of geopolitical resource competition, tungsten has become a stark emblem of Western vulnerability. Once a niche metal valued for its unmatched hardness and heat resistance, tungsten now commands record prices amid severe shortages, with Western manufacturers - particularly in civilian sectors - bearing the brunt. As of early 2026, prices for key intermediates like ammonium paratungstate (APT) have surged over 200%, hitting $1,350 per metric ton unit in Europe. This isn’t mere market fluctuation; it’s in part the result of China’s export controls, which have slashed global supplies by up to 40% while prioritising domestic industries. Western defence sectors and a number of civilian applications, accounting for over 60% of global demand, are reeling from higher costs, extended lead times, and production bottlenecks. More alarmingly, for the west, there is a dawning realisation that the American “war machine runs on Tungsten,” as recently put by Foreign Policy magazine.
Drawing on Piero Sraffa’s framework in Production of Commodities by Means of Commodities, this crisis underscores the intricate interdependencies of modern economies. Sraffa posited that prices and outputs emerge from a web of production inputs, where disruptions in foundational commodities ripple system-wide, altering the entire structure. Tungsten, as a “basic” input entering nearly all industrial processes, exemplifies this: shortages don’t isolate; they propagate constraints, inflating costs across sectors and triggering a reverse “Dutch Disease” effect. Here, resource scarcity forces reallocations that crowd out non-essential activities, leading to congestion, inflationary cascades and long-term deindustrialisation.
The West’s predicament is acute - insufficient time and resources to diversify supply without exacerbating these dynamics. At the core lies a vicious cycle: shortages drive price surges as defence outbids civilians, only to inflate exploration costs and hamper the very alternatives needed to escape the trap. Compounding this, policy responses themselves act as a “sink,” drawing scarce manpower, equipment, and capital away from other critical minerals, propagating Dutch Disease feedbacks system-wide. This essay examines tungsten’s civilian downstream impacts, focuses on how shortages elevate costs in manufacturing and mining exploration, dissects this self-perpetuating loop, explores the policy sink’s broader implications, and maps the ensuing Dutch Disease effects.
The Tungsten Crisis Unfolded
China dominates tungsten production, controlling 80-83% of global mine output and over 90% of processing. In 2025, mining quotas were slashed by 6.5%, declining ore grades raised extraction costs, and export licenses for “dual-use” items like APT and carbide powders were tightly rationed. Exports plummeted 40% year-on-year, funnelling supply inward to meet China’s surging demand from semiconductors, EVs, and precision tools - now absorbing 35,000-40,000 tonnes annually. Global demand is poised to exceed 95,000-130,000 metric tons in 2026, with deficits of 16-19% projected.
Western buyers face premiums of 30-100% and frequent unavailability, with lead times stretching months. This asymmetry allows China to capture economic rents while forcing the West into scramble mode. New mines outside China, like Kazakhstan’s Bakuta or Canada’s Mactung, are delayed until 2026 or later, offering scant relief. Recycling covers only 5-20% of needs, and substitutes like molybdenum are often inferior.
Civilian Downstream Activities at Risk
While defence applications - munitions, aerospace components - consume about 10,000-11,000 tonnes in the U.S. alone, civilian sectors dominate, using tungsten in forms like carbide for tools and alloys for high-performance parts. Over 60% of demand stems from EVs, renewable energy, and precision manufacturing, with growth rates of 5-10% annually. Shortages are inflating costs by 20-50% in these areas, leading to delays and reduced outputs. Consider the following:
Manufacturing and Machining Tools: Cemented carbide tools - drills, mills, blades - account for 50-60% of tungsten use. Price spikes have doubled costs from $340 to mid-$600 per MTU, forcing manufacturers to pass on 20-50% hikes. In automotive and electronics assembly, this delays lines by 10-20%, raising vehicle and device prices by 5-15%. Small enterprises, without stockpiles, risk shutdowns, contributing 1-2% to inflation in goods.
Electronics and Semiconductors: Tungsten’s role in interconnects and sputtering targets is critical. Shortages extend fab tool replacement by 30-50%, inflating operational costs and potentially hiking consumer electronics prices by 5-15%. R&D in solid-state batteries faces 6-12 month delays.
Renewable Energy: Solar production relies on tungsten for wire saws and components; costs up 10-20% could cut 2026 installations by 5-10%, hindering energy transitions and raising electricity rates.
Agriculture and Medical: Farm machinery wear parts see 10-15% cost rises, pressuring food prices. Medical devices like X-ray tubes face similar hikes, increasing healthcare expenses by 5-10%.
All of this is causing consternation in the American political ecosystem.
Feeding Back into Mining Exploration and Manufacturing Costs: The Vicious Cycle Emerges
The shortage’s self-reinforcing nature is evident in mining and manufacturing feedback loops, creating a vicious cycle that entrenches dependency. Mining consumes 30-31% of tungsten for carbide drill bits, crushers, and excavation tools. With tool costs doubling, exploration expenses rise 20-30%, slowing new projects for commodities like copper and gold. This perpetuates broader mineral deficits, as delayed mines mean less supply of inputs for other industries. In oil and gas, higher drilling costs could add $0.05-0.10 per gallon to fuel.
This cycle begins with the initial shortage and price surge, driven by China’s quotas and environmental curbs, with ore grades as low as 0.28% inflating extraction costs. Global demand surges 5-10% annually from EVs, semiconductors, and defence, but with exports squeezed, Western prices hit $1,350 per MTU, up 200% from early 2025. Defence contractors, backed by vast budgets, outbid civilians, paying 30-100% premiums under initiatives like the U.S. Defence Production Act to secure stockpiles for munitions and aerospace. This crowds out sectors like tools and renewables, extending lead times to 6-12 months and forcing production cuts or inferior substitutes.
Critically, these inflated prices feed back into exploration costs, sabotaging long-term alternatives. Tungsten comprises up to 75% of drillbit costs in mining; with prices at 210% annual peaks, exploration ROI plummets, deterring investments in new tungsten mines or recycling facilities. Projects like Canada’s Mactung or Kazakhstan’s Bakuta, already on 3-5 year timelines, face further delays amid broader mining inflation of 6.25% for operations. Supply growth lags at 2.5% CAGR versus 7-8% demand, locking in deficits. Defence’s short-term hoarding thus undermines resilience, perpetuating the cycle: shortages beget outbidding, which sustains high prices, inflating development costs and delaying escapes.
In manufacturing, elevated tool costs cascade similarly: An EV factory’s machining expenses rise, delaying output and inflating prices, which ripple to logistics and consumer goods. Environmental regulations and energy costs amplify extraction hurdles, pushing per-ton costs over 100,000 yuan in China.
The Policy Sink: Drawing Resources and Propagating Dutch Disease Across Critical Minerals
Policy responses, while well-intentioned, often exacerbate the bind by acting as a “sink” that draws finite resources - manpower, equipment, capital, and time - away from other critical minerals, creating feedback loops akin to Dutch Disease across the broader ecosystem. Initiatives like the U.S. Defence Production Act invocations, $12 billion stockpiles (e.g., Project Vault), and tariffs on Chinese tungsten aim to secure supply but inadvertently pull expertise and funding from REEs, copper, lithium, and others. The EU’s Critical Raw Materials Act and similar frameworks face parallel issues, stretching thin across multiple minerals.
Manpower shortages are acute: The mining sector anticipates over 221,000 retirements by 2029, with mining-related degrees down 40% since 2016, shrinking the talent pipeline for engineers, geologists, and specialists. Prioritising tungsten diverts skilled workers from copper or lithium projects, where demand surges 30-500% by 2040 but supply lags due to labor gaps. Equipment constraints compound this: Supply chain vulnerabilities and inflation (6.25% in operations) mean tools and machinery for tungsten exploration are bid up, leaving less for other minerals. Time lags - 3-7 years for permitting and development - ensure that focusing on one mineral delays others, as regulatory bandwidth is finite.
Throwing money at tungsten - via subsidies or stockpiles - propagates problems: It inflates non-tradable sectors (e.g., services), appreciates real exchange rates, and crowds out investment in non-priority minerals, mirroring Dutch Disease in resource-scarce contexts. For instance, U.S. efforts to quadruple missile production divert resources from EV battery minerals, risking deficits in lithium (22,000-80,000 tonnes) or copper (330,000 tonnes in 2026). This zero-sum dynamic underscores that the West can’t “do it all, all at once.” Policy sinks create systemic congestion, where gains in one area amplify vulnerabilities elsewhere.
A Sraffa-Inspired Lens: Interdependencies and Propagation
Sraffa’s model views the economy as a circular system where basics like tungsten underpin a large proportion of production. A shortage alters technical coefficients, reshaping prices and outputs. Tungsten deficits hike tool costs, which feed into manufacturing, then consumer prices - a chain where unresolved constraints reduce viability across nodes. This isn’t equilibrium adjustment; it’s persistent disequilibrium, with outputs contracting and distribution skewed toward resource holders.
The vicious cycle and policy sink exemplify Sraffian propagation: Defence outbidding and targeted subsidies distort the price vector, embedding higher costs system-wide. Mining cost increases slow commodity supply, raising inputs for electronics, which delays renewables, inflating energy costs back to manufacturing. Western economies, reliant on imports, face amplified effects, with no quick fixes due to 3-7 year lags in new facilities. Meanwhile, the rest of the world isn’t sitting idly by.
The Twin Crunches: Time and Resource Insufficiency
Diversification demands billions - U.S. initiatives like stockpile programs cost $12 billion - but stretch thin across sectors. Time is the bind: new capacity won’t scale until 2027-2030, leaving years of deficits. This congestion bids up scarce resources, cascading costs to non-essentials like consumer durables, while the cycle’s feedback - defence priorities inflating exploration - further delays alternatives. The policy sink amplifies this, as investments in tungsten exacerbate manpower and equipment shortages in parallel mineral efforts.
Classic Dutch Disease sees resource booms appreciating currencies and crowding out tradables. Here, shortages invert it: “reverse Dutch Disease,” where constraints reallocate resources, inflating non-essentials while deindustrialising. The vicious cycle and policy sink supercharge this.
Resource Movement Effect: Capital and labour shift to priority areas (e.g., defence tools and tungsten mining), starving civilian manufacturing and other minerals. Tool shortages contract tradable by 10-20%, reducing outputs in autos and electronics. Defence outbidding and policy sinks accelerate this, hoarding supplies and perpetuating civilian squeezes.
Spending Effect: Government subsidies for alternatives inflate non-tradables (services), appreciating real exchange rates and eroding competitiveness. SMEs shutter, widening inequality, as cycle-driven costs and policy sinks compound.
Propagation to Non-Essentials: Mining cost hikes raise commodity prices, feeding into logistics and food - agriculture up 10-15% - creating consumer inflation. The feedback loop and policy sink ensure these cascades persist, as hampered exploration delays relief across minerals. This is all the more acute as fertiliser costs rise, as a result of the war against Iran.
Long-Term Deindustrialisation: Foregone productivity in manufacturing slows growth 0.5-1% annually, widening trade deficits. The cycle’s entrenchment and policy sinks risk a decade of Chinese dominance.
Vicious Cycle Reinforcement: Shortages beget outbidding and higher costs, demanding more resources, deepening deficits and strategic vulnerabilities. Policy sinks propagate this, as tungsten focus starves other minerals, fuelling inequality, rent-seeking, and potential conflict.
Breaking the Trap? Western Policy Imperatives
To escape, the conventional response from the West is to disrupt the cycle and mitigate policy sinks. Thus, we see subsidised exploration via grants under acts like the U.S. Critical Minerals Policy to offset inflated costs. The challenge is to do this while, at the same time, allocating support holistically across minerals to avoid zero-sum trade-offs. The west speaks of accelerating processing through partnerships, imposing tariffs to nurture industries, and mandating recycling / R&D. Alliances like the Minerals Security Partnership ostensibly aim to diversify sources, while workforce programs address talent gaps through education incentives.
The problem is multifold, and multidimensional. Reacting to perceived challenges in one or a set of materials is likely to catalyse shortages and bottlenecks elsewhere. When this happens, the result is a “whack a mole” approach that accelerates production system unravelling and constraints propagated across more supply chains. The problems emerged as a result of a half-century’s shift in economic focus to the development of hyper-financialisation. They aren’t resolved through more of the same.