Satellite rivalries are politicising the world’s economic plumbing

Welcome to Trade Secrets. As of “hit send” time, the certain outcome from the German election is that Friedrich Merz will become chancellor. The big questions facing him are Ukraine and Nato, but what does his victory mean for trade? Last month, Merz said he wanted a sweeping EU trade deal with the US, a policy idea straight out of the 2000s. But perhaps Donald Trump’s threats towards Europe have made him think again. Otherwise it’s been a relatively calm weekend, without Trump threatening new tariffs for once.

Today’s main piece is on how satellite systems are eliding the distinction between the geopolitical and the geoeconomic. The Charted Waters section, which looks at the data behind world trade, is on weakness in the US economy. And now a question for readers. Deadlines are approaching for the imposition of Trump’s 25 per cent tariffs on Mexico and Canada (March 4), and the steel and aluminium (aluminum, whatever) tariffs on everyone (March 12). Will either or both of those tariffs, by and large, happen? Answers as ever to alan.beattie@ft.com.

Twinkle, twinkle, little Starlink

So, to Ukraine and critical minerals. This isn’t a mining or energy newsletter, so I’ll leave it to others to point out that the deal Trump is offering Volodymyr Zelenskyy is a breathtakingly offensive act of neocolonial extraction.

I will, in passing, note that more knowledgeable people than me have pointed out that the minerals under Ukraine are not rare earths, with rare (ha ha) exceptions. There is coal and iron ore, which are both useful but hardly strategic. And much of it is hard to reach, otherwise it would have been mined already. In any case, how can you expect any deal with Trump to hold? “Distrust and verify” is the snappiest summation of dealing with him that I have heard. (I didn’t invent the expression myself, though would have been proud to.)

Moving on to subjects with which I’m at least somewhat familiar, I would observe that governments in the US, EU and Japan have been flapping about hostile geopolitical powers sewing up supplies of critical minerals for well over a decade now. But it hasn’t really happened, not least because the laws of supply and demand continue to operate and the best cure for high prices is high prices. Remember the lithium and nickel panics? You can’t give those metals away these days. (Slight exaggeration.)

Where was I? Oh yes, satellites. The geopolitics and geoeconomics of satellite systems are getting interesting. Reuters reported last week that US negotiators had threatened Ukraine with losing access to Elon Musk’s Starlink satellites unless they did the minerals deal. Musk has said the report is false.

Musk previously did say in 2023 that he had turned down a request from Ukraine for Starlink coverage across Crimea during the war. There’s no doubt that access to satellite coverage is becoming a geopolitical issue.

It’s a good time to reflect on where we are with strategic power and satellites, both high-altitude global navigation satellite systems (GNSS) for geolocation such as GPS, and low-orbit internet satellites like Starlink. It’s part of the politicisation of the plumbing — which is an expression I may conceivably have invented — of the world economy. The importance of internet satellites in conducting operations in the Ukraine war has not gone unnoticed, and it is increasingly clear they have both commercial and strategic importance.

A crowded space

As it happens, the provision of satellite services is a neat reflection of different countries’ strengths and weaknesses and their pretensions to economic and geopolitical power.

China, as is its wont, has poured public R&D money into satellites to advance both its ability to project its security interests and its commercial presence, which it sees as intertwined. It now has a state-owned GNSS called BeiDou, and three main fleets of state-owned or state-directed internet satellites are being created. The first launches of satellites in the SpaceSail system took place last August.

The US was an early mover with its navigation system GPS, though as with other technologies, it has now been overtaken in precision and sophistication by China. The US has relied on the private sector in the form of Starlink, which is by far the world’s biggest system, to provide internet satellites. Starlink is now being challenged by a system developed by Amazon called Kuiper.

Countries with a more defensive attitude in geopolitics and commerce have focused on geolocation satellites and skewed their coverage towards their national interests. India, which was cut off from GPS coverage by the US in 1999 during the Kargil war against Pakistan over Kashmir, has built a positioning satellite system that covers only itself and its immediate surroundings. Japan’s GNSS satellites similarly have only regional coverage.

Russia, whose security and geopolitical power far outweighs its economic clout, has had a GNSS called GLONASS that has had global coverage since 2011. It is only now moving to create a satellite internet system that will cover just Russia and its surrounding countries. 

With much fanfare about co-operation in the so-called “global south”, the Brics grouping of emerging markets has created a “virtual constellation” of remote sensing satellites. It is intended as a counter to the Quad nations (US, Japan, Australia and India) doing similar (which must create an interesting situation for India, a member of both). But as with everything the Brics do, it’s pretty limited in scope.

As for the EU, well, you couldn’t have scripted this one better. It has a long-standing positioning satellite system called Galileo. But its plans for an internet satellite system called Iris² got held up in internal argy-bargy. Germany, typically, argued that it cost too much and was also implicitly a subsidy for France’s aerospace industry. Paris, as usual, splendidly managed to combine a reasonably solid argument about geopolitics with hard-nosed French commercial industrial policy. The commission took France’s side. Stand-off. Vintage EU stuff. In any case, the EU now recognises it shouldn’t be relying on Starlink and is pressing ahead with the project, though it probably won’t be launching its first satellite until at least 2029. No rush. Take your time.

The Earth’s satellite flotillas are seeing more multiplication than a Maths Olympiad. Is this a huge waste of money? Not necessarily. Antoine Grenier, partner at the consultancy Analysys Mason, told me last year that maintaining an internet satellite system cost “tens of billions of dollars” every few years. It’s not cheap. But for a big bloc like the EU, as insurance premia against geopolitical and geoeconomic disruption goes — and specifically against having to rely on Elon Musk — that doesn’t sound too bad.

Charted waters

If there’s one thing that might put Donald Trump off his tariff campaign, the stock markets or the economy weakening is likely to be it. It’s a very early indicator, but the initial estimate of the overall index of activity from US purchasing managers fell sharply in February to the lowest in 17 months, while goods prices rose. Apparently tariff increases and general policy uncertainty played a leading role.

Trade links

• The White House last week released two policy announcements. One was an investment policy statement that sought to restrict Chinese activity inside the US.

• The other was an announcement about protecting US companies from being unfairly treated and coerced overseas (somewhat ironic, given the Ukraine minerals deal). In particular, it targeted the digital services taxes that Trump has already complained about in his so-called “reciprocal” tariffs plan. Simon Lester of the International Economic Law and Policy Blog discusses the statement here.

• This interesting paper from the UK Institute of Development Studies on the effects of trade disruption takes as a case study the US’s withdrawal of preferential trade treatment from India in the Generalized System of Preferences in 2019.

• The FT’s Tej Parikh in the Free Lunch newsletter discusses whether Vietnam can avoid the “middle-income trap”.

• The Polycrisis Dispatch looks at China’s lead in green technology.

Trade Secrets is edited by Harvey Nriapia