Resource Nationalism and Inflation

Beijing is taking steps to insulate its economy from the consequences of the war in Iran. But as China and other countries engage in new forms of “resource nationalism”—attempting to control key industrial inputs at home—the results are strained global supply chains and new constraints on China’s growth.

China’s renewable energy manufacturing ecosystem is increasingly vulnerable to upstream constraints on raw materials. Beijing’s sulfuric acid export restrictions illustrate how efforts to stabilize China’s domestic food supply chain create challenges for other segments of the economy.

The resulting tradeoffs expose a broader challenge: Interventions into materials markets to control domestic food production may increasingly come at the expense of higher import prices. The larger consequences are likely to be higher Chinese export prices as well, despite weakening domestic demand.

On May 1, Beijing implemented export restrictions on sulfuric acid to protect domestic fertilizer supply chains amid tightening supply in global sulfur markets. Sulfuric acid is an abundant but critical upstream input for both fertilizer production and metals extraction, linking agricultural supply chains with industrial activity tied to electrification. In line with the constraints on sulfur, Beijing also added export restrictions on key fertilizers to protect downstream domestic supply and stabilize China’s domestic food supply chain.

These policies follow restrictions on refined oil product exports meant to support domestic economic activity. By suppressing domestic input costs, policy measures preserve a relative cost advantage for Chinese downstream producers at a time of elevated global prices. In this case, Beijing is protecting farmers from rising fertilizer prices.

However, the same policies raise the costs for other sulfuric acid-intensive industrial processes, particularly those tied to electrification. Since 2020, China’s industrial ecosystem has become increasingly reliant on imported metals associated with electrification, many of which depend on sulfuric acid for extraction.

The result is a clear tradeoff: Policies that stabilize the domestic food supply chain risk increasing costs across China’s electro-tech supply chain, exposing the limits of managing the needs of both sectors simultaneously. The constraints originating from resource nationalism are increasingly converging across supply chains including copper, cobalt, nickel, silver, lithium, phosphorous, fertilizer, and soybeans. These disruptions are part of a global trend of concentrated supply chains being leveraged for prioritized national interests.

The longer the conflict in the Persian Gulf persists and China maintains export restrictions, the more likely externalities of policy choices will become visible across global markets. China’s new energy supply chains are more dependent now on imported materials to process than ever before, which puts China’s industrial ecosystem in a difficult position.

Sulfuric acid as just one example of resource controls

Sulfuric acid occupies a central position within industrial supply chains, functioning both as a byproduct of refining and a critical input for extraction. Sulfuric acid is primarily produced as a byproduct of oil and gas processing and metals refining, as well as from the direct processing of pyrite ores. In every barrel of oil, approximately 1–3% consists of sulfur, which can be captured to produce sulfuric acid. Because the Middle East is such an important source of crude oil refining, the closure of the Strait of Hormuz has led to a bottleneck in sulfur supply.

China is the world’s largest producer of sulfuric acid due to the scale of its oil refining and metals processing industries, as well as its dedicated mining of pyrite ores, which provide an additional, domestically controlled source of sulfuric acid. China’s mining of pyrite accounts for more than 80% of global activity in the sector, illustrating the importance of sulfur to China’s industrial ecosystem.

The largest source of demand for sulfuric acid is in the extraction of phosphorus from phosphate rock, one of three critical inputs within the fertilizer supply chain. The second largest source of demand is for metals extraction which includes lithium, copper, nickel, cobalt, and silver—the critical metals inputs for electrification. China’s domestic sulfuric acid demand is also increasing from titanium dioxide and caprolactam production.

Middle East refineries have historically served as sulfur export hubs for global markets. Downstream producers of phosphorus, such as Morocco, the world’s second-largest producer of phosphates, depended on Middle East sulfur supply. Now supply from the Gulf Cooperation Council (GCC) countries and China have been cut off from global markets. Elemental sulfur supplies from places like Japan and South Korea are also likely increasingly constrained due an inability to secure crude to process from GCC countries. As a result, global sulfur supply continues to tighten.

Declining copper ore grades and the expansion of leaching-based extraction methods were already increasing sulfuric acid consumption prior to the supply shock. At the same time, sulfuric acid production was becoming more important to refining economics as smelters increasingly relied on sulfuric acid byproduct revenues to support profitability.

Chile, the world’s largest supplier of copper, has been forced to continually increase sulfuric acid consumption as its copper ore grades have declined. The sulfuric acid intensity of production has risen materially, with solvent extraction electrowinning (SX-EW) consumption increasing from roughly four tons per ton of copper in 2013 to nearly six tons in 2023.

Historically, Chile has imported roughly 40% of the sulfuric acid it needs. In 2025, it imported 1.47 million metric tons of sulfuric acid from China, or 37% of Chile’s imports. If Chile cannot secure sulfuric acid at a cost-effective price, nearly 20% of its refined copper production is at risk, or approximately one million metric tons. If so, output will decline and copper prices will rise.

While Chile is the world’s largest copper producer, similar pressures are emerging across other metals supply chains tied to electrification. Indonesia’s nickel industry, which dominates global production and has driven most global nickel supply growth in recent years, increasingly relies on sulfuric acid-intensive high pressure acid leaching processing. As Chinese firms expanded nickel refining capacity in Indonesia, sulfuric acid became a more critical input for the extraction of nickel and its companion metal, cobalt.

At the same time, frontier market governments are implementing their own forms of resource nationalism to preserve domestic value-add and strategic control over critical raw materials. In Indonesia, the government is moving to centralize exports of coal, palm oil, and ferroalloys through a newly created state-owned enterprise, part of a broader effort to strengthen government oversight of commodity exports. In Zimbabwe, the government has moved to restrict unprocessed lithium exports, in an effort to localize greater amounts of the battery supply chain (Notably, extracting lithium from Zimbabwe’s spodumene requires sulfuric acid). In Guinea, the government has moved to restrict bauxite ore, to push for the localization of alumina production (Approximately 75% of China’s bauxite imports originate from Guinea).

As trade fragmentation upends decades of integration, countries with dominant positions in mining hold tremendous leverage. A Chinese state-owned miner publicly criticized their allocated export quota from the Democratic Republic of the Congo (DRC), saying it makes cobalt production “economically unviable.” The DRC has restricted cobalt exports, while China’s sulfuric acid and fertilizer export controls prioritize domestic stability over the availability of global supply. Together, these policies highlight how industrial policy and resource nationalism are fragmenting supply chains that had previously benefited from open trade and abundant inputs.

And spillovers into fertilizers…

Moroccan phosphate production for fertilizers depends on imported sulfur for mineral extraction. Morocco has historically relied on imported sulfur, primarily from the Middle East, to produce sulfuric acid domestically in order to extract phosphates and produce fertilizer for export. Moroccan phosphorus is a critical input for major agricultural producers such as Brazil, which in turn supplies China with soybeans.

The supply shock in sulfur and sulfuric acid increase phosphorous extraction costs, raising the cost of fertilizer downstream in Brazil. If farmers reduce fertilizer use, and crop yields decline, higher soybean prices would feed back into China through increased food prices, highlighting the indirect but material impact of resource nationalism across global food supply chains.

China is now entering the seasonal period when fertilizer exports typically begin to increase, yet exports of monoammonium phosphate and diammonium phosphate have remained subdued and are now restricted from being exported. At a time when sulfur supply constraints are already tightening global fertilizer markets, China’s withdrawal from phosphate exports becomes significantly more consequential for downstream agricultural supply chains and food production.

Everything is connected, and Beijing is still at risk

Despite Beijing’s efforts to pursue greater self-sufficiency, China remains deeply embedded in global material and agricultural supply chains. The question now is whether Beijing is prioritizing the most efficient allocation of resources, or if policies target the most immediate concerns. Favoring food supply over industrial materials exemplifies Beijing’s current priorities. But China’s industrial expansion has relied on abundant low-cost inputs to drive down the price of manufactured goods. Emerging materials constraints will force difficult policy decisions that are often more efficiently determined by markets.

In both metals and agriculture, disruptions to sulfuric acid supply spread through global trade networks and ultimately feed back into China’s own cost structures. While adjustments in centralized metals refining output decisions are priced relatively quickly, the decentralized responses of farmers will unfold slowly over time.

Over the longer term, the constraints China is now facing are likely to intensify. If electrification reduces demand for oil, and therefore sulfur supply from refining, today’s pressures on sulfuric acid may feel small relative to the structural shortages that emerge in the future. As upstream inputs become more constrained, cost-push inflationary pressures originating from China’s industrial throughput are more likely. This trend has likely already begun: Higher copper and aluminum prices were key factors in China’s PPI turning positive early in 2026 after years of negative prints. Material constraints will likely boost China’s export prices as well, as rising upstream input costs become a binding constraint on downstream manufactured product pricing, altering the deflationary trends of recent years (Figure 8).