Industrial Policy Program Manager Audrey Stienon discusses China’s mineral export ban and highlights its dominance over critical supply chains, posing a major challenge for U.S. strategies to reduce dependence and ensure national security.

Earlier this month, the Chinese government banned exports to the U.S. of four minerals (gallium, germanium, graphite, and antimony) that they claim have a dual military and civilian use, and for the first time prohibited foreign companies from passing restricted minerals acquired in China on to American companies.

This is only the latest example of China using its near-total control over the mining and refining of many critical minerals as a form of geopolitical leverage during diplomatic and territorial disputes. The minerals are essential to the production of batteries, semiconductors, and a host of other advanced products and weapons.

The export ban should serve as a warning to the incoming Trump administration that critical mineral and battery supply chains will be among the most fiercely disputed battlegrounds in the ongoing trade war with China. One of the first challenges Trump will face in his second term will therefore be to reconcile the contradictions between three of his signature policy positions: his desire to end American dependence on China for critical goods and technologies; his hostility towards projects designed to address climate change; and his plans to use higher tariffs to help pay for basic government operations. 

The world is dangerously dependent on China to develop the technologies integral to advanced manufacturing and the green transition. For instance, China controls over 70 percent of lithium-ion batteries used in electric vehicles among other applications and 90 percent of refined critical minerals. 

 China’s dominance of critical minerals supply chains is no accident. The Chinese government long recognized dependence on foreign economies as a geopolitical risk, especially for sectors like energy or raw materials that underpin the rest of the economy. They therefore spent the last two decades encouraging Chinese mining companies to gain the rights to extract minerals from deposits located around the world, and to ship them to Chinese refineries. Meanwhile, the Chinese government subsidized the country’s domestic capabilities not only in mining and refining, but across the full green supply chain and for advanced manufacturing. Together, these policies ensured that Chinese minerals suppliers had a steady source of demand from domestic manufacturers, who in turn had a competitive advantage over foreign competitors given their access to cheap battery and mineral inputs.

China’s increased willingness to weaponize their control over the mining and refining links in strategic supply chains has prompted a number of governments — including in Australia, Japan, and the European Union — to start building alternative sources of supply.

In the United States, the Biden administration moved especially aggressively to lay the foundations for alternative battery and electronics supply chains that are less dependent on Chinese refineries and factories. The Biden administration increased demand for batteries and battery inputs produced outside of China through the Inflation Reduction Act (IRA) by subsidizing sales of EVs whose components were made in the U.S. or approved trade partners. The IRA also included tax credits for battery components and critical minerals produced in the U.S.

 The administration also started working with countries through the Minerals Security Partnership (MSP) to coordinate allies’ efforts, including debt financing and loan guarantees, to increase the reliability and sustainability of their minerals supply. Nevertheless, it takes years to negotiate new types of agreements, open new mines, and build new refining capacity, so many of these projects are not yet online.

The incoming Trump administration, by contrast, appears intent on turning the Biden strategy squarely on its head. Rather than encouraging battery production by subsidizing EV demand (the incoming administration has promised to suspend all incentives for Americans to buy battery-powered cars), the transition team is proposing to support the mining and battery facilities at the other end of the supply chain through a mix of deregulation, subsidies, and tariff protections from Chinese competition.

Thus far, there appears to be no plans to replicate the MSP’s efforts to help other countries to mine or refine the minerals that are not found in the U.S., or encourage them to voluntarily sell raw materials to America’s nascent facilities rather than China’s readily available manufacturers.

It is a good sign that Trump claims to have recognized the national security implications of ceding the advantage in critical mineral and battery production to the Chinese. It is conceivable that the new administration’s tariff plans could force trade partners into opening their markets to U.S.-made EVs and batteries, substituting for the drop in domestic demand. But his team’s strategy appears so focused on the narrow slice of the minerals and battery supply chains that exist in the U.S. that it misses how this industry is, by its geologic nature, inherently global and thus collaborative. 

Should Trump fail to square the circle of his own policy promises, he will find himself responsible for ceding the advantage to China in one of the most critical industries of the global economy.

.This article was featured in The Corner Newsletter: December 06, 2024.
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