The Critical Minerals Club

04/14/2023

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Christina Lu | Foreign Policy

The United States and allies aim to sidestep reliance on China for the materials needed for clean tech and advanced defense gear.

U.S. lawmakers are scrambling to weaken China’s grip on the critical mineral supply chains that are key to the global energy transition, as escalating tensions stoke fears of strategic vulnerabilities and potential geopolitical disruptions.

While decades of investments have allowed Beijing to dominate the processing and refining of key critical minerals, worsening U.S.-China relations have sparked a new push to redraw the map. Desperate to disentangle from China, Washington has been joining forces with allies to secure new supplies, part of a broader realignment as countries increasingly forge new trade ties alongside geopolitical lines, rather than the bottom line.

“The globalization 1.0 of the last 50 years was about finding economic value through distributed production and sourcing at best cost from overseas,” said Kevin Book, the managing director of ClearView Energy Partners, a consultancy. “The 2.0 version is about values-driven economics, and that is a very big change, one that we cannot underscore enough—but it’s also a change that’s slow to happen.”

This shift is apparent in the rush for critical minerals, which are essential to the lithium-ion batteries that power electric vehicles (EVs) and other green technology. Global demand is primed to explode: By 2050, clean energy technology could require billions of tons of these minerals as inputs, according to the World Bank. Other critical minerals include cobalt, used in jet engines, and the rare earth elements that are used in everything from wind turbines to missile guidance systems. China overwhelmingly commands these minerals’ processing and refining markets and controls some 77 percent of the world’s EV battery manufacturing capacity.

To reduce its reliance on Beijing in the coming decades, Washington is focusing on aligning with allies, including through the Mineral Security Partnership (MSP), an initiative that is designed to bolster supply chain security with Australia, Canada, the United Kingdom, France, Germany, Japan, South Korea, and other members. Outside of the MSP, the Biden administration is also pursuing new trade deals and is reportedly in discussions with the European Union for a new critical minerals club.

“This is a major move away from a fundamental faith in the ability of market mechanisms to adequately supply the raw materials and the manufactured goods that are necessary for energy transitions,” said Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics. “This is obviously a much more interventionist kind of stance than had been pursued in the past.”

In the United States, one of the most concerted pushes came from the Inflation Reduction Act, the Biden administration’s sweeping climate, health, and tax bill designed to accelerate the shift away from fossil fuels. The act offers tax credits if a sizable proportion of the EV batteries’ mineral inputs are sourced from the United States or a free trade partner. The guidelines sparked fierce pushback after excluding governments that have not signed free trade deals with Washington—including Japan, the European Union, and top critical mineral producers such as Indonesia, the Philippines, and the Democratic Republic of the Congo.

Washington is now working to bring these countries into the fold. It appears to have found a way to circumvent the trade challenge, recently inking a critical mineral trade agreement with Tokyo that would allow Japanese companies to qualify under Inflation Reduction Act provisions. That deal could serve as a model for other partnerships: British Prime Minister Rishi Sunak is reportedly pushing for a similar agreement, while nickel-rich Indonesia has proposed signing an agreement that mirrors Washington’s pact with Japan.

Rattled by the Inflation Reduction Act, Brussels and Washington are also negotiating a similar trade deal that could later pave the way for the wider critical minerals buyers club that European officials have championed. Separately, Brussels is also reportedly planning to form a central buying agency for critical minerals.

China has manipulated the trade in rare earths in the past, such as when it cut off exports to Japan in 2010, and is reportedly mulling a new export ban for specific kinds of rare earth magnet technology. But a big part of the reason why European countries are eager to diversify away from China is their experience with Russia. After Russia invaded Ukraine in February 2022, Moscow weaponized Europe’s heavy reliance on Russian natural gas imports—offering a stark lesson on the risks of overdependence.

“In Europe, we have learned very hard the lesson of being too dependent on energy from Russia and see how that could be weaponized,” said Cecilia Malmstrom, a former European commissioner for trade currently at the Peterson Institute for International Economics. “Now everybody’s very keen to avoid that situation.”

Beyond Europe, the United States has focused on deepening relationships with the Democratic Republic of the Congo and Zambia, which are rich in cobalt and copper, respectively, with the three countries signing a memorandum of understanding on electric vehicle battery value chains last December. In Tanzania, Washington is also involved in the development of a critical minerals processing facility.

Still, even as momentum builds, there are more questions than answers about how these efforts will pan out. As lawmakers continue to hammer out new agreements behind closed doors, it remains unclear how they align with global trading rules and what this momentum means for countries that lack free trade agreements with the United States. Engineering supply chains isn’t as simple as finding new mines, either; it involves an entire ecosystem of processing, refining, and manufacturing capabilities.

“It’s not at all clear how you go about changing dramatically a global supply chain in practice,” said Morgan Bazilian, the director of the Payne Institute at the Colorado School of Mines and a former lead energy specialist at the World Bank. While diplomacy and initiatives like the MSP are deeply useful, he said, such action “does not overnight or even within the course of a decade change these things dramatically.”

China spent decades building out its industry, and experts warn that wrestling new supply chains will be an expensive and arduous uphill battle that the United States is only just beginning. But U.S. lawmakers appear to be gearing up for the long haul.

If you look at where supply chains are, where they’re growing fastest [is] still China,” said Joseph Majkut, the director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies. “There’s a lot to be done to match that growth and to develop not just the factories, but the human capital, the intellectual property, [and] the long-standing political and economic relationships that let that supply chain grow.”

“You can’t build Rome in a day,” he added, “and you can’t build a critical minerals supply chain six months after you pass a big climate bill.”

Christina Lu is a reporter at Foreign Policy.

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