Over more than a century, oil companies have developed a vast industrial network to extract, refine and deliver their product to customers around the world. Sourcing the materials needed to build an alternative, less carbon-intensive economy presents a whole new set of challenges. China has tackled these successfully for more than a decade, making it the undisputed leader in “critical minerals” used in electric-vehicle batteries, solar panels and wind turbine magnets. If the United States and Europe are going to have a chance of challenging its dominance in these clean technologies, they need to catch up fast.
What are critical minerals?
Nations have long sought to protect supplies of materials they deem vital to their industrial and military capabilities. About 50 metallic elements and minerals meet those criteria in the United States and European Union. Most were chosen for their role in building the infrastructure required to reduce carbon emissions blamed for climate change, a mission that’s backed by hundreds of billions of dollars in subsidies and tax breaks. Some are also used in semiconductors for civil and military communications.
Critical materials include:
- Lithium, graphite, cobalt, nickel and manganese – used predominantly in EV batteries
- Silicon and tin – EVs, smart grids, power meters and other electronics
- Rare earths – wind turbine magnets, EVs
- Copper – grids, wind farms, EVs
- Gallium and germanium – solar panels, EVs, wireless base stations, defense radar, weapons-sighting systems, lasers
Why is sourcing them a challenge?
While many critical minerals can be found in a raw state in large quantities around the globe, extracting and refining them into a usable form can be costly, technically challenging, energy intensive and polluting. China dominates the entire value chain in many of these products, accounting for more than half of the world’s production of battery metals including lithium, cobalt and manganese, and as much as 100% of rare earths. Even in less rarefied metals such as copper, forecasts of massive demand growth have sparked a realization that there might not be enough to go around. In 2023, the E.U. categorized copper and nickel as critical raw materials for the first time, even though there are plenty of friendly producing nations across the world. Senators are lobbying for the United States to do the same for copper.
Why is relying on China a problem for Western nations?
Overdependence on supplies from any single country is something that manufacturers try to avoid, as it leaves them exposed when that country’s industrial output is disrupted by events such as power crises, pandemics or social unrest. With China, there’s also a febrile relationship with the United States to consider, as the tensions risk blowing up into an all-out trade war involving punitive tariffs or export restrictions.
Here are some precedents:
- In July, China said it was imposing restrictions on exporting gallium and germanium, a move that’s likely to raise costs for hardware manufacturers.
- China’s industrial hubs and logistics networks ground to a halt in the early stages of the coronavirus pandemic, imperiling global supplies of many industrial commodities and sending their prices soaring.
- When power curbs slashed Chinese production of silicon, it sent prices for the metalloid up 300% in less than two months in 2021 and caused turmoil for buyers in sectors including car making and chemicals.
- In 2010, China blocked sales of rare earths to Japan following a dispute over ownership of a group of islands in the East China Sea. The move shook Japan’s electronics sector and threatened to choke off global supplies of high-power magnets produced in Japan employing rare earths from China.
How did China get so dominant?
Its preeminence was decades in the making. As early as 1992, leader Deng Xiaoping was highlighting his country’s potential to lead the world in critical minerals, saying: “The Middle East has oil. China has rare earths.” As its economic growth accelerated, domestic demand for industrial commodities began to far outstrip local reserves. It responded with huge investments in mining assets overseas and came gradually to dominate the refining and processing of virtually every industrial commodity, as well as a host of obscure byproducts such as tellurium, gallium and germanium. Today, it’s the leading producer of 20 critical raw materials, as measured by its share of global mined or refined production. In the case of the rare-earth element dysprosium, China is responsible for 84% of mined supply and 100% of refined production, according to an E.U. analysis. It mines only a small amount of cobalt and nickel but is by far the largest producer of refined forms of the metals, and Chinese companies have been investing heavily in cobalt and nickel mines in countries such as Congo and Indonesia.
What are China’s economic rivals doing about it?
President Joe Biden’s Inflation Reduction Act passed in 2022 aims to help the United States meet its climate goals through investments in renewables and EVs, curb prices of the raw materials needed for the transition and ease reliance on unreliable or hostile overseas suppliers. The E’U.’s Critical Raw Materials Act launched in March aims to ease financing and permitting for new mining and refining projects and strike trade alliances to reduce the bloc’s dependence on Chinese suppliers. Washington is working on ad hoc trade pacts to ensure its incentives to boost domestic production don’t end up locking friendly suppliers in the E.U. and Japan out of the U.S. market. The United States and Europe are also looking to set up a “buyers’ club” to strike supply deals and investment partnerships with producing nations. At a meeting of Group of Seven nations in April, ministers agreed to commit $13 billion to fund new mining projects. Germany is planning a similar fund worth as much as 2 billion euros.
Will it work?
With China and other nations with fast-growing economies increasingly restricting exports of industrial raw materials, the United States and the E.U. are rushing to build their own refining capacity. But sourcing the mined product required is more problematic. In Congo, for instance, the United States has signed a preliminary agreement to help the country develop an EV supply chain. However, more than half of the country’s cobalt mines are already owned or controlled by Chinese companies. The under-sanction Israeli billionaire Dan Gertler has interests in the other large-scale mines that aren’t in Chinese hands. The Congolese government is lobbying to get the U.S. sanctions on Gertler lifted, but doing so would leave the Biden administration open to accusations of double standards.
How is China responding to the U.S. push?
Even before any direct response from Beijing, Chinese companies look set to consolidate their grip on key metals such as nickel and cobalt. In lithium, while the United States is building out supply networks with free-trade partners such as Canada and Australia, China is consolidating its relationships with African nations that are expected to be among the world’s biggest producers of the metal by the end of the decade. In rare earths, there are signs that China may seek to forestall the West’s efforts to build new mining and processing capacity by restricting exports of key technology and equipment.