With hot wars raging in Central Europe and the Middle East, do we have bandwidth to focus on a war that’s metaphorical – for now, at least:  The Tech War pitting China versus the U.S.?

Against the backdrop of China’s recently announced restrictions on graphite exports (see ARPN’s coverage here) set to take effect on Friday, the Washington Post zeroes in on China having opened a “next front in the Tech War” that is unfolding between Washington, D.C. and Beijing – Graphite (and clean energy).  Beginning this Friday, exporters of high-grade graphite will have to seek government approval and disclose details of their buyers, allowing Chinese authorities to pick and choose which applications to approve or deny based on national security grounds.

As Lily Kuo writes for the Post, Beijing has made clear that its latest salvo of critical mineral export restrictions is to be considered “payback for Washington’s efforts to curtail Chinese access to advanced American semiconductors,” and is merely “just the beginning.”   Thus were the words of China’s former commerce minister Wei Jianguo who warned earlier this summer, when Beijing announced the curtailment of gallium and germanium exports, that “China has many means and types of sanctions it can use,” adding that “if restrictions on our high-tech industry continue to escalate, China’s countermeasures will also escalate.”

Pointing to the fact that the U.S. Government has deemed all three minerals currently targeted by Beijing – graphite, gallium and germanium – critical minerals and the U.S. is import reliant for all three, with China accounting for the largest share of imports to date, Kuo says China’s tightening of the export control ratchet may be Beijing’s “most potent weapon to wield in its competition with Washington, one that could strike at the heart of American efforts to create green jobs while weaning the country off fossil fuels.”

As ARPN previously outlined, diversifying away from China represents a massive challenge. In the EV battery segment, China “is on track to retain over 85% of the global anode market share by the end of the decade,”according to Benchmark Mineral Intelligence data.

The U.S. has taken several important steps to decouple critical mineral supply chains from China, especially those for battery materials and chip manufacturing in the last few years, ranging from DPA Title III designations and subsequent Department of Defense funding of projects to federal legislation providing funding for projects from the U.S. Department of Energy.

In the case of graphite, projects currently underway are expected to qualify for the IRA credits, and ultimately help “domesticate” the graphite supply chain, including Graphex’s pitch coating facility coming online in Michigan, and Graphite One Inc.’s effort to establish an all-American mine-to-manufacturing supply chain. Graphite One’s Graphite Creek deposit near Nome, Alaska was recently recognized by the U.S. Geological Survey as the largest U.S. graphite deposit and among the largest in the world, and, since July, the company has been selected for two Department of Defense grants, under the Defense Production Act’s Title III authorities and by the Defense Logistics Agency.

As tensions mount, rumblings over China blocking American access to rare earths are getting louder, with China’s Commerce Ministry issuing new rules requiring exporters to report details of their overseas shipments, and the People’s Daily running a piece stating, according to Kuo, “there was ‘no mystery’ about whether China would use its rare earths as a ‘counter weapon.’”

While Kuo says China’s exports controls could kill two birds with one stone by not only punishing the U.S., but also encouraging domestic companies to export finished products rather than raw materials, she argues that the strategy “is not without risks,” and has garnered criticism even within China, as it could – in the case of rare earths -  “weaken the international influence” of China’s REE industry as manufacturers could not only turn to other sources of supply, but move away from using rare earths entirely.

Tesla made headlines earlier this year saying it would cut REEs from its next-gen EVs, but Tesla is not the only automaker developing low- to zero rare earth content engines. Nissan is reported to pursue a dual strategy to develop both newer EESM (externally excited synchronous machine) motors, but also develop permanent magnet motors that will ultimately eliminate REE content.

Meanwhile, the Biden Administration has just announced a series of new actions to strengthen U.S. supply chains across the board.  One highly anticipated component is the Department of Defense’s release of a first ever National Defense Industrial Strategy (NDIS), which, according to the White House, “will guide engagement, policy development, and investment in the defense industrial base over the next three to five years.”

Whether or not China overplays its hand in the long run is almost beside the point, as, in the short- to medium term its chokehold in the sector is strong, and we know that the country does not shy away from confrontation.   To not fall behind in the Tech War, decoupling our critical mineral supply chains from China must be the name of the game.

As ARPN previously outlined,

“In the process, we will have to carefully balance domestic and global policy approaches — as well as public and private sector roles with economic and security concerns to reflect the geopolitical realities of our times.

And, as followers of ARPN well know, this can be best achieved within the context of a comprehensive all-of-the-above approach that focuses on domestic resource development where possible and leverages partnerships where needed.”