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Beijing Ratchets Up Export Controls – In the Crosshairs This Time: Graphite, the “Unsung Player” in the Battery Supply Chain

In keeping with its known penchant for weaponizing trade, Beijing is tightening its export control ratchet again this week.

Now in the Tech War crosshairs:  Graphite.

According to Reuters, China announced today that to protect national security, it will require export permits for certain graphite products – a move analysts see as a play “to control supplies of critical minerals in response to challenges over its global manufacturing dominance.”

As the largest component by volume and mass in EV batteries, a fact of which many are not aware, graphite is considered a battery critical and has been deemed the “unsung player” in the battery supply chain. With China quite firmly dominating the supply chain for the material – not only is it the top global producer, but also accounts for more than 90% of graphite refining – ARPN has called the anode of the EV battery, which almost entirely consists of graphite, the “Achilles heel when it comes to building out a battery supply chain independent of China.”

As followers of ARPN well know, China is no stranger to playing politics with its critical minerals leverage, and ARPN has been tracking the weaponization of trade in the semiconductor segment in the context of the Tech Wars between the United States and China since 2020.

Earlier this summer, China placed export restrictions on gallium and germanium – key components of semiconductor, defense and solar technologies, a move that was considered a “show of force ahead of economic talks between two rivals that increasingly set trade rules to achieve technological dominance,” according to the Wall Street Journal.  The curbs on gallium and germanium, which have been in place since Aug. 1, have pushed up prices outside of China – a potential bellwether of what may be to come for the graphite market.

In 2020, ARPN’s Daniel McGroarty argued that whether or not the U.S. will act in time to secure reliable supply of the critical minerals needed for chip manufacturing and other hi-tech industries, is not “a question of science or engineering or who boasts the best single atomic layer deposition techniques.”  According to McGroarty, “it’s a question of political will.  And if the ultimate goal is to reshore American control over our economic destiny and national security, the answer is due right now.”

Three years later, the U.S. has taken several important steps to decouple critical mineral supply chains, especially those for battery materials and chip manufacturing, from China, 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 graphite realm, 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.

Positive moves in each case, but more remains to be done. As China ratchets up its export control regime – and more can be expected as geopolitical tensions continue to soar – U.S. stakeholders would be well-advised to kick their efforts to bolster U.S. critical mineral supply chains into high gear.   For China – a “country of concern” as per an August 9, 2023 Executive Order - it may be a short step from export controls to export embargoes.