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With the coronavirus pandemic and growing geopolitical tensions having shone a light on U.S. over-reliance on foreign sources across our nation’s critical mineral value chains and its implications for our national and economic security, domestic stakeholders have stepped up their efforts to decouple U.S. supply chains from reliance on our adversaries.

While for “battery criticals” the most recent notable step was the passage of the Inflation Reduction Act (IRA) with its sourcing requirements for lithium, cobalt, graphite, nickel and manganese, measures addressing rare earth element supply chains included the invocation of Title III of the Defense Production Act for Rare Earth Elements and a DoD allocation of $35 million for a heavy rare earth separation and processing project in California.

While these are important steps, real-life examples show just how deep our nation’s over-reliance really is:

Earlier this fall, the Pentagon, as part of its “efforts to decouple U.S. defense companies’ sprawling global supply chains from China,” as the Wall Street Journal phrases it, said it had begun using artificial intelligence to analyze whether U.S. military contractors source aircraft parts, electronics and raw materials used in U.S. military equipment from China and/or other potential adversaries.

Learning that engine parts for new F-35 combat jets made by Lockheed Martin Corp. contained magnets sourced from Honeywell International, Inc. with a cobalt samarium metal alloy produced in China — which constituted a violation of U.S. procurement laws — the Defense Department last month halted accepting new jets from the company.

The company has since  been granted a waiver, and with it, the Pentagon will accept all aircraft under the contract.

The waiver was granted because the “magnet does not transmit information or harm aircraft, and […] there are no security risks involved,” but Honeywell will have to work to find an alternative source for the metal alloy used in the F-35 engine parts.

Meanwhile, analysts say that with the waiver allowing an alloy of Chinese origins to continue to be used in the manufacture of F-35 combat jets, “the US military has exposed its dependence on Chinese rare-earth products, and China can opt to limit the export of such strategic resources to safeguard its national security.”

China, not surprisingly, is an interested observer in the U.S. supply chain travails.  As the Global Times reports, citing a manager of a Chinese state-owned rare earth enterprise in Ganzhou, East China’s Jiangxi province, with China having a leading edge in the middle-to downstream rare earth magnet production, the “U.S. attempt to remove China-origin alloy imports from military equipment is almost ‘a mission impossible.’ from both a short-term and long-term perspective.” According to unnamed manager, “China is the only country in the world that has developed the ability to extract samarium and cobalt rare-earth metals, which means the middle product samarium oxide is almost 100 percent made in Chinese factories. We also account for over 70 percent of the final product samarium-cobalt rare-earth magnet. How can Washington take out Chinese rare-earth products from its jets in such a scenario?“

A similar dependency applies to China-made neodymium magnets.

A Beijing-based military expert, Wei Dongxu, contacted by the Global Times argued that with the U.S. using the materials for military purposes, which could “harm China’s sovereignty, territorial integrity and development interests,” “China should consider applying more strict export controls on rare earth products.”

The waiver referenced above is only the latest in a series of waivers granted by Pentagon officials under similar circumstances — all of which goes to show how difficult it is to untangle critical mineral supply chains.

However, with geopolitical and trade tensions rising — both between the United States and China and generally on the global stage — and with China’s known penchant for using its advantage as leverage, there is no alternative to turbo-charging the effort to secure U.S. domestic supply chains for critical minerals across the board.

As geopolitical tensions between China and the West are on the rise, and critical mineral supply chain pressures continue to mount against the backdrop of the accelerating green energy transition, U.S. Senator Tom Cotton (R-AR) sent a letter to U.S. Secretary of Energy Jennifer Granholm demanding information from her department regarding recent reports that the Department of Energy (DOE) may provide taxpayer-funded support for a proposed lithium mine with ties to the Chinese Communist Party (CCP).

Lithium Americas, a Vancouver, Canada-based company is, according to its website, “focused on advancing lithium projects in Argentina and the United States to production,” and the company is looking to advance its Thacker Pass projection in Humboldt County, Nevada.   In order to finance it, the company has applied for a loan under the DOE’s Advanced Technology Vehicles Manufacturing Loan Program, which is part of the recently enacted Inflation Reduction Act (IRA).

Writes Sen. Cotton:

“Worryingly, media reports indicate that Lithium Americas’ largest shareholder is Ganfeng, a Chinese company with direct ties to the CCP. Ganfeng is currently acquiring lithium mines around the world, which, according to former Secretary Mike Pompeo, is part of a ‘clear intention by the Chinese Communist Party to control the entire supply chain for green energy.’ The United States should be reducing its dependence on China for these critical inputs, not opening the door for China to ‘gain a foothold in America on lithium mining,’ as reported.”

He adds:

“The U.S. government should apply strict oversight regarding potential federal funding of CCP-owned or -controlled entities. DOE’s loan for the Thacker Pass mine would be substantial and reportedly cover the majority of the project’s capital costs. As the government continues to invest in battery supply chain programs, it is critical that DOE ensure taxpayer funding does not go to corporations with CCP ties and does not increase U.S. mineral dependence on China.”

Specifically, the Senator demands that the department use its leverage to “incentivize Lithium Americas to part ways with Ganfeng. Ganfeng and any other Chinese entities with CCP ties should divest their stakes in Lithium Americas before the company is offered this loan.” He further urges the department to reject Lithium Americas’ application for the ATVM if the company refuses to end its Ganfeng relationship.

Senator Cotton seeks clarification from Secretary Granholm on the following questions:

1. Is DOE aware of Lithium Americas’ application for the Advanced Technologies Vehicles Manufacturing (ATVM) Loan Program and the company’s partial ownership by entities closely tied the CCP?
2. What safeguards or requirements are in place to ensure the ATVM program is not funding other companies owned or controlled by the CCP or other adversaries?
3. Does DOE agree that the United States must reduce its dependence on China for critical minerals like lithium and should invest in domestic production of such minerals? If so, does DOE believe that funding deeper CCP control of the U.S. critical mineral supply chain is counterproductive to this goal? If not, why not?
4. Has DOE raised with Lithium Americas the possibility that its loan application for the Thacker Pass project may be harmed by the company’s partial ownership by Ganfeng or that its application may be improved if Ganfeng divested in the company?

Senator Cotton closes:

“The United States urgently needs domestic critical mineral production to supply its technology sector and reduce its dependence on China; the United States does not need and should not fund possible attempts by the CCP to deepen its control over the U.S. critical mineral supply chain.”

It will be interesting to see how the Department of Energy responds, as it was precisely the realization that our nation (and the Western world) is overly-reliant on adversary nations for its critical mineral needs across the entire value chain that led the United States to finally focus on securing its supply chains.

Whether Chinese influence over this project proves to be definitive or not depends on the facts of the matter, but Senator Cotton’s point that questions of foreign control deserve to be fully investigated before the U.S. Government confers funding seems unarguable. Government programs intended to alleviate worrisome foreign resource dependencies should not unwittingly strengthen those dependencies at the expense of the American taxpayer – and American national security.

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