Trade

The long-planned and carefully crafted meeting between U.S. President Joe Biden Chinese President Xi Jinping near San Francisco may have gone off without a hitch, and defense dialogues between Beijing and Washington may have been restored, but analysts are not entirely optimistic that re-opened lines of communications will ultimately resolve deeply-rooted disagreements between the two countries on a variety of issues.

One key point of contention was and is the global race for critical minerals, in the context of which the U.S. has taken steps to decouple from Beijing in the wake of pandemic-induced supply chain challenges, surging demand and rising trade and geopolitical tensions.  However, with China controlling much of the critical minerals supply chain, diversifying supply chains away from China is a daunting proposition given the complexity of value chains.

“The US attempt to pull away from China in the electric vehicle (EV) race is like navigating a road trip without a map, given the vast expanse of China’s routes through the critical minerals supply chain that is essential for EV battery production,” writes Sonja Cheung of the Asia Business Council in a new piece for the Hongkong-based South China Morning Post, adding that Washington’s efforts need to be more “assertive” to succeed.

Cheung points to the fact that while China owns most of the cobalt mines in the Democratic Republic of the Congo and has substantial lithium investments worldwide, the U.S. has so far  – while in talks with several other countries and the European Union “made just one trade deal, with Japan earlier this year.”  (A deal with nickel-rich Indonesia was inked after Cheung’s piece was released).

She argues that “to stand a realistic chance of countering China’s strong position in the EV market, Washington needs to double down on combining policy support, financial incentives and advances in technology, to reduce its reliance on imported materials.”

Concludes Cheung:

“The blueprint for accelerating the US EV industry is multifaceted – it involves not only extending tax credits but also installing a robust charging infrastructure across the nation and ensuring EVs are more competitively priced.

The US stands at a strategic juncture and investing in Canada’s abundant critical minerals supply could be a game-changer. As the world’s fifth-largest producer of graphite and nickel, Canada is not only a neighbour but also a natural ally with the potential to be a powerhouse in lithium, magnesium and rare earth elements – all vital in EV machinery. Strengthening this partnership could fortify North American supply chains and reduce reliance on China.”

To those of us used to asking Siri for directions, going on a road trip without a map sounds daunting, but this is one trip the U.S. cannot skip.  Thankfully, there are important pointers in the form of a comprehensive “all-of-the-above” approach the United States can use to navigate the road ahead, encompassing increased domestic production, permitting reform, recycling, R&D, and friend-shoring.  Of course, as is the case all too often, the biggest challenge ahead may be making it past the Washington, DC gridlock.

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.

As the Wall Street Journal reports, a new OECD study has found that export restrictions on Critical Minerals have increased more than fivefold from January 2009 to December 2020, suggesting that “export restrictions may be playing a non-trivial role in international markets for critical raw materials, affecting availability and prices of these materials.”   While this significant shift [...]

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In a new piece for The Hill, ARPN’s Dan McGroarty zeroes in on the inter-relationship of trade and resource policy, which has been an increasingly recurring theme over the past few months. McGroarty argues that the removal of U.S. tariffs on steel and aluminum coming from Mexico and Canada, which have been a “dead weight on [...]

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