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.

The post Navigating Without a Map? The Challenge of Decoupling from China appeared first on American Resources Policy Network.

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.

The post Beijing Ratchets Up Export Controls – In the Crosshairs This Time: Graphite, the “Unsung Player” in the Battery Supply Chain appeared first on American Resources Policy Network.

While this significant shift to export controls – according to the WSJ mostly in the form of taxes – has been noticeable and relevant, it may just have been the tip of the iceberg.

In the wake of a global pandemic, related supply chain shocks and with the Russia-Ukraine war raging on, the trade dimension of geopolitics has become the new frontier in the tech wars between Beijing and Washington, DC – a relationship in which conflict has been smoldering over the past few years, especially over Rare Earth Elements (REEs).

As we outlined in a recent post, Western nations have made decoupling from China – which has long held a strategic stranglehold over Critical Mineral supply chains – a priority and have pursued a strategy of “friendshoring.”

Observers were waiting to see if China would retaliate in response to the United States’ recently imposed set of sweeping controls on advanced semiconductors and semiconductor manufacturing equipment aimed at China and a related agreement with Japan and the Netherlands.

It may not prove to be a long wait.  According to Nikkei reporting earlier this month, China has since announced that it is considering prohibiting exports of certain rare earth magnet technology through updates to a technology export restrictions list last issued in 2020.

The looming export control ratchet and increasing tensions between China and the West are troubling South Korea – which has in the past walked a fine line between the United States and China – its “leading economic partner and increasingly dominant neighbor” – and has publicly balked at the U.S. effort to isolate China from semiconductor supply chains.

Regardless of that fine line, public opinion towards China has been souring in South Korea, and diplomatic relations with the country are also getting tense as Seoul summoned China’s ambassador to protest Beijing’s criticism of remarks made by President Yoon in an interview with Reuters on Taiwan.

The looming specter of China restricting technology exports has South Korea’s industrial sector worried, prompting the government to announce a “strategy to secure core minerals” to reduce its dependence on Chinese critical mineral imports for from the current 80 percent to 50 percent by 2030.

In the context of this strategy, the South Korean Ministry of Trade, Industry and Energy designated 33 as critical minerals and named 10 of those as strategically critical minerals, including the “battery criticals” lithium, nickel, cobalt, manganese and graphite and five types of rare earth materials considered crucial in 21^st century tech applications including the manufacture of semiconductors.  ARPN followers will note that Korea’s 10 “strategically critical minerals” list  – assuming the five REEs are those used in permanent magnets — squares up with ARPN’s “Super Criticals,” circa April 2022.

As part of a push to “expand and strengthen bilateral and multinational cooperation with resource-rich countries” a public-private delegation of officials from South Korea’s public and private sectors is currently visiting Chile and Argentina to “explore ways to boost cooperation on supply chains of lithium and other major minerals and the development of natural resources.” 

The country is also stepping up domestic and global investment.  Last month, South Korean President Yoon Suk Yeol announced that the government and companies including Samsung Electronics Co. would invest $422 billion into chip making and EV manufacturing projects in what Bloomberg calls “the nation’s most aggressive effort yet to win a heated global race for tech supremacy.”

Seoul is further looking to  provide $5.32 billion on financial support to its domestic battery makers looking to invest in infrastructure in North America, while also looking to upgrade its partnership with India with a focus on trade, investment and strengthening critical mineral supply chains.  To put South Korea’s $5.3 billion in context, at 1/12^th the size of the U.S. economy, that’s equivalent to the U.S. Government allocating more than $60 billion to Critical Mineral supply chains.

Whether or not China escalates export controls for critical minerals remains to be seen – though officials already finished taking expert comments on the planned restrictions reported by Nikkei earlier this month and the changes are expected to go into force this year – it is becoming increasingly clear that a “huge realignment” in the critical minerals space is underway, and its one that not only sees the West looking to reduce Chinese resource dominance, but also sees allegiances shift in Asia itself.

The post Looming Export Controls and Critical Mineral Over-Reliance Prompt Realignment Not Just Between China and West, But Also in Asia – A Look at South Korea appeared first on American Resources Policy Network.

Nevertheless, tension between the U.S. and China over the island, which some analysts consider “the most dangerous standoff between global superpowers, even as the war in Ukraine rages,” remain high, and a recent development in the trade arena may add further fuel to the fire.

The territorial dispute over Taiwan may make for the flashiest headlines, but, as followers of ARPN well know, the trade dimension of the geopolitics of critical mineral supply chains have emerged as a new frontier in the tech wars between Beijing and Washington, D.C., and conflict has been smoldering over the past few years, particularly over Rare Earth Elements (REEs).

When reports of Chinese threats to “play the Rare Earths card” – to escalate its trade dispute with the then-Trump administration to include rare earths minerals — surfaced in 2019, ARPN’s Daniel McGroarty argued the move could galvanize support for legislation or further executive actions to reduce U.S. overreliance on foreign supply and processing of critical metals and minerals.  By July 2019, then-President Trump issued a Presidential Determination under the Defense Production Act of 1950 designating all links in the rare earth permanent magnet supply chain as “essential for the national defense,” and eligible for U.S. Government funding and support.

But the wheels of government grind slowly.  A pandemic, a new war, and several supply chain shocks later, the United States and its allies have indeed taken a number of steps to decouple from China and shore up its own critical mineral supply chains.  As a result, China’s share of global REE production, which stood at roughly 90% a decade ago, has dropped to 70% last year, according to the USGS, though most processing is still under Chinese control.

Western nations have also secured a number of trade deals to decouple from China marking a “huge realignment in trade – one that goes by names like ‘friendshoring’ and ‘nearshoring’ – and having occurred “so rapidly that they’ve wrongfooted Beijing,” as Mary Hui writes in a three-part series for Quartz.

Hui cites a two-year old deal between U.S. and European rare earth firms which involves processing monazite sands in Utah to produce rare earth carbonates, then ship them to Estonia for processing, as well as another project in which REE ores from Canada will undergo preliminary processing there to then be shipped to Norway for further processing.  Meanwhile, Japan has strengthened its REE cooperation with Australia.

Those efforts notwithstanding, China still has substantial leverage, especially in the processing segment, and has in recent months kicked its efforts to consolidate its REE sector into high gear [see our post here] while doubling down on an aggressive investment spree overseas to re-establish an “abundant supply of rare earth, so [as] to have the world’s cheapest feed for China’s downstream industries.”

As tensions between China and the West, and specifically China and the United States have soured, the specter of export controls began rearing its head again.

In October 2022, in a move that observers have deemed a paradigm shift in U.S. export control policy toward explicit containment of China’s technological advancement, Washington, D.C. imposed a set of sweeping controls on advanced semiconductors and semiconductor manufacturing equipment to China, and has been able to secure Japanese and Dutch agreement to a deal restricting China’s access to advanced semiconductor manufacturing equipment.

While China until recently had yet to “substantively respond” to the semiconductor export controls, industry sources suspected “they’re likely going to use rare earths as a bargaining chip since rare earths are a weak point for Japan and the U.S.” – and these experts were proven right when Nikkei reported last week that Beijing was considering prohibiting exports of certain rare earth magnet technology through updates to a technology export restrictions list last updated in 2020.

According to Nikkei, “[t]he revisions would either ban or restrict exports of technology to process and refine rare-earth elements. There are also proposed provisions that would prohibit or limit exports of alloy tech for making high-performance magnets derived from rare earths. In all, there are 43 amendments or additions in the draft list first announced in December by the commerce and technology ministries. Officials have finished taking public comments from experts, and the changes are expected to go into force this year.”

As followers of ARPN well know, China is no stranger to playing the Rare Earths card, and they may recall the 2010 standoff between China and Japan in which Beijing blocked REE sales to Japanese users over a heated flare up in the context of the long-standing dispute over control of the Senkaku Islands in the East China Sea.

It’s not 2010 anymore. Dependencies have shifted, and a new global realignment has begun. It remains to be seen how this new chapter plays out, but it is clear that as the export restrictions ratchet is being tightened, the weaponization of trade in the tech wars is back on the menu.

The post A New Chapter in the Tech Wars? Weaponization of Trade Back on the Menu as U.S.-Chinese Tensions Soar appeared first on American Resources Policy Network.

The package included funding for tax credits and rebates for consumers buying electric vehicles, installing solar panels or making other energy-efficiency upgrades to their homes, including, a credit of $4,000 for lower-and middle-income individuals purchasing used EVs, and up to $7,500 tax credits for EVs.  These represented a renewal of the existing $7,500 electric vehicle Federal tax credit starting in January of 2023, carrying it through until the end of 2032.

However – and of considerable interest for followers of ARPN — a new requirement is that qualified cars must be assembled in North America, and adhere to mandated “escalating levels of critical minerals to be sourced from the U.S. or a country with a free-trade agreement with the U.S.”

Said provision was hailed by some as key to addressing “emerging energy security vulnerabilities before they are intractable crises,” but the law’s vague terms left some of the United States’ partners scratching their heads wondering what these provisions meant for them.

A flurry of activity has followed, including the European Union’s response to the United States’ IRA in March of this year: the just-dropped Critical Raw Materials Act (CRMA) paired with sister legislation, the Net Zero Industry Act (NZIA), which aims to support investment in manufacturing capacity in ‘net zero emissions’ technologies in Europe.

(Read ARPN’s discussion of the EU’s response to the IRA here.)

Only days later, the United States Trade Representative Katherine Tai and Japan’s Ambassador to the United States, Tomita Koji, signed a critical minerals agreement (“Agreement Between the Government of Japan and the Government of the United States of America on Strengthening Critical Minerals Supply Chains”) which builds on the 2019 U.S.-Japan Trade Agreement and seeks to strengthen and diversify critical minerals supply chains and promote the adoption of electric vehicle battery technologies.

According to the Biden Administration, “in particular, the Agreement memorializes the shared commitment of the United States and Japan with respect to the critical minerals sector to facilitate trade, promote fair competition and market-oriented conditions for trade in critical minerals, advance robust labor and environmental standards, and cooperate in efforts to ensure secure, transparent, sustainable, and equitable critical minerals supply chains.”

Observers believe that the trade agreement may allow Japanese companies greater access to the Inflation Reduction Act’s clean vehicle credit.

Write lawyers Thomas G. Allen, Stephen M. Anstey and Kurtis G. Anderson in an Insights Alert for international law firm Kilpatrick Townsend:

“While the United States has established comprehensive free trade agreements with over twenty countries, Japan is not one of them. This has left Japan (a critical U.S. ally and the second largest democratic economy in the world) and its companies ineligible to benefit from valuable IRA tax incentives. The new trade agreement on critical minerals may change that.

The IRA does not define several key terms concerning tax credits, including what constitutes a ‘free trade agreement.’ The Biden Administration hopes that this new self-styled free trade agreement on critical minerals will suffice. The free trade agreement is specifically tailored to create eligibility, explicitly circumventing ‘prohibitions or restrictions on imports of critical minerals,’ including lithium, graphite, manganese, cobalt, and nickel, from and between the two countries.” 

Allen, Anstey and Anderson suggest that if this strategy is successful, the Biden Administration would use this tailored trade deal as a template for ongoing negotiations with the European Union currently excluded on the same basis from the benefits of the clean vehicle credit, and news reports seemed to confirm this suggestion.

With the Department of the Treasury and the Internal Revenue Service having released new guidance to clarify how manufacturers may satisfy the critical mineral and battery component requirements of the IRS’s clean vehicle tax credit on March 31, negotiators may have received more clarity and be able to reach agreement soon.

Treasury’s Notice of Proposed Rulemaking (NPRM) proposes:

“a three-step process for determining the percentage of the value of the critical minerals in a battery that contribute toward meeting critical minerals requirement: 1) determine procurement chains, 2) identify qualifying critical minerals, and 3) calculate qualifying critical mineral content. 

a set of principles for identifying the set of countries with which the United States has a free trade agreement in effect, since this term is not defined in statute. This term could include newly negotiated critical minerals agreements.”

These agreements, according to the proposed notice which is filed for public inspection and will be published in the Federal Register on April 17, 2023, “would be considered based on whether they reduce or eliminate trade barriers on a preferential basis, commit the parties to refrain from imposing new trade barriers, establish high-standard disciplines in key areas affecting trade, and reduce or eliminate restrictions on exports or commit the parties to refrain from imposing such restrictions on exports, including for trade in the critical minerals contained in electric vehicle batteries.”

The IRS has announced that an updated list of electric vehicles that qualify for the tax credit after April 17, will be available on April 18.

But while tax guidance can clarify, it can also sharpen points of contention.  U.S. Senator Joe Manchin has expressed his displeasure with the proposed notice arguing that ignores “the purpose of the law which is to bring manufacturing back to America and ensure we have reliable and secure supply chains,” and has threatened legal action against Treasury.

ARPN will be following the developments surrounding the proposed notice and related trade negotiations closely.   Consider it a sign of the rising importance of Critical Minerals:  Tax, trade and investment policies are being mobilized to incentivize Critical Mineral development.  ARPN will watch closely for progress as well as unintended consequences as these policies take shape.

The post Inflation Reduction Act Spurs Trade Agreement Between USA and Japan, Deal with EU Likely to Follow Soon as Treasury Releases Clarifying Guidance appeared first on American Resources Policy Network.

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 the ratification of the USMCA trade deal meant to replace NAFTA,” could “strengthen the president’s hand in the China trade talks” and ultimately “super-charge a North American resource renaissance.” 

He writes:

“A new deal that lifted the tariffs would (…) clear the way for the U.S., Canada, and Mexico to work together to encourage the development of critical minerals — that rapidly-changing group of metals and minerals essential to advanced technology, including everything from laptops and LEDs, wind and solar power, EV batteries and energy storage, to smart phones and smart bombs.

With the U.S. dependent on China as its primary supplier of 22 of the 35 critical minerals the Trump administration has deemed ‘essential to the national economy and national security,’ new sources of North American supply could (…) deprive China of the leverage it has to limit or even cut off U.S. critical mineral supplies.”

A joint focus on critical minerals fueled by the U.S.’s and Canada’s mineral riches and  Mexico’s long history of mining copper and gold that brings with it great potential of co-product  access could “could energize new methods of mining, refining, reclamation and recycling that could bring new supply online to meet surging metals demand.”

Ultimately, lifting the above-referenced tariffs could have benefits that stretch beyond the three countries.

Concludes McGroarty:

“So, while the headlines are dominated by U.S.-China trade war, watch for news on the North American trade front. If the president acts now to lift U.S. tariffs on steel and aluminum, opening the path to the passage of the USMCA — linking three nations with a combined GDP of $25 trillion –— trade friction will give way to a new era of trade expansion and economic growth. Trade peace in North America may be just the signal the president wants to send as trade war looms with China.”

The post ARPN’s McGroarty for The Hill: Strength through Peace – Dropping Sec. 232 Tariffs on Aluminum and Steel Could Strengthen U.S. Position vis-a-vis China appeared first on American Resources Policy Network.

Last week, the White House announced sanctions on Iranian metals, which represent the Tehran regime’s biggest source of export revenue aside from petroleum.  The sanctions on Iran’s iron, steel, aluminum and copper sectors represent the U.S. administration’s latest effort to pressure Tehran over its “funding and support for the proliferation of weapons of mass destruction, terrorist groups and networks, campaigns of regional aggression, and military expansion” in the Middle East.

Iran may – thankfully – not rank as a top supplier for U.S. domestic consumers of the targeted metals.  However, these latest developments should serve as another reminder that securing domestic supplies of mineral resources should be a top priority.

ARPN’s Dan McGroarty invoked Iran in his first testimony before Congress on behalf of ARPN in 2011:

“Now, to be sure, we live in a globalized economy, and indeed — if the U.S. were to simply stop mining copper today – there are known copper prospects in a number of countries. We might turn to Chile, Peru and the Philippines for increased copper supply. Then again, world demand might be met via development of known copper reserves in Russia, Angola, Afghanistan, DRC Congo, or China – including decisions taken in Beijing to exploit copper reserves in the Tibet Autonomous Region. And there is copper in Pakistan and Iran. With the exception of Pakistan — rated “Partly Free” — all of the latter group are rated “Not Free” in the current Freedom House index. So while the world copper market does offer choices, we may well find many of those choices unpalatable from a policy perspective.”

Removing obstacles to a greater degree of resource independence should be the order of the day, but while we’ve seen some incremental progress, efforts to make substantial changes to our nation’s mineral resource policy framework have in the past been largely derailed or put off.

“We cannot maintain our modern economy without a steady supply of metals and minerals. Those we do not possess here at home, we must source from other countries. But those we possess but choose not to produce perpetuate a needless foreign dependence – leverage that other nations may well use to America’s disadvantage.”

The post Trade Tensions Underscore Need for Mineral Resource Policy Reform appeared first on American Resources Policy Network.

Followers of ARPN will know that in recent months, we have been keeping tabs on this issue, because it revolves around metal that sits at the intersection of trade and resource policy — Aluminum – one of the five Gateway Metals we have featured on our blog as part of our “Through the Gateway” campaign.

Watch the clip here:

Why does it matter?

Included in the 2018 list of 35 minerals deemed critical to the United States national security and economy, aluminum is the No. 1 material by annual DoD usage, and “a shortage of aluminum metal was cited in a nonclassified defense study as having ‘already caused some kind of significant weapon system production delay for DoD.’”

While the U.S. is home to significant deposits of bauxite, from which aluminum is sourced, we import a significant percentage of the aluminum consumed domestically.

As we previously pointed out, “[u]nlike with other metals and minerals, however, this represents a marked decrease in geopolitical risk, as most of our aluminum imports are sourced from one of our closest trading partners, Canada, which accounted for 56% of total aluminum imports from 2013-2016.

While viewed in isolation and from the upstream end of the supply chain at the minesite, the U.S. is increasingly import-dependent for the aluminum it needs, but viewed in the context of an integrated North American supply chain between the United States and Canada, our neighbor to the North is helping the U.S. close a significant domestic production shortfall.”

Thus, many were startled by the Administration’s decision earlier last year to impose trade tariffs on Canadian-made aluminum and steel under Section 232 of the 1962 Trade Expansion Act.

The USMCA  had opened a window to drop these tariffs on steel and aluminum imports from Canada and Mexico, which stand in the way of a fully integrated North American defense supply chain and, particularly with regards to Canada, “ignore nearly 80 years of deep defense cooperation with our northern neighbor.”

However, against all hopes, the tariffs have remained intact and all attempts to convince the Administration to strip the provisions have failed to date – which is why Sen. Grassley’s effort to help strip them from the agreement are all the more important.

As ARPN’s Dan McGroarty pointed out in his piece for The Hill:

“Particularly in the case of Canada, the U.S. tariffs ignore nearly 80 years of deep defense cooperation with our northern neighbor: Aluminum produced in Canadian smelters was central to the Allied war effort throughout World War II, during which the massive plant at Saguenay, Quebec supplied more than 40 percent of the Allies’ overall aluminum production. Today, Saguenay aluminum is on the U.S. tariff list.

With agreement on USMCA, it’s time to reaffirm the importance of an integrated U.S.-Canadian Defense Industrial Base. As the Government of Canada’s official comments on the 232 inquiry noted, ‘open aluminum trade with Canada benefits the U.S. economy and its national security.’ With aluminum on the U.S. Critical Minerals List, with the U.S. producing only 39 percent of the aluminum it uses each year and Russia and China among our leading suppliers, it makes no sense to slap a 10 percent aluminum tariff on Canada.”