In 2019, a sentence in a Chinese government-funded report made clear Beijing’s strategic advantage behind capturing the supply chains of critical minerals. If the US-China trade war intensified, the report noted “China will not rule out using rare earth exports as leverage to deal with the situation”.
Having flooded the market with cheap supply since the 1980s, China now accounts for 90 per cent of the world’s rare earths production. China also controls the refining and processing sectors — critical bottlenecks for security requirements in the US and around the world, as rare earths form the foundation of American high-end defence systems.
But Chinese dominance in rare earths is just the tip of the iceberg. The country has gained — and is determined to retain — a tight grip on a broad swath of minerals that form the foundations of tomorrow’s most important industries.
In its Made in China 2025 initiative, Beijing has identified a diverse array of industries with considerable emerging strategic and economic significance, including connected, autonomous, shared and electric vehicles and the batteries that power them. The country that leads this transition will be the nation that sets the standards and terms of trade for the future of transportation.
Key to leading this transition is ownership of the electric vehicle (EV) supply chain, from minerals to markets, and China has worked hard to exert vast control over the mining and processing of the critical minerals necessary for the batteries and components in EVs and other advanced fuel vehicles.
China’s lead is at present indisputable. More than 70 per cent of global EV battery manufacturing capacity is in China, while the US has less than 10 per cent. Of the 142 lithium-ion battery megafactories under construction worldwide, China will be home to 107 of them. Just nine will be in the US.
China also produces more than 60 per cent of the world’s cathodes and 80 per cent of anodes for batteries, and the majority of the world’s permanent magnets used in EV motors.
If left unchecked, this dominance will become a devastating strategic vulnerability for the US and EU, especially as our climate policy goals push us toward zero-emissions vehicles.
We risk a scenario in which we swap our dependence on a chaotic oil market dominated by Opec countries that do not share our strategic goals, for a reliance on China for our future transportation needs.
Like Opec’s leveraging of its oil production advantages in the past to suit its governments’ strategic goals — from the 1973 oil crisis to the 2020 Saudi-Russian price war — there is little to stop China using this supply chain dominance to advance its own priorities. And while oil is a global industry, minerals processing and EV component manufacturing is almost exclusively Chinese.
It also jeopardises the auto industry in both Europe and America, a sector in the US which supports 10m jobs, 3 per cent of the country’s gross domestic product, and forms the advanced manufacturing backbone of our economy.
The best solution for the US and its partners is to not need such minerals at all. Committing to long-term research and development funding for recycling and developing substitute materials should be a governmental priority, freeing the country from supply chain vulnerabilities — and providing a long-term, sustainable boost to energy security.
But until viable alternatives are found, we need to develop a critical minerals supply chain less dependent on China.
Recognising that co-operation is key to strengthening minerals supply chains, the US must charter a rare earths co-operative to build and operate an integrated refining, processing and metallurgical facility.
It is essential to develop a domestic supply chain for critical minerals, with reasonable mining and permitting processes to enable our companies to compete. To ensure this can happen, extraction and processing must take place in return for a commitment to strict environmental standards, recycling and R&D for new material research.
For the minerals unavailable domestically, the international allies must diversify supply, working together to limit Chinese investment in critical resource reserves.
The national security weaknesses of relying on China for rare earths are simply too great to remain stuck with the status quo.
General James Conway is the 34th Commandant of the US Marine Corps and Peter Ackerman, the founding chair of the International Center on Nonviolent Conflict, co-chair of the international advisory committee of the United States Institute of Peace and a member of the executive committee of the board of the Atlantic Council. Both are members of the Energy Security Leadership Council, a project of Securing America’s Future Energy.
The Commodities Note is an online commentary on the industry from the Financial Times
Source: Economy - ft.com
