Hello from South Korea’s stunning Jeju Island where Trade Secrets is busy sampling the crustaceans pried from the ocean’s depths by the famed haenyeo.
Back on the mainland, President Moon Jae-in has returned home after a summit with President Joe Biden at the White House. North Korea nominally topped the agenda but China was the elephant in the room. South Korea is among the countries Biden is pushing to join its efforts to respond to Beijing’s expanding influence. But as we discuss today, South Korea, like many countries, is not in a strong position to start poking Beijing in the eye. Especially when it comes to the manufacturing of the most important component in electric vehicles — batteries, an industry that Seoul wants to dominate.
The impact of China’s stronghold on electric vehicle materials
Mixed nickel-cobalt hydroxide precipitate. Lithium iron phosphate. Cathodes. Anodes. Don’t worry if you are not familiar with the jargon yet — soon, we all will be.
The world is racing toward ambitious climate change targets. Crucial to many governments’ carbon reduction plans is a rapid switch from gas-guzzling cars to electric vehicles and from coal-fired power stations to renewables.
South Korea, home to several of the world’s biggest electric vehicle battery makers, sits at the heart of the global transition.
Special units spun out of the likes of LG, SK and Samsung are fast partnering with big auto groups including Ford, General Motors and Volkswagen. New South Korean-owned battery-making factories are sprouting up from Iváncsa, Hungary, to Commerce, Georgia in the US.
Yet, when it comes to the raw materials for making these batteries, South Korea — and indeed the entire electric vehicle supply chain — is heavily reliant on China.
Looking simply at the location the aforementioned minerals are extracted from belies an inconvenient truth.
Indonesia is the world’s biggest producer of nickel. The Democratic Republic of Congo is the source of more than two-thirds of all cobalt. More than half the world’s lithium comes from Australia, nearly a third of all copper comes from Chile.
China, however, is by far the biggest processor of each of these minerals. And when it comes to rare earth metals — inputs used in some electric vehicle motors, among countless electronic devices critical to modern technology — the country’s dominance is even deeper.
The International Energy Agency notes China’s share of processing rare earth elements — converting the rare earths from mined materials into oxides, metals and magnets used in batteries — stands at a staggering 90 per cent.
As Ross Gregory and James Kruger, advisers to the critical materials sector, wrote last month in The Australian ($, requires subscription), it is wrong to think China’s hegemony stemmed from “a nefarious plot . . . to hold the world ransom”.
“Rather, the West was happy to dump its ores and concentrates on China, leaving it to the Chinese to carry out the ugly processing techniques with high carbon output,” they said. “Unsurprisingly, China looked to the future, and supported this industry with cheap access to land and reagents, recognising a long-term strategic pay off.”
Compounding the situation is the demand outlook for these critical minerals: the IEA has forecast that to reach the targets of the Paris agreement the world needs to quadruple its output of minerals used in clean technologies over the next two decades.
Companies and governments are cottoning on to the challenge, albeit slowly.
Posco, South Korea’s national steelmaking champion, is symbolic of those trying to take advantage. The Seoul-listed group has in recent days broken ground on a site near its steel works at Gwangyang, west of the port city of Busan, which will extract lithium hydroxide from spodumene delivered from Pilbara Minerals in Australia.
But joint ventures such as these will take years to come to fruition. In the meantime — during a period of immense demand growth — China’s dominance over minerals processing looks solid. This has no shortage of implications for broader trade policy in Asia.
For South Korea — a country trying to corner the electric vehicle market across cars, batteries and new high-tech components — the exposure to China runs deep.
Seoul also remains wary of provoking another backlash from Beijing after Chinese boycotts four years ago in response to South Korea’s deployment of a US missile defence system.
When this and South Korea’s electric vehicle ambitions are coupled with the fact that it relies on China as a destination for about a quarter of its exports, it is no wonder Moon has resisted Biden’s pressure to join the US-led criticism of Beijing.
Seoul’s response will frustrate some in Washington. But the caution might also demonstrate the limits of how far Biden will be able to push even America’s closest allies.
More broadly, in an extensive report the IEA has found that investment plans “are not ready to support accelerated energy transitions”.
This means bottlenecks loom just as the world tries in earnest to transition to clean fuels.
“Today’s production and processing operations for many energy transition minerals are highly concentrated in a small number of countries, making the system vulnerable to political instability, geopolitical risks and possible export restriction,” the IEA said, pointing to bans of some mineral exports by China and Indonesia as near-term examples of the problems afoot.
Trade links
Yuqing Xing, professor of economics at the National Graduate Institute for Policy Studies in Tokyo, has written a fascinating piece about factoryless manufacturers explaining how the trade value of their output may be largely underestimated. He points out that the value added of intangible assets embedded in tangible goods is not recorded in the trade statistics of any country.
New research shows how the world is divided into three models for regulating personal data, shaped by the approaches of China, the EU and US, with implications for digital services trade.
Sticking with the EU, the FT editorial board opines that a slow-motion Swexit, the consequence of failed talks between Switzerland and the EU about closer economic ties, is not good for either party.
The latest OECD economic outlook shows that the pandemic has hammered trade in services far more than in goods, with some countries benefiting from greater commerce in pharmaceuticals, medical supplies and IT equipment.
Meanwhile, in a joint op-ed in the Washington Post, the heads of the World Trade Organization, World Health Organization, IMF and World Bank say that $50bn invested in vaccination would return $9tn in additional global output by 2025.
More than 20 Japanese companies have jumped at a chance to save the country’s atrophying semiconductor industry by financing a government initiative to build local plants with Taiwanese chipmaking group TSMC ($, subscription required). The government, which intends to establish a joint public-private sector concern to co-operate with TSMC, expects the effort to pay off with improved international competitiveness for Japanese industry.
Source: Economy - ft.com
