As the U.S. economy strives to decarbonize amid escalating geopolitical tensions, President Joe Biden in February 2021 requested a review of the United States’ vulnerabilities in critical mineral and materials supply chains. Critical minerals, such as cobalt, lithium, and nickel, are core inputs for clean energy technologies and EV batteries. The subsequent report issued by the White House in June unveiled an unsettling reality: critical mineral supply chains are concentrated in a few nations, heightening U.S. vulnerabilities.
The report also shed light on China’s aggressive use of industrial policies to promote domestic production and establish dominance in the global market share of critical mineral supply chains. Data from the 2022 U.S. Geological Survey shows that the United States is 100 percent import-dependent on twelve critical minerals and more than fifty percent import-dependent on thirty-one additional minerals. China is the largest source of imports for twenty-six of the fifty minerals classified as critical by the U.S. government. This predicament has undeniably emerged as a national security concern for U.S. policymakers.
From Washington’s vantage point, the amalgamation of onshore, nearshore, and friend-shore initiatives helps to curb China’s dominance in critical minerals supply chains. However, Beijing views those regional partnerships and critical mineral mini-alliances as manifestations of a united Western containment strategy against China. As both Washington and Beijing persist in their endeavors to optimize the security of their respective critical minerals supply chains, if not adeptly managed, the potential for their broader strategic rivalry to escalate and spill over the Indo-Pacific region looms ominously.
The United States has taken substantive measures to secure critical mineral supply chains by forging minilateral partnerships in the Indo-Pacific region through the Quadrilateral Security Dialogue, commonly known as the Quad, comprising the United States, Australia, India, and Japan. In March 2022, a bipartisan group of U.S. senators introduced the Quad Critical Minerals Partnership Act to address “the national security threat posed by the People’s Republic of China’s control over nearly 2/3 of the global supply of critical minerals, and for other purposes.”
In May 2022, the Quad nations completed mapping critical minerals capacity and vulnerabilities in global semiconductor supply chains, making an initial stride toward reducing reliance on China for critical minerals. In October 2022, a group of Washington insiders announced a plan to launch a fund with more than $1 billion in backing to invest mainly in companies in Quad countries to counter China’s dominance in critical minerals.
The other members of the Quad have also launched their own trilateral or bilateral partnerships to secure their critical mineral supply chains. Australia, endowed with abundant resources but strained relations with China, has been particularly motivated to cooperate on critical minerals with other regional partners. Australian officials have expressed their commitment to supporting democratic partners by leveraging multilateral frameworks to push back against China’s dominance. A noteworthy example is the collaborative endeavor launched in March 2022 by Australia, India, and Japan, known as the Supply Chain Resilience Initiative.
Quad nations have also sought to bolster bilateral ties. For example, Australia and India launched a three-year Critical Minerals Investment Partnership in July 2022 to strengthen cooperation on critical minerals and counter China’s dominance over those supply chains. Australia has committed $5.8 million AUS—about $4 million USD—to this partnership. The Indian critical minerals firm Khanij Bidesh India Ltd. and the Critical Minerals Facilitation Office of Australia will jointly fund a due diligence study in Australia’s lithium and cobalt mineral assets with an initial amount of $6 million USD.
As the sole northeast Asian member of the Quad, Japan has also actively pursued bilateral partnerships within the Quad grouping. To facilitate the expansion of Japanese business in India, the Japanese government, in collaboration with their Indian counterparts, has launched two notable initiatives: the India-Japan Industrial Competitiveness Partnership and India-Japan Clean Energy Partnership. In May 2022, Indian Prime Minister Narendra Modi and Japanese Prime Minister Kishida Fumio kicked off a “Japan Week” in India to further strengthen India-Japan ties. Under Kishida’s leadership, Japan has also pursued closer strategic alignment with the United States. In July 2022, Japan and the United States launched the U.S.-Japan Economic Policy Consultative Committee to “foster supply chain resilience in strategic sectors, including, in particular, semiconductors, batteries, and critical minerals.”
Although not a member of the Quad, South Korea has established cooperation mechanisms with Quad nations, particularly Australia, to strengthen critical mineral supply chains and reduce reliance on China. Even prior to the Quad’s intensified effort to counter China, prominent Korean firms such as LG Chem, LG Energy Solution, SK Innovation, Posco, EcoPro, and Samsung SDI had already invested in and formed partnerships or offtake agreements with Australian mining companies.
During South Korean President Moon Jae-in’s visit to Australia in December 2021, the two countries signed a Memorandum of Understanding on Cooperation in Critical Mineral Supply Chains, encompassing rare earths, lithium, graphite, cobalt, and nickel. Meanwhile, Australian Strategic Minerals (ASM) signed a deal with the Korean Mine Rehabilitation and Resource Corporation, a government agency that oversees South Korea’s national resource security and develops overseas mining and processing capabilities. This partnership paved the way for ASM to manufacture in its South Korean processing plant, catering to esteemed South Korean customers such as Samsung and LG.
Besides the Quad, the Indo-Pacific Economic Framework for Prosperity, as outlined by the White House, also put on its agenda the assurance of critical minerals access as a means to counter China’s dominance. In addition, the Biden administration has launched a broader multilateral Minerals Security Partnership (MSP) with critical partners to “friend-shore” critical mineral supply chains. The MSP has twelve inaugural members, including Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the United Kingdom, the United States, and the European Commission. Italy joined the MSP as its newest member in February. While the MSP theoretically is open to all countries that “are committed to building robust, responsible critical mineral supply chains to support economic prosperity and climate objectives,” it mirrors NATO in its exclusion of China, Russia, and other countries and economies that do not align with its objectives. Moreover, India’s current absence from the U.S.-led MSP has prompted Indian officials to strengthen cooperation with other regional partners.
The Biden administration has allocated considerable financial resources to secure a domestically sourced supply chain for critical minerals, ensuring a “Made in America” approach. This effort involves mobilizing government resources, such as the Department of Defense’s Industrial Base Analysis and Sustainment program, and offering policy incentives to attract the private sector to invest in U.S. companies and expand the domestic production of critical minerals.
Notably, the Energy Act of 2020, the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act have all either authorized funding for domestic critical minerals investment or explicitly required domestic sourcing of critical minerals only for electric vehicle tax credits. While fostering a Made-in-America critical-minerals supply chain evokes patriotism, aggressively pursuing such a strategy requires significant expenditure, runs the risk of forming exclusive cliques at the cost of alienating broader U.S. allies and partners, and could further fracture the U.S.-led global system as the world moves beyond hydrocarbon.
Chinese policymakers are not feeling entirely secure with China’s existing dominance in the critical mineral supply chains. Given the projected demand growth for critical minerals and growing global competition for them, Chinese leaders have placed mineral resources as strategically important as energy resources even before the Biden administration’s efforts to counter China’s dominance in critical minerals. At a Politburo Central Committee meeting in November 2021, China’s top leaders emphasized the necessity to “strengthen industrial resilience … ensure food security, energy and mineral resources security, critical infrastructure security, and overseas interests security.”
This was the first time that mineral security and energy security were emphasized side by side, suggesting that mineral security has become an issue of national strategic interest. In December 2021, China Rare Earths Group was launched as a state-owned enterprise under the purview of the State-owned Assets Supervision and Administration Commission after the merger of Minmetals Rare Earth, Chinalco Rare Earth & Metals Co, and China Southern Rare Earth Group Co.
In this context, U.S.-led critical mineral supply chains initiatives that aim to counter China’s dominance inevitably clash with the Chinese government’s interests in securing mineral resources for China’s industrial development. While China has not pursued its own critical minerals supply chains alliance through diplomatic means to respond to U.S.-led friend-shoring initiatives, it has renovated its state-owned enterprises (SOEs) and attempts to pursue critical minerals statecraft not through alliance but through its SOEs.
For example, the Chinese government launched the China Mineral Resources Group with registered capital of RMB 20 billion in July 2022, one month after the launch of the MSP. The goal is to integrate and streamline state-owned procurement procedures and break the West’s dominance in the pricing mechanism of mineral resources. In November 2022, China Mineral Resources Group signed strategic cooperation agreements with three international mining giants, including Brazil’s Vale, Australia’s BHP Billiton, and an Anglo-Australian firm Rio Tinto.
The United States needs to resist the allure of compensating for its near-term vulnerabilities at the expense of its continued leadership in a greener world. The Biden administration rightly recognizes the need to strike a balance by complementing its domestically focused strategy with a regional and multilateral approach that embraces neighboring and friendly nations, mitigating the risk of supply chain disruptions stemming from concentration in specific countries. However, it also needs to create incentives for China to stay invested in upholding the security of critical minerals supply chains rather than pushing it toward disruptive actions.
The potential for China to disrupt the global critical minerals markets is not limited to possibly banning the export of rare earth elements crucial for the manufacture of advanced American weaponry such as the F-35 fighter jets. According to the “Catalogue of Technologies Prohibited and Restricted from Export (For Soliciting Public Comment)” published by China’s Ministry of Commerce in December 2022, the Chinese government has been considering prohibiting the export of critical technologies used for refining rare earth minerals in retaliation to U.S. export controls. Encouraging China to assume the role of a stabilizer instead of a disruptor will alleviate the urgency and pressure on the U.S. government to allocate substantial resources for costly industrial policies.
Source: CFR
