February 8, 2024
IntelBrief: Playing Catch Up: The West Tries to Stake Its Claim Over Access to Critical Minerals
There is a race underway between the world’s two leading superpowers: not one chasing missiles and warheads, but one after the minerals and metals that will fuel the transition towards a green economy. In particular, the growing demand for electric vehicles (EVs) has led to an explosion in the market for minerals like lithium, cobalt, copper, nickel, and rare earth elements. These elements are also needed to produce other popular consumer technologies like smartphones as well as military technologies like the fifth-generation F-35 fighter jet, missile guidance, and sonar systems. According to Goldman Sachs’ Jared Cohen, “the critical minerals market doubled in size” in the last five years and will double again by 2030. Common consensus shows that China holds a dominant position in this competition thanks to decades-long investments, which have allowed for overwhelming control over the supply chains of various minerals and resources used to power green technology. The United States, by contrast, has only recently begun to incorporate this into its grand strategy with major acts of government intervention like the Inflation Reduction Act (IRA).
For countries that can combine ownership of these resources with the domestic production capacity to produce EVs and their various components, such as batteries, this could lead to an outsized role of economic dominance in renewable energy markets, particularly in a world exhibiting greater willingness to reduce, perhaps one day even significantly, the use of fossil fuels. During the annual UN climate conference in December, 118 countries signed a pledge to triple global renewable energy capacity by the end of this decade. The conference also led to a first-ever global agreement to transition away from fossil fuels.
Late last year, a Chinese company – BYD – overtook the American firm Tesla as the world’s largest electric car company. The European market has played a particularly important role here, with Chinese EV exports overtaking a significant share of the increased demand for EVs. The European Union (EU) enacted a ban on combustion car engines by 2035, while the United States aims to increase the proportion of EV sales to fifty percent of total new car sales by 2030. States such as California have taken on more ambitious goals, like one hundred percent of car sales being EVs by 2035.
China may currently hold outsized control over these supply chains, but the discovery of new rare-earth element (REE) deposits over the past decade has weakened its grip. While about half of all known REE deposits were located in China ten years ago, that has decreased to approximately one-third. Meanwhile, its broader control of REE supplies has slipped from 97 to 63 percent. Meanwhile, a recent discovery could represent a significant shift in U.S. control over lithium - one of the most important and widely used minerals for electric batteries. In November, the U.S. Department of Energy (DOE) reported the discovery of what is believed to be the world’s largest lithium reserve under California’s Salton Sea. The estimated 18 tons of lithium discovered is worth approximately $540 billion. According to the DOE, these resources could support a massive number of batteries – more than the total number of vehicles currently in use in the United States – and could “enabl[e] the United States to meet or exceed global lithium demand for decades.” While the United States currently only produces one percent of the global lithium demand, the amount discovered in the Salton Sea could provide for nearly forty percent. Additionally, lithium extraction from the Salton Sea can be done in an environmentally safer manner than traditional methods employed in China, which has lax environmental standards for the extraction of critical minerals.
Great power competition, combined with the economic trend of “friendshoring” – in which states diversify nodes in the supply chain to incorporate friendly nations and exclude competitors and adversaries – has made access to and ownership of critical minerals an increasingly valuable national security priority. China, for instance, has adopted a “Made in China” policy and recently tightened export controls on graphite after applying similar trade practices towards Japan in 2010 to maintain its dominance in rare earth processing. China has sought to use its exploration and mining capacities to strengthen partnerships with resource-rich countries in Latin America and Africa, including Brazil, Peru, Zimbabwe, and Zambia. In November, Chinese state media said lithium mining would become a focal point of its relations with countries in Latin America.
With aims to constrain Chinese artificial intelligence development, U.S. trade controls on high-tech components like semiconductors demonstrate that neither side is above using its economic leverage to bend markets to meet their foreign policy priorities. These actions, in turn, led to reciprocal Chinese restrictions on the export of certain semiconductor inputs destined for the United States. More recently, the U.S. has disqualified EV battery components manufactured by those it deems a “foreign entity of concern” from being eligible for subsidized purchase by American consumers. This has taken the majority of EV models off the table for the subsidy: only 13 of the approximately forty EV models available in the United States qualify for the credit. The Australia-United States Taskforce on Critical Minerals was formed in 2023 with the aim to “deepen the bilateral collaboration on the critical minerals and materials that are vital to clean energy as well as defense supply chains,” according to a White House press release. Europeans are also aiming to reduce their foreign dependence in this arena: last March, the EU passed a bill aimed at increasing and diversifying the Union’s critical mineral supply, noting the “high risk of supply disruption due to their concentration of sources and lack of good, affordable substitutes.”