Written by Lachlan Nieboer, Founder & CEO, Bedford Analysis.
Opinions expressed in this article are those of the author. The CMIA is committed to creating a platform to enable open and honest discussion about critical minerals, their supply chains and geopolitics.
In the ongoing discussion on the geopolitics of critical mineral supply chains, there is a prevailing understanding that China’s dominance in this space is now a significant threat to Western security. These security threats are diverse - ranging from threats to national and economic security, to energy, human, and environmental security - and naturally demand the attention of an increasingly broad spectrum of Western government departments. Like never before, the security implications of critical mineral supply chains are now under intense scrutiny. Newly-inked Western critical minerals strategies have aimed to address many of these concerns, primarily with ‘friend-shoring’ efforts to build out secure, diverse, sustainable, and resilient supply chains at breakneck speed, and all with one key fundamental in mind: without China. If it needed to be said, global critical mineral supply chains are now a busy hive of geopolitical tensions between the West and China, and governments, investors and industry are acting accordingly. As the West avidly pursues its ‘de-risking’ agenda, the question might be asked: how did it come to this?
The first explanation is that in recent years under President Xi’s premiership, China - or rather the policies and practises of the Chinese Communist Party (CCP) - has drawn criticism on itself on the world stage. For example, it's difficult to imagine Western leaders plausibly endorsing the violent suppression of the pro-democracy demonstrations in Hong Kong in 2019; the implementation of the contentious national security law in 2020; or the ongoing human rights abuses of the Muslim Uyghur population and forced labour camps in Xinjiang; and the reports of widespread CCP subversion and espionage activities, as disclosed in 2023 by the most senior Western intelligence officials. It's equally challenging for Western leaders to overlook China’s revanchist claims on Taiwanese sovereignty, recently reiterated by President Xi in his New Year address only moments before the Taiwanese presidential and parliamentary elections; and the ongoing military tensions in the South China Sea. It’s also equally hard for Western leaders to ignore multiple reports of Chinese breaches of World Trade Organization (WTO) regulations, as outlined in the recent U.S. House Select Committee report on Strategic Competition between the United States and the Chinese Communist Party; and the recent leveraging of its market dominance through the imposition of export controls of gallium and germanium, and not least the most recent ban on the export of rare earth processing technology. Neither one of these issues is insignificant, new, or, for that matter, resolved. But it is highly reasonable to argue that China’s own actions have breached international laws and norms and forced the West’s hand to ‘de-risk’.
It is important to take account of China’s point of view on all these geopolitical flashpoints. For example, China has argued in its own defence that its method of handling the Hong Kong protests was its own domestic prerogative. Regarding Taiwan, China argues that in line with its ‘One China’ policy, ‘unifying’ Taiwan with the mainland is an ‘historical inevitability’. China argues that the U.S. itself has breached WTO regulations in the past, after President Trump imposed tariffs on over $200bn of Chinese goods; and that the U.S. has of course implemented its own export controls on semiconductors. Whichever view you take, in light of China’s current wholesale dominance of critical mineral supply chains, in the West these heightened geopolitical tensions have birthed a raft of unprecedented legislation, new international partnerships and ‘de-risking’ strategies in order to mitigate the perceived security threats it now faces from China. Certainly, maintaining functional political and economic relations given these flashpoints in the middle of an ongoing trade war (between governments with two radically different political paradigms) is a challenge. Indisputably, though, the CCP has implemented a range of domestic and foreign policies that have drawn global attention, forcing governments and private industry alike to scrutinise their supply chain vulnerabilities and the implications of their reliance on these monopolies. The scramble for critical minerals has therefore become the next battleground for great power competition.
But the rise of critical mineral supply chains as a geopolitical battleground also stems from other factors that, put bluntly, the West is responsible for. For example, for years, the West developed offshoring practices with a deliberate avoidance of scrutiny of key supply chains in order to cut costs. It overlooked the strategic manoeuvring of the U.S. in supporting China’s accession to the WTO, coupled with the establishment of Special Economic Zones (SEZs). In turn, China, seizing the opportunity, embraced the less savoury aspects of mineral extraction, actively engaging in sourcing materials from regions like the Democratic Republic of Congo (DRC) where artisanal miners offered minerals at lower costs, allowing for higher profit margins. Its aggressive involvement in the midstream market, through cutting costs by cheap labour and by ignoring environmental degradation, allowed China to rapidly establish its monopoly, exerting significant control over the supply chain of these minerals. Chinese companies were supported by vast loans delivered at speed from state-sponsored banks such as the Export-Import Bank of China and the China Development Bank. Western companies simply could not compete. These strategic moves not only exploited global economic dynamics but also underscored the darker side of global trade, highlighting the complexities where profit often trumps ethical considerations. In the early 2000s, when the West ambivalently doddered along with electrification and renewable technology, China grew its dominance in these sectors exponentially with heavy subsidies, a boom-and-bust strategic approach, and state-owned enterprises (SOEs) capitalising on Belt-and-Road partnerships globally. And now, China’s first-mover advantage is as clear as ever. In the context of poor Western oversight and China’s long-term strategic and economic commitments, critical minerals supply chains grew to become the geopolitical weapon they are today.
What complicates this picture further is that supply chain monopolisation more generally is now seen as high-risk. This is partly due to the collapse of the ‘just-in-time’ supply chain model during the Covid-19 pandemic in 2020, and partly due to the upheaval in the food and energy markets after Russia invaded Ukraine in 2021. Fear has ratcheted up globally over the perceived vulnerability of interdependent supply chains, and quite naturally underpins Western policy to ‘de-risk’ and diversify its critical mineral supply chains from China. But this is not all. Western fears over supply chain monopolisation are also in large part to do with being caught perilously short in controlling the pace of the technology growth required to reach Net Zero 2050 goals. China is primarily interested in this space and has significant control over the supply of renewable technologies being sold to the world. The foresight China has shown in developing these supply chains from mine-to-market, through strategic long-term investment and policy both domestically and internationally, puts it in pole position to supply the world with the technology for the green revolution. Its dominance is frankly staggering. For example, a Center for Strategic International Studies (CSIS) Energy Security and Climate Change Program report assessed that in the production of component parts for solar panels (crystalline and amorphous silicon cells), China dominates 89% of global market supply in the downstream; whilst assembling 70% of the global supply of silicon modules (solar ‘panels’). By comparison, the EU assembles a mere 1% of the global supply of these panels. According to Rystad Energy, China can now make over 1000GW of solar energy per annum, more than twice the global demand. In the global production of the component parts for ‘nacelles’ (gearboxes) and blades for wind turbines, China controls 56% of production; by comparison, the EU produces only 20% and the U.S. 11% of global production. The International Energy Agency estimates that China owns at least 60% of the world’s manufacturing capacity for solar, wind and battery power. Beyond the process of completely rewiring globally interdependent trading networks established over thirty years during the ‘peace dividend’ after the fall of the Soviet Union, the West has also been badly caught short in controlling the key strategic sectors it requires to meet its climate goals and lead the renewable energy transition.
Finally, in the last few years, Western democracies have experienced an unprecedented series of political and economic shocks to their systems (U.S. election-meddling, Brexit, the rise of right-wing populism, Covid-19, January 6th, the Russia-Ukraine war, and latterly the Israel-Gaza conflict). Paradoxically, these geopolitical shocks may likely have simultaneously undermined and strengthened Western democratic institutions. But have they also influenced critical mineral supply chain diversification strategies? The world got riskier so why not diversify? The notable dearth of shared deeper political values between the West and China, in combination with the various other challenges and threats to Western democratic institutions, values and processes in recent years, has arguably caused the West to ramp up its democratic defences against any perceived threats, not least in the supply chain of critical minerals. In this context, securing critical mineral supply chains is the next rational phase of a wider Western geopolitical defence strategy.
These are a handful of snapshots of the key drivers in Western governments to ‘de-risk’ and diversify critical mineral supply chains. Whether it is due to China’s own controversial domestic and foreign policies; the success of China’s long-term industrial vision; or due to the seemingly endless flow of geopolitical upheavals over the last few years destabilising the world economy and reshaping the trading network paradigms of the last thirty years, the West’s strategy to ‘de-risk’ has finally begun to take shape. However, criticism is often made that the West is too far behind China to make a meaningful dent in its grip on the markets; that the long lead times for mines make it highly unlikely the West will be able to compete; that China’s subsidies are too great, and their practise of dumping to keep prices low and competitors out the market are too aggressive. Fundamentally, when it comes to critical mineral supply chains, the main detractors of ‘de-risking’ say it’s just too late. But how balanced is this understanding? Granted there are innumerable threats China seems to pose to Western security outlined already, but when it comes to critical mineral supply chains, how serious is the threat to Western security? Is the West not in a stronger position than it realises?
It just may well be. In terms of U.S. legislation, the Inflation Reduction Act (IRA), Bipartisan Infrastructure Law (BIL), and CHIPS & Science Act will cumulatively take U.S. federal spending over $2 trillion over the next decade. The IRA itself directs US$393bn of federal funding towards clean energy technology through a range of tax credits and subsidies over the next few years. Its targets are unprecedented and massively ambitious. For example, by 2027, 80% of all critical minerals in the U.S. electric vehicle (EV) market must be supplied domestically, or in a country with whom the U.S. has a Free Trade Agreement (FTA); and by 2029, 100% of EV batteries must be assembled in the U.S. (or in countries with whom the U.S. has an FTA). Some countries have already got in line. For example, in March 2023, the U.S. signed a deal with Japan that qualifies minerals exported from Japan to the U.S. for IRA tax credits.
The IRA has also stimulated unprecedented levels of private sector investment into Made-in-America supply chains. Incentivising U.S. domestic manufacturing capacity through its array of incentives for private investment in the form of tax credits – US$216bn for corporations and US$42bn for consumers – and subsidies and grants, the IRA ultimately will create millions of jobs for U.S. citizens in the clean energy sector, meet the U.S. goal of reducing emissions to 50% below the 2005 levels by 2030, and create more diverse – therefore more secure – critical mineral supply chains. By leveraging U.S. economic firepower to incentivise international partnerships to build secure and resilient critical mineral supply chains and clean energy technology, the U.S. is driving China out of its domestic clean energy technology market. Similarly, the EU’s Made in Europe Partnership 2022 is specifically designed to boost the EU’s manufacturing base; and the recent EU Critical Raw Materials Act (CRMA) 2023 sets an aggressive series of targets for weaning the EU off its consumption of critical mineral imports from China by 2030. For example, by 2030, 10% of the EU’s annual consumption of critical minerals upstream needs to be sourced domestically; and 40% of all midstream capacity needs to be done within the bloc itself. The standout target – though slightly less ambitious than the U.S. equivalent – is that by 2030, no more than 65% of the EU’s total consumption of each mineral at any stage in the mineral supply chain can be sourced in a single ‘third’ country (non-EU member), such as China. The diversification targets for U.S. and EU supply chains in the IRA and CRMA respectively mean that China’s days of supplying the West with critical minerals are literally numbered.
The U.S. shows no sign of slowing up. The U.S. Department of Energy recently announced that from 1 January 2024, any company in the EV battery supply chain (at the manufacturing and assembly stage) with more than 25% of the board seats, voting rights or equity interest linked to a Foreign Entity Of Concern (FEOC) from a ‘covered’ nation (Iran, North Korea, Russia, China) will not qualify for the tax credits offered under the IRA. The restrictions will be expanded to apply across the rest of the supply chain in 2025 (extraction, processing, recycling). Indonesian nickel companies ‘subject to the jurisdiction or direction’ of China look likely to be among the first to be disqualified for these tax credits. Some suggest that multiple loopholes in the FEOC definition will continue to benefit Chinese companies; but over time, surely these creases can be ironed out. But it is the exponential growth of new Western partnerships over critical minerals, galvanising their shared geopolitical, geo-economic, technological, and geological opportunities – most particularly within the framework of the U.S.-led Mineral Security Partnership (MSP) – that ought to be the main story. The MSP commands immense geopolitical heft and ought not to be underestimated. If we are to learn anything from China’s strategic market dominance of critical mineral supply chains over the last twenty years, it is that the strength of political will and levels of investment are both controllable and effective. A geopolitical optimist would therefore argue that the IRA and EU’s CRMA - in conjunction with the MSP, and financing initiatives like the U.S. International Development Finance Cooperation (DFC) and the EU’s Global Gateway Initiative – will soon provide more than adequate opportunities for the West to regain control of the supply chain of critical minerals at strategic junctures going forward.
Beyond the Western commitment to ‘de-risking’ from China, there is an additional wildcard: the growth trajectories of critical minerals markets are likely to be asymmetrical, unpredictable and universally disruptive. As the market leader, China’s position is arguably most exposed to this risk of asymmetrical disruption. The most obvious example is in technological innovations. For example, direct lithium extraction (DLE), sodium-ion batteries (SIBs), vanadium-redox batteries (VRBs), synthetic mineral factories, deep-sea mining and asteroid mining could dramatically recast the shape of these supply chains from what they are today. Rapid growth in private sector investment in innovation should persuade us to expect the unexpected in this space. As the ice-caps begin to melt, new areas of strategic mining interest will emerge in disputed territorial waters, and the potential for maritime conflicts will grow. Similarly, resource protectionism and continuously volatile pricing patterns are two equally inconsistent variables. Additionally, political, security and environmental variables (both at the local and regional level) across a range of jurisdictions and cultures will likely continue to disrupt the economic, physical, and political dimensions of critical mineral supply chains controlled by both Western and non-Western companies alike. After all, disruption favours none and affects all.
Yes, China currently dominates the markets for critical minerals supply chains, but is this dominance likely to last? Perhaps not. And is it a threat to Western security? Not as much as it would seem. Western strategies, legislation, record levels of investment, and new multilateral and bilateral partnerships have all been set in motion and will inevitably shape a radical shift in the critical mineral economies over the next few years. Simultaneously, the markets will evolve asymmetrically on several fronts, likely upending long-standing Chinese domination in the process. Integrating this perspective into our narratives of China’s dominance of critical mineral supply chains might calm nerves and cool heads.
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About the Author
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Lachlan Nieboer is an academic and independent consultant specialising in the geopolitics of critical mineral supply chains. He is a graduate of the War Studies Department, King's College London, where he attained his MA in Intelligence and International Security; and New College, Oxford, where he studied Classics.
He is founder and director of Bedford Analysis, a geopolitical risk consultancy that specialises in providing bespoke analysis on global critical mineral supply chains. He is also a researcher in the War Studies Department at King's College London (KCL) and is currently co-publishing a paper on critical mineral supply chains.
Previously, he worked as a consultant for world-leading geopolitical advisory service Oxford Analytica; and for a charity that facilitates legal representation across Sub-Saharan Africa.