How Trump's trade war is heating up fight for critical minerals
Oil companies spent more than a century developing a vast industrial network to extract, refine and deliver their product to customers around the world. Sourcing the materials needed to build an alternative, less carbon-intensive economy presents a whole new set of challenges.
China has been tackling this successfully for more than a decade, making it the undisputed leader in the "critical minerals" used in equipment such as electric vehicle batteries, solar panels and wind turbine magnets.
If other nations are going to have a chance of challenging its dominance in these clean technologies, they need to catch up fast. The race has taken on greater urgency now that China is curbing exports of several critical minerals — in particular the rare earth metals used in the defense and energy industries — in response to US President Donald Trump's escalating trade war.
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As Trump looks to make America less dependent on foreign imports, he's laid the groundwork for potential tariffs on critical minerals. In mid-April he signed an executive order directing Commerce Secretary Howard Lutnick to initiate a Section 232 investigation to determine whether US reliance on imports pose a threat to national security.
What are critical minerals?
Nations have long sought to secure supplies of materials they deem vital to their industrial and military capabilities. About 50 metallic elements and minerals have met those criteria in the US and European Union, including lithium, graphite, cobalt, manganese and rare earths — elements with unique chemical behaviors that make them indispensable to the manufacture of some electrical, electronic, magnetic and optical products.
Most critical minerals were chosen for their role in building the infrastructure required to reduce the carbon emissions responsible for climate change — a mission that's backed by hundreds of billions of dollars in subsidies and tax breaks. Some of the minerals are also used in semiconductors for civil and military communications.
Why is sourcing critical minerals a challenge?
While many critical minerals can be found in a raw state in large quantities across the globe, extracting and refining them into a usable form can be technically complex, energy intensive and polluting. China has come to dominate the value chain for many of these products.
Even in the case of more abundant metals such as copper, massive demand growth means there might not be enough to go around. In 2023, the EU categorized copper and nickel as critical raw materials for the first time, even though there are lots of places where they can be found.
Why is relying on China for critical minerals a problem for Western nations?
Manufacturers try to avoid overdependence on supplies from any single country because it leaves them exposed when that nation's industrial output is disrupted by things like power shortages, epidemics or social unrest.
With China, there's also a strained relationship with the US to consider, especially now that longstanding tensions are spiraling under Trump into a deeper trade war involving punitive tariffs and tightening export restrictions.
China banned the export of antimony, gallium and germanium to the US in December, citing national security concerns, after Washington restricted China's access to some sensitive technologies. The move is likely to raise costs for some US manufacturers of electronic and optical equipment. Beijing also placed tighter conditions of sales of graphite, an ingredient in EV batteries.
In response to Trump's tariffs, China added export controls on tungsten, bismuth and other niche metals used in electronics, aviation and defense in early February, sending the prices of some of those products soaring. In April, China added seven rare earths to its export control list.
How did China get so dominant in critical minerals?
As early as 1992, Chinese leader Deng Xiaoping was highlighting his country's potential to lead the world in critical minerals, saying "The Middle East has oil. China has rare earths." As its economic growth accelerated, demand for industrial commodities began to far outstrip local reserves.
China responded with heavy investments in mining assets overseas and came to gradually dominate the refining and processing of many industrial commodities, as well as a host of obscure byproducts. As China stepped in, Western companies withdrew, happy to outsource the production.
Today, China is the leading producer of 20 critical raw materials, as measured by its share of global mined or refined production. In the case of the rare earth element dysprosium, used in lighting and lasers, China is responsible for 84% of mined supply and 100% of refined production, according to an EU analys is.
The country is also the largest producer of refined forms of cobalt and nickel, and Chinese companies have been investing heavily in cobalt and nickel mines in nations such as Congo and Indonesia.
What are China's economic rivals doing about it?
The Inflation Reduction Act signed into law by President Joe Biden in 2022 aimed to help the US meet its climate goals through job-creating investments in renewables and EVs, and ease reliance on unreliable or hostile overseas suppliers.
While successor Trump has disparaged Biden's climate policies and ordered federal agencies to stop disbursing IRA funds, a complete repeal of the legislation appears unlikely. Republican lawmakers whose districts and states are benefiting from investments spurred by the IRA have pressed the president to maintain its provisions.
In March of this year, Trump took the Biden administration's effort to reduce US dependence on minerals from China a step further, invoking emergency powers to boost domestic production and processing of the materials.
He then launched a probe into the critical minerals supply chain in April, ordering the commerce secretary to determine whether tariffs need to be applied on imports. According to the White House, the US is "100% import-reliant" for at least 15 critical minerals and 70% of its rare earth shipments come from China.
In the EU, the Critical Raw Materials Act aims to ease financing and permitting for new mining and refining projects at home and strike trade alliances to reduce the bloc's dependence on Chinese suppliers. The EU is also pushing through a Clean Industrial Deal that will include a mechanism enabling companies in the region to pool their demand for critical materials.
China's rivals have been trying to strike supply deals and investment partnerships with nations that produce critical minerals. However, China's established position in many of those countries gives it an early advantage.
For example, more than half the cobalt mines in the Democratic Republic of the Congo are owned or controlled by Chinese companies. China is consolidating relationships with African nations that are set to be among the world's biggest producers of the metal by the end of the decade.
