A Critical Mineral Trade War Is Brewing

China and the United States have fired their opening salvos in a critical minerals trade war. Over the past year, China has imposed export controls on gallium , germanium , and graphite — all minerals necessary for energy transition technologies. Then in May, the Biden Administration shot back with tariffs on critical mineral imports , part of a package of trade protection measures to help shield domestic manufacturers in strategic sectors, including the mineral industry. The downstream consequence for energy transition technologies such as electric vehicle batteries, however, is almost certainly higher prices.

In all likelihood, this critical mineral trade war will intensify, with corresponding implications for U.S. industries that use these raw materials. China’s next shot may be even tighter export controls on critical minerals, including minerals for which the United States relies heavily on China. Such export controls pose real — and serious — risks to downstream U.S. industries for five key reasons.

1. Critical minerals underpin billions of dollars of U.S. economic activity.

For example, the White House assesses that U.S. consumption of rare earth elements worth $613 million affects about $496 billion in downstream economic activity across core sectors, from petroleum refining to automotive manufacturing. Critically, the United States relies on China for nearly 70% of its rare earth consumption. The United States also depends substantially on China for other minerals — more than on any other country. Of the 50 non-fuel mineral commodities for which the United States relied on imports to meet more than 50% of its consumption from 2019 to 2022, China was the leading import source for 15. Because critical minerals are necessary in applications affecting strategic sectors such as automotive manufacturing and renewable energy, Chinese export controls would be particularly disruptive and costly.

2. It would be tough — if not impossible — for the U.S. to find other sources for the volume of Chinese-produced minerals it consumes.

To illustrate, the United States does not produce any arsenic metal, which is used to produce gallium arsenide semiconductors for high-performance electronics . China supplied 97% of America’s arsenic metal imports in 2022. If China were to restrict arsenic metal exports to the United States, American manufacturers — including semiconductor fabricators, which the Biden administration very much wants to support — would likely struggle to find non-Chinese suppliers able to meet their full needs. Multiply this across all of the many, many minerals China supplies to the U.S., and you get a major problem.

3. Even if U.S. companies can source critical minerals outside China, they’re probably still controlled by Chinese companies.

For instance, Chinese companies have significant stakes in cobalt reserves and production in the Democratic Republic of the Congo , the world’s largest holder of cobalt reserves and producer of cobalt ore. There, the Chinese company CMOC owns the Kisanfu project, which calls itself one of the world’s “ largest and highest-grade undeveloped copper-cobalt projects ,” and Chinese companies owned or financed 15 of the 19 cobalt-producing mines there as of 2020. Depending on the extent to which the Chinese government requires overseas Chinese companies’ help enforcing mineral export controls, downstream U.S. industries could be prevented from sourcing minerals produced by Chinese companies outside China.

4. Higher global mineral prices could spur non-Chinese producers to enter the mineral market — but these new entrants may struggle in the long term.

Plenty of new companies entered the rare earth industry after China reduced export quotas and caused record-high rare earth prices in 2010 and 2011 . But when prices fell in 2015 due to lower-than-expected demand , many of these rare earth companies went bankrupt . Ultimately, the success rate for rare earth projects entering production between 2011 and 2021 was just 1.5% . Non-Chinese mineral producers may find it attractive to enter the market amid artificially inflated prices from export controls, but whether their business model will hold if and when prices fall again is decidedly less sure. Importantly, China’s commanding production share for many critical minerals enables it to influence global prices in its favor. If a new global industry begins to flourish, a glut of cheap Chinese minerals may not be far behind.

5. Non-Chinese mineral producers could face capital and technical challenges ramping up production.

Mines and refineries already operating near their maximum capacity would have to invest millions or billions of dollars to expand production capacity, which can take up to five years from starting feasibility studies to commissioning new production. For mines and refineries with the capacity to ramp up production already available, that excess margin could be due to long-standing technical issues in processes like adjusting the temperature during processing. Thus, non-Chinese mineral supply may take some time — and a lot of money — to come online if China imposes export controls.

The Chinese government has both the will and the capability to impose mineral export controls — as evidenced by its prior and present use of mineral trade restrictions, from banning exports of rare earth elements to Japan in 2010 to imposing a blanket export ban on rare earth processing technology in 2023 . As U.S.-China competition intensifies, more Chinese export controls on minerals could well follow, which would cause severe supply chain disruptions given challenges sourcing sufficient non-Chinese mineral supplies.

So, while it remains to be seen how China will retaliate to this new round of U.S. mineral tariffs, the U.S. government should accelerate its mineral stockpiling — including urging certain downstream U.S. industries to stockpile — and its collaboration with partner countries to improve the resilience and robustness of their mineral supply chains. The U.S. government should tread carefully in deploying trade tools in this critical minerals competition, and prepare accordingly for possible Chinese responses.

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