The fundamental laws of supply and demand hold true to the extent that markets are free, transparent and competitive. This is not the case with critical minerals. And China — which controls 50 to 90 percent of key components within the clean energy supply chain — likes it that way.
The United States must lead the retaking of the commanding heights of the new energy economy. To do so, America should readjust its thinking, reassess its allies and institutions and reinvent economic statecraft. Free nations know that they must increase mineral investments beyond China’s control. But to succeed, they should establish guards to prevent China from using its market power to undercut and bankrupt mining investments at home and abroad.
A clean energy transition requires increasing reliance on non-coal metals and minerals, like lithium for batteries, copper for transmission lines or rare earth elements for motor magnets. The global base metal mining market is valued at $551 billion. By contrast, the global oil industry generates $1.5 trillion to $4 trillion per year depending on prices. According to the World Bank, the mining industry must increase production by more than 500 percent by 2050 to achieve clean energy and climate change targets. McKinsey estimates that copper and nickel alone would require capital expenditures of $250 billion to $350 billion by 2030 to meet demand.
Given this vast structural supply deficit and government policies super-charging demand, one would assume that we are in a great minerals exploration race. However, this is not the case. S&P Market Intelligence found that mining companies spent a meager $13 billion on exploration activities in 2022. The global oil and gas firms spent nearly $500 billion on capex development even though government policies are curbing demand for their product.
The Chinese Communist Party’s (CCP) strategy included government-sponsored theft of American intellectual property, debt-trap diplomacy to secure critical metals, the shirking of human rights and environmental conventions and building megafactories at home for global export. It worked. China controls more than 80 percent of all stages of the solar industry and an estimated 75 percent of electric vehicle battery capacity.
The Chinese Communist Party has repeatedly weaponized its control of critical minerals against free nations. In 2010, China banned the export of rare earth elements over a fishing dispute with Japan skyrocketing prices. In 2019, Party Leader Xi Jinping sent a fearful West a message by publicly touring a rare earth plant in protest over U.S. trade relations creating market turmoil. Yet, China’s real strength is not its ability to restrict supplies and increase prices, but its consistent practice of dumping products and crashing the market.
China can use its position as the world’s clean energy swing producer to undermine a Western company’s economic thesis and survival. Securing financing to develop a mining project has always been challenging but is even more pronounced when the return on investment is premised on the value of a commodity subject to CCP manipulation.
While Beijing banned rare earths for Japan in 2010, in 2015, it dumped rare earths onto the market, forcing America’s only mine into bankruptcy. In March, Beijing signaled that it would take greater control of cobalt supplies, and coincidentally miner Jervois announced that it would suspend construction of America’s only cobalt project that same month. China has also stepped up to control prices where it is reliant on imports. Unhappy with business-to-business contracts, the CCP formed the China Minerals Resources Group, a new state agency to buy iron ore for 20 of the country’s top steel producers.
The United States has raised global awareness of the China challenge and advanced policies to spur the development of a secure clean energy supply chain. The Inflation Reduction Act (IRA), for example, provides $370 billion in taxpayer subsidies to incentivize domestic mining, processing and clean tech manufacturing. Yet, for America to retake clean energy and security leadership, we should establish clear boundaries and prohibit U.S. taxpayer incentives from ending up in the hands of Chinese firms. These prohibitions should apply whether the firms are operating abroad or in collaboration with companies at home. Failure to do so explicitly would unjustly reward and enrich the CCP’s predatory practices and undermine any hope of competition.
The U.S. must apply a more nuanced test in considering alliances. Free trade agreements alone are insufficient determinants in this new era of economic realpolitik. European Commission President Ursula von der Leyen would like the European Union to qualify for IRA subsidies even though several European EV factories are owned by Chinese companies. Meanwhile, German Chancellor Olaf Scholz led Volkswagen and other CEOs to meet with Party Leader Xi in Beijing. Increasing dependence on a strategic threat weakens free nations’ shared security.
America should work to strengthen traditional alliances; however, we must also be pragmatic in our economic statecraft. U.S. and European officials have discussed creating a critical minerals “buyer’s club,” but to be credible, club membership should be dependent on a more rigorous test than just geography.
The United States has launched meaningful programs to increase our domestic clean energy capacities and encourage the diversification of mineral supply chains away from China. Yet, capital formation has not met the scale of climate goals or national security needs. America should take action to improve investor confidence and rebalance the critical minerals market playing field. The United States can act boldly and create meaningful competition or act rhetorically and entrench Chinese control for generations.
Frank Fannon served as the inaugural U.S. assistant secretary of state for energy resources. He is currently the managing director of Fannon Global Advisors.