A Growing Threat from China
It has been clear for some time that the People’s Republic of China (PRC) seeks to displace the United States as the leading power within the global order. China has sought to do so in a number of mutually reinforcing ways by employing all available tools, from military means to trade and technology.
In the area of trade, the PRC has exploited the openness of the liberal global system. Seduced by the conceit that the fall of the Soviet Union had heralded the triumph of a liberal world order of free trade and interdependence, the U.S. and other liberal countries invited China to join the World Trade Organization, believing that Beijing would happily accept the tenets of a liberal economic order and play by that order’s rules.
Unfortunately, the hope that China would liberalize as it was integrated into an ever-more-connected world has been dashed on the rocks of geopolitical reality. Instead, Beijing has emerged as an economic and military rival to the United States while remaining unwaveringly committed to authoritarianism. And it does so while exploiting the global system to improve its position at the expense of liberal states, most notably the U.S. One way it does this is by leveraging its array of and control over strategic minerals.
Today, U.S. dependence on these strategic materials poses a looming threat to America’s position in the world. The U.S. Departments of Defense and the Interior have deemed 35 minerals “critically important” to national security and the nation’s economy, including 17 minerals (rare-earth elements, or REEs) that are acutely important to the manufacture of missiles and munitions, hypersonic weapons, and radiation-hardened electronics, as well as such consumer goods as cellphones and catalytic converters in automobile engines. To cite just two examples, each F-35 fighter requires 920 pounds of REE, and each Virginia-class submarine needs ten times that amount.
U.S. dependence on strategic minerals is a result of the failure of U.S. policymakers to recognize the inability of free markets and free trade to address strategic issues. In general, free markets are efficient in allocating resources, and free trade works best when all parties abide by the rules. But when actors such as the PRC flout the rules and pursue predatory policies to direct resources to their own strategic advantage, “free trade” becomes a dangerous fiction that undermines a truly liberal global system. China has repeatedly demonstrated an inclination to use its growing power to undercut accepted rules and coerce other countries.
We have seen this dynamic at work over the past two decades. On the domestic side, the United States was producing a diverse mix of minerals as recently as the turn of the century, but a variety of market forces led to a decrease in U.S. mineral production and processing. With the shutdown of many domestic mines, U.S. dependence on minerals from abroad has doubled. China is now a major supplier of half of the United States’ strategic minerals, including metals for electric-car batteries and weapons systems.
On the international side, the PRC has consistently refused to play by the economic rules, heavily subsidizing its mining industry and ignoring environmental and labor standards in order to upend global markets and dominate global production of strategic metals. As a result of the confluence of these domestic and international forces, the United States imports 80 percent of these metals directly from China, with much of the remainder indirectly sourced from China through other countries.
The long-term danger to U.S. economic health is illustrated by the case of the emerging global automobile industry. Thanks to aggressive government policies aimed at nurturing the growth of high-tech industries, China now leads in the production of electric vehicles (EVs). In 2010, there were only 17,000 EVs worldwide. By 2019, the number had swelled to 7.2 million. Today, the PRC has a larger EV market than the U.S. and Europe combined.
By using EVs to leapfrog ahead, Beijing can overtake established automakers and increase its share of the world market. Morgan Stanley expects EVs to account for 35 percent of the global auto market by 2030. IHS Markit projects EVs will be 60 to 80 percent of cars sold by 2050. China is also poised to dominate a number of other high-tech industries, including superconductors, telecommunications, artificial intelligence, robotics, and advanced aircraft manufacturing.
To achieve its goal, China is investing heavily in minerals production and processing. Chinese firms have locked up supplies of minerals and metals using a combination of state-directed investment and state-backed capital, with far-reaching implications for minerals security.
China already dominates the global supply of lithium, a necessary ingredient for EV batteries. A lithium-ion battery weighs about half a ton and typically contains about 25 pounds of lithium, 30 pounds of cobalt, 60 pounds of nickel, 110 pounds of graphite, and 90 pounds of copper, along with about 400 pounds of steel, aluminum, and various plastic components. But lithium is the key battery metal, and China or Chinese companies control 80 percent of the global lithium supply, which has given Beijing leverage in trade negotiations with the U.S.
As the manufacture of EVs ramps up, demand for lithium is expected to soar. Tesla, the largest electric-car maker in the United States, expects its need for lithium to grow eightfold by 2050. But Tesla is only one company. There are at least 50 EV manufacturers worldwide.
Without access to lithium and other battery minerals such as nickel, graphite, and cobalt, America’s auto-manufacturing industry might not survive, to the detriment of U.S. economic health as a whole. Reducing dependence on China-sourced lithium must be an integral part of U.S. strategic policy. But for such a policy to succeed, the U.S. needs to kick-start domestic production of critical metals instead of relying on imports. The U.S. has vast domestic mineral resources. With appropriate policies, the country can repatriate millions of jobs, increase domestic manufacturing, bolster mining in the U.S., and boost the productivity of U.S. auto companies. How we respond will shape our economy and the international system for decades.
