[The Era of Mineral Hegemony] The US Dreaming of a 'Metal NATO'... Allies Going Their Own Ways

"20th Century Was the Oil War, 21st Century Is the Battle for Mineral Securing"
Severe Chinese Dependence on Key Mineral Refining Market
US Attempts Supply Chain Reorganization through Defense Production Act, IRA, and MSP

Yoo Beom-min, Director General of the Resource Industry Policy Bureau at the Ministry of Trade, Industry and Energy (second from the left), is attending the 'Critical Minerals Security Partnership (MSP) Launch Ceremony' held on the 14th (local time) in Toronto, Canada, along with Lee Do-hoon, Vice Minister of Foreign Affairs (left). [Image source=Yonhap News]

The U.S. government is expected to accelerate the restructuring of supply chains for critical minerals, starting with the Inflation Reduction Act (IRA). China dominates more than 50% of the refining market for key minerals used in electric vehicles, batteries, and renewable energy such as solar power, putting the U.S. on high alert.

The intentions of allies such as South Korea, the European Union (EU), the United Kingdom, Australia, and Japan are complex. Unlike the U.S., which aims to fundamentally restructure the China-centered supply chain, the EU, facing energy pressure from Russia, seeks to maintain limited cooperation with China. Japan is increasing its domestic refining capacity for key minerals to establish a self-sufficient system.

◆ U.S. aims to expand ‘Metal NATO’ = Foreign Affairs, a U.S. diplomatic journal, recently analyzed that "The main goal of the IRA is to expand domestic production of critical minerals such as lithium, nickel, manganese, and graphite, which are essential for electric vehicles, batteries, and renewable energy," adding, "If the 20th century was characterized by wars to secure oil, the 21st century will likely be defined by battles for critical minerals."

In fact, immediately after the IRA was enacted, the U.S. accelerated the formation of a critical minerals consortium with its allies. On the 22nd (local time), the U.S. held a ministerial meeting for the Critical Minerals Security Partnership (MSP) in New York.

The meeting was attended by 11 MSP partner countries including the U.S., South Korea, Australia, Canada, France, Japan, the United Kingdom, and the EU, as well as ministers from eight resource-rich countries such as Argentina and Brazil. MSP is interpreted as a strategic move to counter China in the critical minerals supply chain and build a new U.S.-centered supply network. In this context, MSP is sometimes called the ‘NATO of metals’.

On the same day, the U.S. State Department stated, "MSP aims to produce, process, and recycle critical minerals in ways that help countries fully realize the economic development potential of their mineral resources," and added, "Through MSP, we will promote public and private investment in critical mineral supply chains, enhance transparency, and encourage high standards of environmental, social, and governance (ESG) criteria."

Prior to MSP, the U.S. government invoked the Defense Production Act in April this year to secure critical mineral resources needed for electric vehicle batteries. The IRA, signed by President Joe Biden last month, requires that from 2023, only critical minerals produced and processed in the U.S. or allied countries be used by manufacturers to qualify for electric vehicle tax credits.

The Defense Production Act, IRA, and MSP all embody the Biden administration’s ambition to restructure the critical minerals supply chain centered on the U.S.

◆ Serious Chinese dependence in mineral refining = The reason the U.S. government is pressuring even its allies to restructure supply chains is the recognition that dependence on China for essential minerals is excessively high. There is growing concern that future industries promoted by the Biden administration?such as electric vehicles, batteries, and solar power?could become entirely dependent on China.

The problem is particularly acute in the refining sector rather than mining. While the sources of key minerals are dispersed across China, Australia, South America, Africa, and Southeast Asia, the refining plants are heavily concentrated with Chinese capital.

According to the U.S. Geological Survey (USGS), for lithium, a key material in electric vehicle battery production, Australia accounts for the largest share of mineral production at 51%, but China dominates refining with over 58%. For graphite, a strategic material used in battery anodes and nuclear reactor moderators, China accounts for 82% of global production and 70% of refining, holding an overwhelming share.

For rare earth elements used in major electronic devices and military aircraft, China controls more than 60% of mineral production and nearly 85% of refining, effectively monopolizing the market.

In contrast, the U.S. has a minimal share in both mineral production and refining.

According to Foreign Affairs, the U.S. share of the lithium upstream (mining) market dropped from 27% in 1996 to 1% in 2020. The downstream sector, including refining, also lags significantly. Despite recent investments in lithium batteries, as of 2020, the U.S. lithium battery production capacity was 44 gigawatt-hours (GWh), far behind China’s 558 GWh.

◆ EU and Japan seek their own paths = The EU, currently facing an energy crisis due to Russian gas supply pressures, maintains that it cannot immediately reduce its dependence on China despite U.S. pressure.

According to CNN, since 2020, the EU has aimed to strengthen resource security by reducing dependence on critical raw materials from single countries. However, unlike the U.S., the EU does not designate China as a competitor in mineral supply and has only suspended ratification of the Comprehensive Agreement on Investment (CAI) with China last year, without abandoning it.

Japan, having directly experienced resource disputes such as China’s rare earth export ban during the 2010 Senkaku Islands (Chinese name Diaoyu Islands) dispute, is focusing on securing minerals, domestic refining centered on rare earths, and developing substitutes.

According to the Center for Strategic and International Studies (CSIS), after the 2010 rare earth dispute with China, the Japanese government, led by the Ministry of Economy, Trade and Industry, formulated measures to stabilize the supply of rare metals and has focused on strengthening mineral supply chains. Since then, Japan has reduced its dependence on Chinese rare earths from 85% in 2010 to 58% in 2018.

Additionally, since 2020, the Japanese government has increased stockpile days for 34 rare metals from 60 to 180 days and decided to reduce dependence on rare earth imports from any single country to below 50% by 2025.