[Insight & Opinion] "Weaponization of Batteries": K-Battery's Response Strategy in the New Era

Concerns Over Direct Impact of China’s Battery Export Controls
Urgent Need for Supply Chain Self-Reliance Through Localization of Materials

Recently, the Chinese government announced export controls on key battery materials, heightening tensions across the electric vehicle and energy storage system (ESS) industries. Having succeeded in dominating the battery sector, China is now leveraging its battery supply chain as an economic security tool, following its previous use of strategic minerals like rare earth elements. This move provides an opportunity for Korea to reassess its supply chain vulnerabilities and establish strategies for self-sufficiency.

The Chinese Ministry of Commerce has designated high-performance lithium-ion batteries, LFP (lithium iron phosphate) cathode materials, ternary precursors, and artificial graphite anode materials as export license items, with the new regulations taking effect from November 8. While the official justification is "national security," this is widely interpreted as a countermeasure against U.S. controls on China's advanced industries and technologies. Controlling 70% of the global battery market, China has demonstrated its ability to weaponize the battery supply chain at any time.

The international community has responded swiftly. The United States, wary of dependence on China for grid-scale ESS, described the move as a "potential threat to AI infrastructure and the national power grid." The European Union warned that its green transition policies could be disrupted and called for cooperation at the Group of Seven (G7) level, while Japan emphasized the need to avoid a repeat of the rare earth crisis and stressed the importance of diversifying supply chains.

Korea's battery industry is also at risk. Despite global competitiveness in cell manufacturing, 70-90% of key materials are sourced from China. In particular, nearly all LFP cathode materials for ESS are imported from China, meaning that even minor export license delays could disrupt both U.S. investments and domestic energy highway projects. To prevent a repeat of sudden supply chain paralysis, as seen in the urea solution crisis, self-sufficiency and diversification are urgently needed.

It is time to soberly reflect on the side effects of dependence on China. Relying on cheap Chinese materials has led domestic materials companies to compete on price, resulting in lower operating rates and weakened technological development. However, China's latest move could be an opportunity to break this vicious cycle.

First, Korea should introduce domestic production tax credits for advanced strategic industries to encourage reshoring of key materials. A realistic approach would be to conduct a detailed analysis of tax revenue impacts and investment effects, and to apply pilot programs in supply chain security sectors.

Second, Korea should implement a direct investment tax credit refund system to facilitate investments in next-generation technologies such as LFP and all-solid-state batteries. As in the U.S. Inflation Reduction Act (IRA) and the One Big Beautiful Bill Act (OBBBA), a structure that allows tax refunds even without profits is necessary for sustained investment.

Third, government and public sector ESS projects should offer incentives for the use of domestic materials. By strengthening "domestic supply chain contribution" as an evaluation criterion, materials companies can secure initial demand.

Finally, Korea must build a "non-China battery supply chain" roadmap, covering everything from securing overseas minerals to domestic refining, processing, and recycling. Financial, guarantee, and tax incentives should be reviewed and enhanced to encourage private investment. Battery recycling after use should be positioned as a core strategy for improving self-sufficiency in critical minerals, and related legislation should be accelerated.

Korea overcame the 2019 Japanese export restrictions on semiconductor and display materials by localizing hydrogen fluoride production. Once again, Korea must strengthen supply chain security cooperation with the United States, the European Union, and Japan, while also enhancing mineral diplomacy with resource-rich countries such as Australia, Indonesia, and Argentina.

China's export controls have made the challenge of "supply chain self-sufficiency" unavoidable. If the government and businesses prioritize economic security and ensure consistency in tax, financial, and technology policies, K-Battery can rise beyond being a manufacturing powerhouse to become a trusted alternative in the global supply chain.

Park Taesung, Executive Vice President, Korea Battery Industry Association