China has a “quasi-monopoly” on the mining of many raw materials that are crucial for the production of semiconductors and other technologies, JPMorgan said on Monday, underscoring the importance of these key minerals in the escalating trade war between the United States and China.
President Biden raised the stakes in the ongoing dispute with China last month when he targeted A series of new tariffs will be imposed on Chinese products such as solar cells, electric vehicles, batteries, steel, aluminum and medical devices.
“The Biden administration’s recent tariff announcement on $18 billion worth of Chinese imports has intensified the debate over whether China’s dominance in the critical minerals supply chain will become the latest battleground in the U.S.-China strategic competition,” Amy Ho, executive director of strategic research at JPMorgan, and Joyce Chang, head of global research, wrote in a note to clients.
In 2022, China produced 68% of the world’s rare earth minerals, used in things like magnets and batteries, and 70% of the graphite used in lubricants, electric motors and even nuclear reactors.
But China’s real dominance lies in its mineral processing capabilities, according to JPMorgan. China processed 100% of the world’s graphite supply, 90% of rare earths, and 74% of cobalt (another important mineral for batteries) in 2022.
“Increasing dependence on critical minerals that play a key role in the production of semiconductors, electric vehicles, military weapons, etc. has raised concerns that China could use its dominance in this supply chain to retaliate against U.S. industrial policies,” Ho and Chang warned.
The exchanges between the USA and China Trade war began in 2018 when former President Donald Trump Rates on a range of Chinese goods and raw materials, including solar modules and steel, citing the Theft of intellectual property and unfair Trading practicesSince then, tensions between the world’s two largest superpowers have only increased. High-stakes fight about intellectual property and semiconductor manufacturing, which are in the spotlight amid the AI boom.
Only imported minerals
For 12 of the minerals that the US Geological Survey classifies as critical to the US economy and national security, the US is 100 percent dependent on imports.
1. Arsen
Top source: China
Applications: semiconductor
2. Caesium
Top source: Germany
Applications: Research and Development
3. Fluorspar
Top source: Mexico
Applications: Production of fuels, foams, coolants and more
4. Gallium
Top source: Japan
Applications: Integrated circuits and optical devices
5. Graphit
Top source: China
Applications: Lubricants, batteries, fuel cells
6. Indium
Top source: South Korea
Applications: Liquid crystal displays
7. Manganese
Top source: Gabon
Applications: Production of steel and batteries
8. Niob
Top source: Brazil
Applications: Production of superalloys
9. Rubidium
Top source: China
Applications: Research and development in electronics
10. Scandium
Top source: Japan
Applications: Production of alloys, ceramics and fuel cells
11. Tantal
Top source: China
Applications: Production of electronic components, capacitors and superalloys
12. Yttrium
Top source: China
Applications: Manufacturing of ceramics and lasers
China is the primary source of five of these 12 critical minerals and the second or third primary source of three others: fluorspar, galium and scandium. But China is not the only country the United States relies on for key minerals. Mexico, Japan and Korea are among the other major sources.
For 29 additional minerals beyond the 12 listed above, the United States is 50 percent or more dependent on imports. These include a net import dependency of over 90 percent for titanium, 14 rare earths, and bismuth.
Will China weaponize its “mercury monopoly” on critical minerals?
With the US-China trade war intensifying, minerals could be a vulnerability for Beijing to exploit. In a worst-case scenario, if China tightens export restrictions on key minerals or imposes an outright ban, the electronics, oil refining, defence and electric vehicle sectors would be particularly at risk, according to JPMorgan’s Ho and Chang.
Still, JPMorgan strategists do not currently expect a serious turf war over minerals to emerge. “There are growing concerns that China will use its position as a weapon, but we expect China’s response to remain proportionate and limited given past actions,” they wrote on Monday, adding that the U.S. could also look for alternative suppliers and substitute products.
The two made some recommendations on how the U.S. can stabilize its supply of key minerals to protect the defense industry, support the transition to electric vehicles, and prevent the economic consequences of a potential commodities trade war.
First, Ho and Chang noted that creating new U.S. mining capacity is not an option to address U.S. dependence on mineral imports. New mining operations take years to start, face environmental risks, and regulatory approval in the U.S. is often uncertain. According to the International Energy Agency, it takes an average of 16.5 years for a mining project to go from discovery to production in the U.S. And just obtaining a permit for a mine takes an average of seven to ten years.
Instead of new mining operations, Ho and Chang recommended diversifying raw material sourcing, adopting new mining technologies, and strategically stockpiling key raw materials. They estimated that technological innovation and recycling could reduce demand by 20 to 40 percent, while material substitution could mitigate supply shortages and reduce costs over the next few decades. In addition, strategic stockpiling by the U.S. government and companies could serve as a buffer against sudden supply chain disruptions.
“There are more opportunities to diversify suppliers of key minerals than there are for oil, and countries that are expanding their mining and processing capacity include allies such as Canada, Australia, the EU and Japan,” they added. “The US should remain optimistic.”