JPMorgan said on Monday that China has a “near monopoly” on mining many raw materials vital to the production of semiconductors and other technologies, underscoring the importance of key minerals in the escalating U.S.-China trade war.
President Biden last month raised the stakes in the ongoing fight with China by imposing a series of new tariffs targeting Chinese products including solar, electric vehicles, batteries, steel, aluminum and medical equipment.
“The Biden administration’s latest announcement of tariffs on $18 billion worth of Chinese imports has intensified the debate over whether China’s dominance in critical minerals supply chains represents a new battleground in U.S.-China strategic competition,” Amy Ho, executive director of strategic research, and Joyce Chan, global head of research at JPMorgan, wrote in a client note.
In 2022, China produced 68% of the world’s rare earth minerals, used in things like magnets and batteries, and 70% of graphite, which is used in lubricants, electric motors and even nuclear reactors.
But China’s real advantage lies in its mineral processing capacity: China processed 100% of the world’s graphite supply in 2022, 90% of rare earths, and 74% of cobalt (another key mineral for batteries), according to JPMorgan.
“Increasing dependence on critical minerals – key raw materials for semiconductors, electric vehicles and military weapons – has raised concerns that China could use its advantage in this supply chain to retaliate against U.S. industrial policies,” Ho and Chan warned.
The tit-for-tat trade war between the United States and China began in 2018, when then-President Donald Trump imposed tariffs on a range of Chinese products and everyday items, including solar panels and steel, citing Chinese intellectual property (IP) theft and unfair trade practices. Tensions between the world’s two largest superpowers have only escalated since then, with a high-stakes battle over semiconductor IP and manufacturing taking center stage amid the AI boom.
Import-restricted minerals
Of the minerals identified by the U.S. Geological Survey as critical to the U.S. economy and national security, the United States was 100% dependent on imports for 12 of them.
1. Arsenic
Top Sources: China
Usage: semiconductor
2. Cesium
Top Sources: Germany
Usage: Research and Development
3. Fluorite
Top Sources: Mexico
Usage: Manufacturing of fuels, foams, refrigerants, etc.
4. Gallium
Top Sources: Japan
Usage: Integrated Circuits and Optical Devices
5. Graphite
Top Sources: China
Usage: Lubricants, batteries, fuel cells
6. Indium
Top Sources: South Korea
Usage: LCD display
7. Manganese
Top Sources: Gabon
Usage: Steel and battery manufacturing
8. Niobium
Top Sources: Brazil
Usage: Superalloy manufacturing
9. Rubidium
Top Sources: China
Usage: Electronics Research and Development
10. Scandium
Top Sources: Japan
Usage: Alloy, ceramic and fuel cell manufacturing
11. Tantalum
Top Sources: China
Usage: Manufacturing of electronic components, capacitors and super alloys
12. Yttrium
Top Sources: China
Usage: Ceramics and Laser Manufacturing
China is the largest supplier of five of these 12 critical minerals, and the second or third largest supplier of three: fluorspar, gallium, and scandium. But China is not the only supplier of key minerals the United States relies on: Mexico, Japan, and South Korea are also major suppliers.
In addition to the 12 mentioned above, the United States relies on imports for more than 50 percent of its supply of 29 other minerals. These include titanium, 14 rare earth elements, and bismuth, which have net import dependencies of over 90 percent.
Will China Weaponize Its Near-Monopoly on Critical Minerals?
As the US-China trade war escalates, mineral resources could become a weak spot that China could exploit. In a worst-case scenario, if China tightens restrictions on exports of key minerals or implements an outright ban, the electronics, oil refining, defense and electric vehicle sectors would be particularly at risk, JPMorgan’s Ho and Chan wrote.
Still, for now, JPMorgan strategists don’t expect a serious mineral conflict to break out. “While there are growing concerns that China will weaponize its position, we expect China’s response to remain proportionate and limited given its past actions,” they wrote on Monday, adding that the U.S. could also look to alternative sources of supply or substitutes.
The two offered several recommendations on how the U.S. could stabilize its supply of critical minerals to protect the defense industry, aid in the transition to EVs, and ward off the economic fallout from a potential commodity trade war.
First, Ho and Chan noted that creating new mining capacity in the United States is not an option to remedy the country’s reliance on mineral imports. New mining operations take years to get started, are fraught with environmental risks, and regulatory approvals in the United States are often uncertain. According to the International Energy Agency, it takes an average of 16.5 years for a mining project to move from discovery to production in the United States. It also takes an average of 10 years just to obtain a mine permit. 7 to 10 years.
Instead of new mining operations, Ho and Chan recommended diversifying mineral sourcing, adopting new mineral extraction technologies, and establishing strategic stockpiles of key minerals. They estimated that technological innovation and recycling could reduce demand by 20-40%, and material substitution could ease supply pressures and reduce costs over the coming decades. Additionally, strategic stockpiles by the U.S. government and companies could act as a buffer against sudden disruptions to the supply chain.
“There are greater opportunities to diversify sources of critical minerals than oil, and countries expanding their mining and processing capacity include allies such as Canada, Australia, the EU and Japan,” they added. “The United States should remain optimistic.”