In the past year, China has implemented export controls on critical minerals such as gallium, germanium and graphite, which are essential for manufacturing key technologies like semiconductors. As U.S.-China competition escalates, there is a growing possibility that China might impose further controls or even bans on mineral exports to the United States. Here’s why this threat should be taken seriously and the potential implications for the U.S.:
- Historical precedent: China has a track record of imposing export restrictions and bans. In 2010, it halted rare earth exports to Japan, and in 2023, it banned the export of rare earth processing technology. These actions underscore China’s ability and willingness to use export controls as a geopolitical tool.
- Strategic advantage: Imposing export bans could allow China to retaliate against U.S. restrictions on technology exports, potentially deterring further U.S. actions and giving China leverage to acquire U.S. technology.
- Alternative markets: Chinese mineral producers, who mine 70% of the world’s rare earth elements but consume more than 80%, could find alternative markets for their products. Growing demand in Southeast Asia and other developing regions could absorb excess production, reducing the impact of any U.S. export bans.
- Dominance in production: China’s control over the production of many critical minerals is far more significant than Russia’s influence on natural gas. In 2022, China led production for 30 of the 50 minerals on the U.S. critical minerals list, holding a majority share in global production. A ban could have more severe consequences than the European shift away from Russian gas.
- Slow U.S. response: The U.S. and its partners are unlikely to quickly ramp up production to replace imports from China. Many mineral producers have long-term agreements with customers, and new mining operations take years to develop. Consequently, the U.S. might struggle to find immediate replacements for these minerals.
- Challenges in securing new supply: While the U.S. could financially support mineral projects in resource-rich countries, such as those in Africa and Latin America, this does not guarantee success due to investment risks and regulatory challenges. Chinese companies are often more willing to operate in these environments.
Recommendations for U.S. response
To address the potential risks from Chinese export bans, the U.S. should consider the following strategies:
- Increase mineral stockpiling: The U.S. government should bolster its mineral stockpile, which is currently only about 1% of its 1962 value. Increasing stockpiles now, while mineral prices are lower, would provide a buffer against supply disruptions.
- Secure long-term supply agreements: The U.S. could offer financial incentives to companies to secure long-term offtake agreements with reliable providers in the U.S. and partner countries like Canada and Australia. Concessional financing could further encourage this approach.
- Boost mineral exploration and development: Increased funding for mineral exploration and development is crucial. The U.S. should support exploration efforts under Title III of the Defense Production Act, which provides funding for domestic and partner country mineral projects. Additionally, expanding the use of the Title 17 Clean Energy Financing Program to include domestic mine development could provide necessary capital.
- Strengthen mineral supply chains: The U.S. should focus on diversifying its mineral supply chains and reduce dependence on Chinese sources. This includes supporting the development of new mines and processing facilities.
China’s threat to impose export bans on critical minerals is not merely a negotiating tactic—it poses a real risk that could disrupt U.S. supply chains and impact key industries. By taking proactive measures to increase stockpiles, secure supply agreements, and boost domestic production, the U.S. can better prepare for potential disruptions and ensure a more resilient mineral supply chain.
