The US-China Rivalry is Exacerbating the Critical Minerals Problem ― China's weaponisation of mineral supplies and the danger of US supply chain restructuring without decarbonisation ―

Amid tit-for-tat tariff hikes with the United States, the Chinese government has announced stricter export controls on critical minerals such as rare earths as a retaliatory measure. China holds an overwhelming share of the supply of critical minerals, which are essential for decarbonisation and digitalisation. China is seeking to weaponise its supply of critical minerals to increase pressure on the United States.

In response, the U.S. government is accelerating efforts to reorganise its critical mineral supply chains. It has not only concluded agreements with Ukraine on resources such as rare earths but is also pursuing somewhat aggressive diplomacy to secure critical minerals in Greenland and the Democratic Republic of the Congo. Additionally, it is expanding domestic production, including the processing of critical minerals, after invoking the Defence Production Act.

Critical minerals are essential inputs for producing clean energy products such as electric vehicles and solar panels. For this reason, securing critical minerals is often described as a crucial step for the U.S. to reduce its excessive dependence on China on the environmental front. However, the Trump administration is pursuing a policy of what we might call ‘de-decarbonisation’ or ‘anti-climate action’, with environmental considerations taking an unexpected backseat in efforts to secure critical minerals. The administration is instead prioritising military applications, such as securing rare earths used in powerful magnets. It shows no sign of providing significant policy support for lithium and nickel, which are primarily used in clean energy products such as batteries, and have larger markets than other critical minerals. Failure to also secure these metals and expand related businesses would mean only partially achieving the restructuring and strengthening of supply chains This would leave t he problem of dependence on China for critical minerals unresolved.

It will be difficult to continue ignoring the threat of climate change in the long term, and the Trump administration's de-decarbonisation policy is likely to be reviewed or changed eventually . The longer the de-decarbonisation approach delays comprehensive efforts to restructure and strengthen the critical minerals supply chain the more difficult it will be to break China's monopoly. As we inevitably transition to a fully decarbonised society, this could see the United States fall significantly behind China in the competition for clean energy technologies, lose market share in critical industries, and face increased economic security risks.

In Japan too , failure to advance the restructuring of critical mineral supply chains in cooperation with the United States could not only dampen medium to long term growth but also threaten economic security. To avoid this , the Japanese government should independently support the securing critical minerals as a matter of policy, while also collaborating with Europe and emerging nations including those in Southeast Asia and leading a full scale reorgani s ation of the supply chain. Another key piece of the puzzle is to fix the current situation where most of the final demand for clean energy products that use critical minerals, such as electric vehicles and solar panels , comes from China . Even if the supply chain is separated from China, final demand is critical. Without it , costs for the critical mineral business , including measures for environmental burdens , will simply increase and expansion cannot be expected. Even if no major shift from Washington's current extreme policy seems forthcoming, the Japanese government should actively support the expansion of domestic final demand for these products and so promote the restructuring of the critical minerals supply chain.

PDF link(PDF:799KB)