A “Minerals Club” Could Help Untie Us From Authoritarian Regimes, But Leaders Must Resist Nationalistic Impulses

US President Joe Biden and European Commission leader Ursula von der Leyen on Friday vowed “cooperation on diversifying critical mineral and battery supply chains.” Dialing down trade tensions with our allies is a welcome development. There has even been talk of a “Critical Minerals Club,” which could be a first step toward an efficient market for these sought-after minerals, while unwinding dependencies on authoritarian regimes.

Transitioning from hydrocarbons toward renewable energy sources like wind and solar, as well as lithium-ion batteries to run electric vehicles, is going to take a lot of critical minerals that we don’t have.

China is the world’s largest refiner and an obvious source. China dominates the lithium-ion battery manufacturing market, with about three-quarters of global production. “When you are talking about batteries for EVs, all roads go through China,” an auto expert recently told me. But democratic countries are increasingly trying to avoid being cornered by authoritarian regimes, especially those with military aspirations at odds with an open society. Leaders across the US, UK, EU and Japan have voiced the need for a more diverse supplier base. So, it was not surprising when Biden and von der Leyen announced they sought “to reduce unwanted strategic dependencies in these supply chains, and to ensure that they are diversified and developed with trusted partners.”

Last year’s Inflation Reduction Act (IRA) legislation established production and investment tax credits for electric vehicle batteries and other renewables, setting off a rush of plans for new US manufacturing. Battery producers will need reliable sources of critical minerals for batteries and other high-tech components: Lithium, cobalt, manganese, nickel, rare earths. The EU does not want its producers to be left out, so it was welcome news for European firms as the two leaders also launched talks to allow critical minerals extracted or processed in the EU to qualify for the Section 30D clean vehicle tax credit under the IRA.

A lot of what goes into lithium-ion batteries, for example, is hard to get in the US right now. Lithium-ion batteries contain a cathode, which requires lithium ions, as well as nickel, manganese and cobalt, or an alternative chemical combination utilizing iron and phosphate.

It’s not that the US lacks geological deposits. The first US cobalt mine in decades just reopened last year in Idaho, and there is likely much more to exploit beneath US soil. But domestic production of lithium and nickel, for instance, is just tiny sliver of the global market, and our environmental review process is slow and expensive. It’s not clear the public has the appetite to change those laws. The US is probably years, if not several decades from any kind of self-sufficiency, if ever.

Forming a “minerals club” with the EU and eventually other friendly governments — especially Canada, Chile, Brazil and Australia, which have large mining sectors — could be a decent start.

It’s not clear if the world will ever get to global free trade in critical minerals. Supply is not concentrated, so the world needs to deal with a diverse set of governments and government actors. But one thing is clear: The West does not want to be beholden to China. We all winced when China threatened to cut off a chunk of trade with Australia in retaliation for Canberra asking questions about the origins of Covid-19.

Biden and von der Leyen made clear that their club is meant to counter Beijing, saying they would promote “information-sharing on non-market policies and practices of third parties — such as those employed by the People’s Republic of China — to serve as the basis for joint or parallel action and coordinated advocacy” in venues like the World Trade Organization.

A critical minerals club could be a good idea, especially if it eliminates trade costs like tariffs, quotas, burdensome rules of origin and border policies in the name of nationalism. An unfettered ability to buy and sell these critical minerals, and transparency in the marketplace, should be the primary goals. Friday’s US-EU statement was cause for cautious optimism, as it explicitly opposed “zero-sum competition so that our incentives maximize clean energy deployment and jobs.”

A “Critical Minerals Club” is not going to solve climate change or guarantee a secure and resilient supply chain. But it could help us get one step closer, as the free world tries to untie itself from authoritarian regimes.