Trade Solutions Sought to Force Supply Chain Shift for Critical Minerals

The SAFE Center for Critical Minerals Strategy, in concert with its new report, "Trading Tensions: Navigating Policy Tools for a Diverse Critical Minerals Supply," hosted a discussion on what trade policies could make a difference to reduce American overreliance on Chinese inputs needed for chip manufacturing, wind energy, electric vehicle and utility scale batteries, and aerospace uses.

The report warns: "Targeted trade remedies may not effectively reduce U.S. reliance on China due to the complex, global nature of supply chains. These policies can create loopholes where Chinese materials are incorporated into products in other countries and then imported to the U.S. without tariffs, potentially shifting supply chains without addressing upstream dependence on Chinese sources."

Zoe Oysul, lead author of the report, said the government needs to push companies to improve supply chain transparency, and enhance the effectiveness of existing tools, such as the African Growth and Opportunity Act, using it to negotiate critical mineral trade agreements that would count as FTAs for the purpose of the Inflation Reduction Act's EV battery rules of origin.

The center's executive director, Abigail Hunter, cautioned that even with U.S. investment in African mines and processing centers, it's unlikely those facilities could be producing at scale within the 10-year time horizon of the IRA's EV-battery-related tax credits.

The report also said: "The costs associated with complying with AGOA’s eligibility requirements, coupled with low Most Favored Nation tariffs on critical mineral imports, create a challenging cost-benefit calculation for countries considering participation in the program for critical minerals trade."

The report noted that China's dominance goes beyond its near-monopoly in processing, it also has ownership stakes in mines in foreign countries that result in a guaranteed stream of materials coming to China for processing.

"The concentration of these critical supply chains -- especially processing -- in one country, particularly one with adversarial geopolitical interests, poses a significant risk to U.S. national security, economic stability, and technological leadership," the report said.

Georgetown University Law Professor Jennifer Hillman, during the launch event for the report, said that before talking about trade policy for critical minerals, we should acknowledge "we basically don’t have a trade policy in critical minerals."

She said that's partly because there is no domestic processing industry advocating for protection or for trade agreements to ensure easy access to raw minerals. She added that current antidumping and countervailing duty law allows imposing duties to protect an industry that's just getting off the ground.

However, she said the good news, as far as developing a trade policy goes, is that there are a limited number of countries with mining operations of these minerals, so negotiating with them is not a Herculean task.

Kelly Ann Shaw, a former Trump trade official now at Hogan and Lovells, noted that processing minerals is environmentally taxing, "which is why you don’t see a lot of other countries raising their hands" to do it.

She said recycling critical minerals could help, but currently, it's very expensive to recycle.

The report said that import bans, such as the Uyghur Forced Labor Prevention Act, could be a way to force a supply chain shift, but added, "without adequate support and careful implementation, import bans can also have unintended consequences, potentially restricting U.S. industry’s access to crucial material inputs if supply chains are not given time to adapt."

Shaw said in order to effectively counter Chinese dominance, fundamental changes to rules of origin will have to be imposed, preferably with allies copying the U.S. approach.

She said the IRA and the Chips Act both use the concept of a "foreign entity of concern," so that it's not enough for a good to come from a country other than China, it must also be from a firm that is not Chinese controlled.

She said a Chinese-owned lithium mine in Indonesia could still "switch the off button" for U.S. buyers to punish the U.S. for geopolitical actions.

For this approach to work, "the private sector will have to certify there is no Chinese [or] Russian content or ownership. That’s a lot to put on businesses," she said, and expressed concerns that medium or small businesses would not have the capacity to prove their supply chains are free of those entities. She said the government would need to partner with businesses to get that level of transparency.