Welcome to The President's Inbox, a CFR podcast about the foreign policy challenges facing the United States. I'm Jim Lindsay, director of Studies at the Council on Foreign Relations. This week's topic is critical minerals in China.
With me to discuss why critical minerals have emerged as a major issue in the U.S.-China geopolitical competition is Morgan Bazilian. Morgan is the director of the Payne Institute and a professor of public policy at the Colorado School of Mines. He is an expert on energy systems, markets, and investments. He has had a distinguished career in both government and academia. A few highlights would include being the European Union's lead negotiator on low carbon technology at the United Nations Climate Negotiations, deputy CEO of the Irish National Energy Agency, a senior diplomat at the United Nations, and the lead energy specialist at the World Bank. He has written more than 120 journal articles, including a recent piece for Foreign Affairs titled, "The Missing Minerals: To Shift to Clean Energy America Must Rethink Supply Chains."
Morgan, thanks for joining me. I'd like to start with the big picture question, Morgan, which is why suddenly are newspapers filled with stories about critical minerals?
Yes. So the critical mineral space is not a new one. In fact, the practice goes as far back as 1973 in the U.S., when the U.S. Geological Survey, the USGS, prepared a report on the many ... and I'm quoting. "The many mineral commodities that are important to the national economy, national security, and everyday lives of U.S. citizens." So the topic itself is, of course, not new, and mining is thousands of years old.
The reason, I believe, that we now have this lexicon of critical minerals in the public domain is solely because of the economic war or trade war, or however else people discuss the relationship between the United States and China right now. China is a dominant player in this critical mineral space, and I'm sure we'll get into what that means. And the issue of China is, as you know, roughly the only bipartisan area of even remote agreement. And so it is a political priority and that's why we're hearing about mining again in the front pages of the major newspapers.
So Morgan, I'm going to take you up on your invitation to explain exactly what constitute critical minerals.
Right. So there is not a scientific definition of critical minerals, per se.
So this is not a row in the periodic table?
No, it is not. And it differs widely by jurisdiction, which is often overlooked. So the United States, as I said, started thinking about this, well, decades ago, as did other countries and regions. And so today, the U.S., through analysis by the USGS, the Geological Survey, comes up with a list of these things every few years. Every few years means every three years in the case of the USGS. So right now in the U.S. we have a list of fifty, five zero, critical minerals. The way that the algorithm works or how that is defined in the United States is roughly where we get these things and how dependent we are on certain countries for getting them. So it's a supply side calculation done by the government. The last list we had was thirty-five, and now we have fifty. So if you go to the website of the USGS, you can find those, that actual list. And as an example, the 2022 list, which is the most recent one, adds nickel and zinc and it removes some other things. Helium, potash, rhenium, strontium.
So that's the U.S. list. But the European Union, Japan, Canada, Australia and others also have lists. So this is not solely a U.S. concern. Roughly, the Japanese list and the European Union list are similar to the United States, and they use a roughly similar supply side security focused calculation. But Canada and Australia fundamentally do it almost in a reverse way. So rather than looking at their supply dependence of these various minerals, things we've heard of, lithium, nickel, and cobalt, they look at their export markets, their trade markets, and what's going to be potentially most critical from the perspective of their economy. So it's a much more economic and trade-focused calculation than a security of supply-focused consideration.
Now Morgan, another term I often hear in these discussions is rare-earth elements. Is that just another word for critical minerals? Are they something distinct? Are they a subset? How do I make sense of those different terms?
Yeah. So because the issue, as you said as we started this conversation, has become a priority-one and therefore gone into the public domain and newspapers, everyday newspapers, there's been a conflation of terms. And since critical as a term is not a scientific term, it's been bandied about with another term, which is a technical term, which is called rare-earth elements. And there are seventeen rare-earth elements on the periodic table. And so they are a subset of the critical minerals list in the United States, but they are not the same thing.
One of the reasons they're used is, I think it has a certain rhetorical attractiveness, just that rare-earths sound cool. But also that a lot of the attention vis-a-vis China and on this topic came in the summer of 2010 when China messed with the market for rare-earth elements to Japan, and the prices of some of those rare-earth elements rose dramatically. And that was really the beginning of what we saw the Department of Energy started something called the Critical Minerals Institute, which happens to be partially located at the Colorado School of Mines, as a result of that market price rise and the risks that were perceived in it. So the rare-earth piece started the popular understanding of these critical minerals, at least in the U.S.
So I take your point, Morgan, that when you look at the U.S. list of critical minerals, it's actually quite long. Several dozen minerals end up on that list. But the minerals I hear the most about are things like lithium, cobalt, nickel, and copper. And I take it that there's a lot of discussion about those sources of supply because those minerals are seen to be essential in the green transition of the economy. They're all going to play a major role in the production of things like batteries for electric vehicles.
Now the question then comes in or talk begins about China's role in this. And maybe you can explain for me what role China plays in the mining, processing, refining of these minerals.
Right. So a couple of things to say to frame how I think about this area. One is that ... so we're talking about fifty things. You have a foreign policy, international relations podcast, you think about security a lot. The last list had thirty-five. So when you go from thirty-five to fifty, you're actually losing focus as opposed to increasing focus. Now, the preference should be, in the future, in my opinion, to get that list from fifty down rather than up. Because of the political attention on the issue, the list, like all things, has become politicized. And so there are various industry associations trying to lobby to get onto the list because of perceived benefits to investment or focus or just communications and PR benefit of being on the list. So that's just one thing to say.
Also, that this list of fifty things is not a homogenous group. And so they have different stakeholders, they have different markets, they have different supply chains, they have different end uses. And so we can't really talk about them as one thing, even though the most powerful analog to all of this is oil ... let's just say oil or gas. But oil is by far the largest traded commodity. And so sometimes you see this notion that one of these things you just mentioned, lithium as an example, key for electric vehicle batteries and stationary batteries, is the new oil, lithium or white gold or something relating it to these massive other commodities like golden oil. When in fact ... and we can go through this if you like. That these commodities markets we're talking about, the words you just said, lithium, nickel, cobalt, manganese are tiny in comparison, have very frail markets, and more complex supply chains.
And so I add all of that context in the hopes that it helps fill in a little bit when we're talking about the things you just said. So yes, the focus, public focus is on ... at least in the United States right now. Is on these things that go primarily into electric vehicle batteries. And they are the subject of Defense Production Act, Title III, et cetera. And the reason they're on the tip of our minds is one, they've been reported on extensively. Two, we're seeing a huge rise in demand for them because of the rise of electric vehicles. The list itself says the thinking of critical minerals is not limited to energy outputs. It's also for consumer goods and it's also for defense and military applications. So there's a wide series of applications, but we're seeing the strongest growth right now from the clean energy or from the electric vehicle batteries space.
So I take your point, Morgan, that these supply chains are complex, potentially even fragile. Can you lay out the role China plays in them?
Yeah, so coming back to China. So the question I get asked most is, well, you say China dominates these markets. Can't the U.S. beat them? And the answer is maybe, but it matters on geography and time and economics and prioritization. And so China has been investing in the supply chains of these critical minerals, various critical minerals for decades. So it's not a new play. They also do not have the same kind of issues we have in the United States or in Europe, Japan about community engagement, social license, permitting. And so they've been able to, when they decide on something, long-term decisions and they can action them. And that's what they've done on critical minerals. It's been going on for at least twenty years, if not more.
And so China's role is absolutely massive across the world. And so if we think of it in a caricature of a supply chain, which would be mining, processing, and refining of those rocks or those ores, and then putting them into an advanced manufacturing supply chain, say pieces and parts of a battery, in one example. Then we will see that China, over those decades, not only dominated the early stages, the upstream stages of this, the mining, but that the United States ... after World War II. Almost all of our expertise in, say the processing and refining of these chemicals, to other countries where it was easier to get these things done, easier to get through environmental reviews, community engagement, et cetera. And so you see China absolutely as the biggest player in the processing and refining side.
And keep in mind that what we really want out of these minerals is not the fundamental ore or rock. What we want, and what we need for the advanced manufacturing in defense or energy is chemicals. And so they're in that place. And then they also, of course, are making loads of these electric vehicles, advanced manufacturing, batteries, et cetera. Because as you know, for an economy, the advanced manufacturing piece is much more valuable to economic value add to an economy than is mining. Now, if we look at that supply chain example I gave, you would see that China's domination is very clear as we move towards advanced manufacturing on the supply chain and in processed and refined chemicals.
It looks like it's a little less dominant on the actual mining and ore section, but they've made strategic investments across the world, even before Belt and Road Initiative, into companies that are operating in other countries. So they don't show up as Chinese production, but the companies themselves in these rather murky markets are often Chinese as well. So what I've given you is that they are, again, using this term dominant, across that supply chain for the bulk of those critical minerals.
I take your point, Morgan, that China dominates many of these supply chains and that its operations are global. One statistic I have seen is that China mines less than 20 percent of the world's supply of lithium, but controls more than 60 percent of its refining in production capacity. And beyond that, these minerals or ores are not uniformly distributed around the world. They appear en masse in certain countries and not in others. And I think that gets us into the foreign policy aspect of it.
And just to give people a sense of this, could you lay out, for example, who are the world's biggest nickel producers versus cobalt producers versus lithium, since those are three of the minerals that are talked most about?
Sure. So the largest producers of lithium are Australia and Chile. However, as you note, that ore goes then to China to produce the chemicals that we need for these advanced manufacturing processes or for goods outside, for energy, consumers, defense, et cetera. So while the production is geographically distributed in the world ... a lot of nickel comes from Indonesia. We hear in the media a lot about cobalt from the Democratic Republic of the Congo, et cetera. The shipped ores are still mostly going to China for processing, and then they're turned into chemicals which are then traded globally.
Additionally, and as I was alluding to, what you see, say in the lithium or in nickel or in almost any of these, that there are Chinese companies operating, as an example, in Chile or in Australia and making investments in Chilean or Australian companies, et cetera. There's not a lot of transparency about that. But they are invested all the way across that supply chain. Even if the official numbers come out and say, well, they're actually not that big of a producer of say lithium, but they're a big producer of their refined chemicals. So the foreign policy piece still becomes something that is a China focus. And of course, the United States has a keen eye on the China focus, and Europe has a slightly different view of this, as do Japan and Korea, et cetera.
To what extent, Morgan, do these minerals and ores trade on what we might call free and open market? I ask that because I've seen a number of pieces that talk about nickel mining in Indonesia, for example. The arguments are that the Indonesian government's policies here are opaque. There are intimations that these policies favor corrupt business deals that Chinese firms may be more willing to engage in than western mining companies would.
Likewise, I've read about how lithium exists in large amounts, not just in Chile, but Bolivia and Argentina. Those governments have a longstanding resentment about U.S. intervention in their region and in their countries. And as a result, they're preventing us or U.S. related businesses from getting a foot into the mining of lithium in these countries, which suggests that Washington's problem is a bigger one than simply trying to get access to an ore.
Yeah. So if we can, let's separate some of the state actors, foreign policy aspects from the markets just for a minute, to get some clarity on the markets piece. So I'm going to start with the markets question. These markets, as I alluded to, are very small in comparison to global oil markets. Just to give an example, if you or I or our children or anyone we've met wanted to find out the price of oil in Dubai or the North Sea or in Texas, in the United States, we could look on our phone and have a pretty good idea of what that price was, priced in U.S. dollars, in about five seconds. You cannot do that with almost any, or probably any, of the list of fifty critical minerals on the U.S. list.
So they are small, the markets are opaque, they do not have good price discovery. Which means that you don't really have an idea of what the price is even today, let alone what it could be. They're highly volatile. They have bad governance, in general, and they're frail. And so as an example of the last adjective I just gave, in March of last year, 2022, the London Metals Exchange suspended trading of nickel after the prices spiked 250 percent in two days.
Yes. Most of that spike occurred in an 18-minute window, and it caused the collapse of the nickel market. And partially caused the collapse of the entire London Metals Exchange for at least trading nickel for a couple of weeks. It was due to some short-selling, primarily. But it just indicates, what if, Jim, we saw the crash of the global oil market for two weeks? It would have enormous implications for the global economy. We didn't see that from nickel, and it was not primarily due to the war in Ukraine, although it has some piece of that. But it's just indicative that the markets for these things are absolutely fundamentally in need of reform, refinement, bolstering, et cetera.
So think about it this way. If you have a mining company or a product company that relies on one of these things and you take an investment to your board and say, "Well, I really have no idea what the price is going to be tomorrow or in a week, let alone over the two decade period of this project or four decade period of this project." How is the board supposed to respond to that? So it's very difficult to make investment decisions based on these markets. So I just wanted to focus on the markets for a little because I think it has implications for everything else. So I think that that lack of good markets has implications for the foreign policy piece you were getting to.
So the United States looks at the issue of critical minerals and is worried primarily that China, its identified strategic rival, dominates the production refining of many of those critical minerals. So it wants to find a way to reduce its vulnerability to potential Chinese manipulation of a market or China's refusal to sell to the United States. What are the U.S. government's options?
Right. So one thing, again, when you think of foreign policy ... and you have all kinds of terrific experts on this podcast on those topics. My main principle when you're thinking about any kind of policy is if you're going to get something done, it needs to have prioritization. So it needs to be politically salient, and then it needs a budget related to it. And then you have to keep in mind two other things. One, that you're almost inevitably going to get the policies wrong, or there will be unintended consequences. And two, that that policy prioritization, political prioritization is fleeting. It's ephemeral. It's definitely not going to stay at a high level of prioritization forever, unless it's something like a military budget or something like this. But these sort of policy topics come and go.
And so right now, as we're discussing it, why you have this topic on your show, is because we're in this window of political prioritization, and that's the time to get things done. Again, this is not a new topic, even for the United States. So some of the moves have happened. Actually, under the Trump administration, we saw the use of the Defense Production Act for rare-earth elements, which means that it was put under the Title III of the act. And there were investments because of that. And I think your listeners know about the Defense Production Act, started post World War II to secure iron and steel for fighting. So it was done under the Trump administration. It's been done before.
Under this administration, you're using the Defense Production Act much more and in different ways. Which is, traditionally it was used with a military focus. And what we just saw with the last couple of the Biden Administration Defense Production Act calls, determinations, were because of energy systems, so because of battery minerals. So that's one area. But the DPA is not, I don't think, capable of changing global markets. And also, thinking of this in terms of what the U.S. can do by itself is, of course, parochial because this is a global issue and has global trade and has global markets and all kinds of different foreign policy implications. And so the U.S. can look much more carefully, as we outlined in the foreign policy piece, at how to think about mining. Permitting of mining, what the domestic mining count looks like.
That works though, Morgan, for minerals that you have in sufficient quantities in the United States. And we only have one operating lithium mine right now, I believe, in the United States. The challenge, of course ... and the DPA, the Defense Production Act can't solve this. Is that it takes a long time to open up new mines precisely because of this permitting process. And obviously for minerals that you don't have in large reserves, trying to produce them at home isn't an option.
So that takes you into the realm of working with like-minded countries. I know there's been talk about the Mineral Security Partnership, which involves a slew of American friends and allies. Australia, Canada, France, the United Kingdom, Germany, Japan, the list goes on. Is there much value in the Mineral Security Pact? Can it produce the kind of comfort and assurance that we want that we're covering up the potential vulnerabilities that we have?
Look, so yes. Partnering with other countries is clearly one of the good ideas in this space. And those partnership ideas are relatively nascent. So under the last administration, there was something established, the State Department's ENR, Energy and Natural Resources branch called ERGI, which the acronym is Energy Resource Governance Initiative, I believe. And that essentially took the same tact, which was, hey, we need to work with partners on this.
So keep in mind in this area, like a lot of other areas, certainly like energy, there's a political attractiveness to talk in terms of American independence, American domination of these things. That almost never is a useful driver for sane, constructive, effective policies. But it is and remains and will remain politically very attractive as a mean or as a narrative. Very quickly, the Department of Defense came and said, look, how we deal with these kind of things is working with allies. That's how we fight wars. That's how we produce security. And that's the way it's going to work in this area as well. So in that way, I think the DOD or the Pentagon deserves a lot of credit for coming out and making it clear that partnerships are the way to go.
Now, the Mineral Security Partnership, which was launched by the Department of State with fairly little detail in September of 2022, yes, it has those countries, and I guess more are being added. And it has various diplomatic goals and diplomatic tools, and says it's going to call on investment tools from places like the EXIM Bank of the United States. But as you know, Jim, diplomacy is a subtle, slow ... highly worthwhile, but not something that is going to change global supply chains and global markets overnight. But I think it's a really important part of the tool set.
And I will note that the COVID-19 pandemic showed how it can be extremely difficult, particularly during crises, to get even like-minded close countries to collaborate. I mean, there was a lot of vaccine nationalism during it. So the challenges here are significant.
Morgan, if we can, I'd like to close on the question of whether or not technology can provide the United States with a way out of the vulnerability it faces. I am actually old enough to remember all of the writing done in the 1970s about the shortage of minerals. And I remember there was a famous wager between the economist Julian Simon and the biologist Paul Ehrlich back in 1980, over whether the price of a certain set of minerals would rise or fall over the course of the 1980s. Paul Ehrlich, a futurist, had argued about the constraints we were facing. His argument was prices would go up because of demand and limited supply. Simon was a believer that markets would solve the problem. At the end of the 1980s, it turned out that the optimist, Julian Simon, was right.
And I was thinking about this wager as I read a story in the New York Times about a week ago, which talked about breakthroughs in terms of building sodium batteries, which could potentially supplant lithium batteries for many uses. Not all uses. And the thing about sodium batteries, if you can make them work, is they don't need materials like cobalt or nickel. And even better yet from Washington's perspective, the United States possesses 90 percent of the world's readily mined reserves of soda ash, which as I understand is the main source of industrial sodium or sodium for industrial uses. So are there potential breakthroughs on the technological front that could remake this whole discussion?
So as usual, the answer to that question is, sure. There are technological and innovation breakthroughs that can have a significant impact on how we think about this in the medium to long term. And when I'm saying medium to long term, ten to fifty years or ten to 100 years, the answer is yes. But the answer, as usual, is also that these are not solely technical systems. These are technical social systems. These are systems where technology and society are intimately tied, and in this case, also intimately tied with the rest of the world. So yes, there is lots of very vibrant, interesting research on things like battery chemistries going on throughout the world and throughout U.S. universities. And those will have an impact on what the demand for various minerals and metals look like. I don't know how much research time your listeners have spent in universities, but I can assure you that it is not a quick process.
So those kind of things, getting the research done and then moving the research to market, especially with such imperfect markets as we've described, is not a quick situation. And one of the things we can say is that even if, say battery chemistries wildly or radically transform, which is unlikely in the next decade, you're still going to have the need for a lot of these other critical minerals for either niche applications, or in some cases, large applications. You're unlikely to find a big substitute for copper in electric motors or aluminum in transmission. And so you're still going to have reliance on other metals and minerals. The place where you see that substitutability coming quickest is not in the example you gave, but in the move to minimize the amount of cobalt in these batteries because of the real and perceived risks of getting cobalt out of the ground in the DRC. And that's been covered in lots and lots of big newspapers over the last-
And that has a lot to do with the environmental impact, lack of regulation. I mean, a lot of mining creates pollution.
Well, pollution is one aspect, but even more difficult is the impact on societies. And the piece that was brought up most with the DRC mining is, of course, child labor. Which, while a very small piece of it is, of course poignant, it's something that needs to be addressed urgently. But so thinking of this wholly as a technocratic endeavor that we can research our way out, is unlikely to produce ... Just the other day, in March of 2023, the European Commission came out with something called the Critical Raw Materials Act. And as usual, it has a lot of thoughtful pieces in it going through the EC and EU process.
And yes, part of it is investing in research, innovation, and skills. Keep in mind that we have very little workforce development in these areas outside of the battery chemistry say, or advanced manufacturing training. We have very little workforce development in mining, sustainable mining, or processing. But they also have things like, make sure that the raw materials supply chains are working, make sure the markets are functioning better. Protecting the environment, looking at circularity and recycling. Diversifying imports, trade actions, strategic partnerships, et cetera. And so focusing solely on hoping that innovation is going to save us on this one, is pretty unlikely.
I take your point, Morgan, that there are no silver bullets out there on the horizon, at least anytime soon. So with that note of caution, I will close up The President's Inbox for this week. My guest has been Morgan Bazilian, director of the Payne Institute and a professor of public policy at the Colorado School of Mines. Morgan, thank you for a fascinating conversation.
Jim, a pleasure. Thanks for having me on.
Please subscribe to The President's Inbox on Apple Podcasts, Google Podcasts, Spotify, or wherever you listen. And leave us a review, we love the feedback. The publications mentioned in this episode and a transcript of our conversation are available on the podcast page for The President's Inbox on cfr.org.
As always, opinions expressed on The President's Inbox are solely those of the host or our guests, not of CFR, which takes no institutional positions on matters of policy. Today's episode was produced by Ester Fang with Director of Podcasting Gabrielle Sierra. Special thanks go out to Michelle Kurilla for her assistance. This is Jim Lindsay, thanks for listening.
Mentioned on the Podcast
Morgan D. Bazilian and Gregory Brew, “The Missing Minerals: To Shift to Clean Energy, America Must Rethink Supply Chains,” Foreign Affairs
Keith Bradsher, “Why China Could Dominate the Next Big Advance in Batteries,” New York Times
Geological Survey 2022 Final List of Critical Minerals [PDF], U.S. Geological Survey, Department of the Interior