Strategic Materials and the New Cold War
It has been clear for some time that China and the United States are pitted against each other in a new cold war. While the current conflict is similar in many respects to the one between the United States and the Soviet Union that ended in the 1990s, one major difference is its less ideological character. The U.S.-Soviet Cold War explicitly pitted communism against liberal capitalism. Although ostensibly communist, China today is communist in the same way that the mafia is Catholic. Instead, China combines its traditional Confucianism with predatory capitalism, which in many respects makes it much more dangerous to the United States than the Soviet Union was.
Of course, there is an important military component of this competition. China has invested in naval, missile, and other military capabilities. It has attempted to establish sovereignty over the South China Sea and has continued to threaten the independence of Taiwan.
But economic and technological factors have been more important in this competition. Economically, China’s “belt and road initiative” has proven to be a debt trap for those countries that have been ensnared in it. Technologically, China is poised, as David Goldman has noted, to exploit the “fourth industrial revolution,” based on artificial intelligence, quantum computing, and the exploitation of 5G networks.
But there is another, more mundane, factor at work: the old fashioned competition for resources, especially critical/strategic minerals/metals that are necessary for many of the advanced technologies that will shape the future, including clean energy and especially high-end U.S. defense platforms.
These critical minerals/metals include: copper, an irreplaceable element for advanced energy technology, including electric vehicles (EVs), wind turbines, and solar panels; lithium, which is essential for producing the lithium-ion batteries used in EVs; cobalt, which is integral to the manufacturing of lithium-ion batteries and other advanced technologies; nickel, which is used to produce super alloys, strong materials, such as stainless steel, and battery manufacturing; and rare earth elements, which have diverse applications in electrical and electronic components, lasers, glass, magnetic materials, and industrial processes,
For both domestic and international reasons, the United States finds itself at a disadvantage in this area of geopolitical competition. As the Wilson Center argued in a recent report, The Mosaic Approach: a Multidimensional Strategy for Strengthening America’s Critical Minerals Supply Chain:
The United States faces a troubling scenario when it comes to the supply chain for critical minerals. Rapidly increasing demand, under-developed national resources, intense international competition, and years of neglect in this issue area place the U.S. at a distinct disadvantage vis-à-vis China in securing access to the metals and Rare Earth Elements that are vital for the energy transition and for geopolitical ambitions.
While China has been pursuing a strategic vision for critical minerals by pouring billions of dollars into production assets, the United States has failed to invest in resource-rich developing countries, placing itself at a disadvantage and allowing further opportunities for China and other competitors to exert their dominance.
The Wilson Center working group identified three main U.S. vulnerabilities in the critical materials supply chain. First, despite an ever-rising demand for critical minerals, the United States has continued to underinvest in mining, processing, infrastructure, and human capital. Second, in order to compete on a global basis against China and the European Union for access to critical minerals, the United States must address the geographic concentration of both extractive and processing activities, most critically, China’s dominant position in the supply chain, which stems not only from its ownership and control of critical minerals mines, but also processing facilities.
Third, legislative and regulatory restrictions on U.S. mining firms that place them at a competitive disadvantage vis à vis Chinese competitors, which provide a strong disincentive for developing resources within the United States. Unlike Chinese firms, those from the United States and other western countries must rightly adhere to stringent compliance measures in the areas of environment, society and transparency/anti-corruption regulations, regardless of whether they are operating domestically or internationally.
The confluence of China’s strategic vision for the growing importance of mining and mineral production and U.S. antipathy to resource development has created a perfect storm. Despite vast domestic mineral reserves, U.S. reliance on the importation of critical minerals has more than doubled in little more than two decades with China now the dominant supplier of many of the minerals deemed critical to U.S. interests.
Confronting China’s industrial ambitions will require a coherent plan that places the reinvigoration of U.S. mining and material supply chains at the top of the agenda in order to make the United States more resilient. The Wilson Center report offers a number of concrete steps: first the government should explicitly stress the link between critical minerals on the one hand and geopolitical goals on the other. It should also prioritize the development of critical materials production and processing facilities in the United States, streamline the permitting process for new mines; and stockpile critical minerals.
Meanwhile the private sector should act to lower for investors the risk profile of mining in order to facilitate investment in the industry, seek long-term, fixed price contracts to guarantee supply, invest in new technologies to lower costs, and invest in human capital.
These steps will require a rethinking of a major premise of U.S. economic policy: the commitment to “market fundamentalism,” the belief that adherence to free markets is always the best policy. Of course, when all parties play by the rules, there is little question that free trade is more efficient than the alternatives. But China has failed to do so, remaining committed to authoritarianism and to exploitation of the system in order to improve its position at the expense of liberal states, most notably the United States, thereby upending global markets by employing massive government support for Chinese firms and adhering to atrocious environmental and labor standards.
The problem with making a fetish of free trade is the market’s failure to account for changing geopolitical circumstances. Support for strategic materials is an overdue recognition of the fact that the ability of the market to address strategic vulnerabilities is limited.
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