Xi’s visit also conveyed a broader Chinese goal in the Rare Earths sector that goes beyond mining: maintaining leadership in the downstream industrial supply chains of processing, refining, and magnet production. While the semiconductor war gets more attention, there is another tech battle underway in the rare earths supply chains as China continues to tighten its control over what it calls a “state resource” and its supporting technologies. 

The Western rush to build China-free supply chains with both upstream and downstream industries is masking the bigger technological challenge of establishing a sustainable processing capacity. Given the stakes, a targeted approach is required to solve the processing tech puzzle through investments in R&D, international partnerships, and diffusion of alternate methods. 

Rare Earths, Rarer Tech? 

In 1992, while visiting Baotou, Inner Mongolia, one of China’s biggest rare earth mines, Chinese leader Deng Xiaoping famously said, “The Middle East has oil, China has rare earths.” He was referring to the country’s resource endowment of over 30% of the world’s reserves. But unlike the Middle Eastern oil producing countries who primarily drill and export crude, China built an entire ecosystem around the rare earths, from mineral production and processing to manufacturing finished products, and most importantly, rare earth magnets.

China has maintained leadership at every step up the ladder. Though its global production share dipped from a staggering 97% in 2011 to around 70% in 2022, it still controls over 85% of processing capacity. China has an effective monopoly over processing major heavy rare earths – Dysprosium (Dy) and Terbium (Tb), and Light Rare Earths – Neodymium (Nd) and Praseodymium (Pr).

Environmental impact is often cited as one of the main reasons for China’s emergence as a rare earth powerhouse, but the technological aspect is less discussed. From 1950 to October 2018, China filed over 25,000 rare earth patents, surpassing the US’ 10,000. Over decades, Chinese engineers perfected the solvent extraction process to refine REEs which plays a critical role in ensuring China’s primacy. Though the technology originated in the United States, environmental and regulatory concerns made domestic rare earth development unfeasible. 

Rare earths are clumped together in rocks, making their processing a complex undertaking. “All of them behave the same way, with very minor differences in chemistry. That means they bond with the same things under the same conditions, and they’re not going to separate from each other readily,” explained Dr. Isabel Barton from the University of Arizona. 

New Tech for Old Problems? 

Given the challenge of accessing China-controlled solvent extraction tech and its environmental costs, multiple research projects are underway to search for cleaner and more sustainable processing methods. One of them is a DARPA-funded program called EMBER (Environmental Microbes as a BioEngineering Resource) to use microbes to process and refine rare earths. A biologist and the Principal Investigator of the project, Marina Kalyuzhnaya, called it an “intensive program” and argued that a biological approach could play an important role. “The goal is to separate REEs, and biology might be specific enough or selective enough to keep individual minerals out of the complex mixture.” She added that the goal was to create “something completely sustainable” but conceded despite exciting breakthroughs, scalability for the project is at least 4-5 years away.

A Vision for Targeted Diversification 

Apart from investing in new tech, the US and other western governments have taken multiple national and international steps to diversify supply chains. Despite the efforts, Benchmark Minerals, a mining advisory firm, projects by 2028, China’s share in processing of both heavy and light rare earths would only drop marginally.

There are many reasons for the sobering predictions. For one, Western governments are trying to focus on all stages of supply chains simultaneously without prioritizing one over the other, causing inefficiency and resource wastage. Two, current policies divert attention from the bigger technological challenge of establishing sustainable processing and refining capacities outside of China. 

To resolve this, there is an urgent need to increase R&D investments for cleaner processing solutions that match or even surpass China’s cumulative investments. The US also needs to address the processing know-how gap as a strategic technological challenge and not just a pollution problem. While state-led investments to spur private interest is essential, the bid to onshore all components of the REE supply chains would be counterproductive in the long run. The US, along with its allies should create an REE-specific strategy and foster development of regional nodes. It took China nearly three decades to dominate REE supply chains; a well-executed diversification effort may not take as long. 

To read the column as it was published on the New Security Beat webpage, click here.

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At stake is the future ownership of the world’s critical raw mineral supply chains that the renewable energy revolution will need to break free of our fossil fuel dependency.

The UN’s panel on critical energy transition minerals aims to inject justice, environmental standards and human rights into the sector’s supply chains. To do so, it must intervene in the international trade, investment and tax systems.

At present, the rich world wants to ensure that it – and it alone – controls critical mineral supply chains. The US Inflation Reduction Act dished out tax advantages to electric vehicle manufacturers which source, process or recycle in the US or its free trade agreement (FTA)-partners. The EU has also set a goal of processing 40% of the critical minerals that it consumes within its borders by 2030. The UK is following a similar path. But resource-rich countries aspire to process and transform more of their minerals so that they can see some of the economic rewards.

Of the ten countries which dominate the ownership of minerals via companies domiciled within their borders, eight are among the world’s richest Top 20.

While China is a major source of minerals like gallium, graphite, magnesium and tungsten, other countries including Brazil (niobium), Congo (cobalt), India (barite), Indonesia (nickel), Peru (arsenic), Russia (palladium) and South Africa (platinum and Manganese) are also significant players, and rarely talked about.

Critical minerals offer developing countries like these a “critical opportunity,” as the UN chief Antonio Guterres put it, when announcing the panel in April. “But only if they are managed properly,” he cautioned. “The race to net zero cannot trample over the poor.”

If that happens, the poor will understandably resist – and we will all suffer. To avoid this, we need a World Trade Organisation-level waiver of trade disputes in the climate realm preventing states from being challenged over policy tools crucial to sustainable industrialisation.

As well as carving producer states out of the processing value chain, the status quo also shuts out every African country except Morocco – with whom the US has an FTA – from Washington’s supply chains. This is unfair and a self-defeating invitation to other countries to strike deals with African producers, given that Africa is home to 30% of the world’s critical mineral reserves. Worse, if countries do sign FTAs, they are then prevented from adopting the same policies which could build their own green industries.

This is how it works. FTAs often prevent low and middle-income countries from using industrial policy tools – such as local content requirements, export restrictions and subsidies – to regulate, add value to, and share the benefits of their own mineral resources.

Most international investment agreements also contain investor state dispute settlement (ISDS) provisions allowing corporations to sue governments in secret arbitration panels for billions of dollars when their profit expectations are affected by measures such as environmental regulations or public health protections. Increasingly, this presents a serious disincentive to pursue industrial policies or regulate extractive projects to ensure better labour conditions or reduce environmental destruction.

Here’s an example. One Canadian-Chilean company, Tethyan Copper, won $11bn from Pakistan after the country’s supreme court ruled in favour of local communities who argued that the contract signed by a regional administration had been illegal. Tethyan had only invested $150m in exploration but its award was so large that it would have bankrupted the Pakistani state. To avoid this, Pakistan caved in and awarded Tethyan a mining license.

ISDS mechanisms are a holdover from attempts to prevent former colonies from appropriating industrial concerns after independence. The office of the US Trade Representative compared them to gunboat diplomacy, while others liken the campaign against ISDS to abolishing slavery. The truth is that ISDS has no place in the modern world and should be repudiated and renegotiated by all nations working in this sector.

The world must also move to prevent a race to the bottom in tax competition. Fair taxation that allows for sustained industrialisation is essential for long term fiscal stability and high value chain integration. Disclosure requirements, the cross-border exchange of tax information to counter evasion threats and integrated regional partnerships can all build transition mineral value chains into a sustainable regional development model.

Ultimately, if we don’t get this right, the green transition will look – to most in the world – like just another resource grab. The green transition must be redistributive in order to have the global buy-in to succeed.

But to do this effectively at the scale needed, it will be necessary to go beyond the UN panel. Perhaps we need to start thinking about a producer organisation similar to the Organisation of Petroleum Exporting Countries (OPEC) in the 1970s, which advanced the interests of critical resource producers in a very different time and context. Certainly, the distribution of critical mineral profits should be fairer, the environmental impacts should be more closely monitored, and the democratic control of the sector’s decision-making processes must be broader and deeper.

In the teeth of a global economic system that answers first to the call of the dollar, it seems that it may well be time for producers to take a stand together. To quote Guterres again: “The renewables revolution is happening, but we must guide it towards justice.”

To read the blog post as it was published on Publish What You Pay website, click here.

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To address its growing demand for critical minerals, the United States has started to deepen its partnerships with the Central Asian republics — Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan. But it is not easy.

The 2022 Critical Minerals List identifies 50 minerals as crucial for the United States, underscoring their vital role across various industrial and technological sectors. Currently, the United States predominantly sources these essential materials from China. This dependency is extreme for certain minerals, with the country relying entirely on China for its supply of arsenic, gallium, graphite, tantalum and yttrium.

But the restrictions imposed by China on gallium and germanium exports in August 2023 have caused controversy. The fact that China has 94 per cent of the world’s gallium resources and 83 per cent of germanium resources poses a particular problem for the United States.

According to the Pentagon’s statement following China’s restriction decision, the United States has not developed the industrial capacity for producing gallium, though they do have some germanium reserves. US officials called for alternative markets to be found, and it was during this period that the United States decided to improve relations with Central Asia.

In September 2023, US president Joe Biden met with Central Asian leaders in New York. During this meeting, the C5+1 Critical Minerals Dialogue was agreed upon and established, operating within the C5+1 Diplomatic Platform. The inaugural meeting of this dialogue was held in February 2024. The main objectives were maintaining the security of critical minerals in Central Asia, ensuring market diversification and increasing the region’s importance in this field.

Since the early 1990s, the Central Asian republics have become increasingly significant players in the global energy and economic markets. This region also holds a critical position in the supply of essential minerals. According to various reports, Central Asia is home to 38.6 per cent of the world’s manganese ore reserves, 30.1 per cent of chromium reserves, 20 per cent of lead reserves, 12.6 per cent of zinc reserves and 8.7 per cent of titanium reserves.

Compared to countries like China, Turkey and South Korea, the United States was relatively late to look to Central Asia. After the 2000s, the United States, which had a more protectionist approach in the security perspective due to the effects of 9/11, was content to watch the growing influence of other actors in Central Asia. Realising the need to formulate a new regional policy after its withdrawal from Afghanistan in 2021, prompted by Russia’s 2022 invasion of Ukraine, the United States administration began to take interest in the region again.

On the other hand, China has been increasingly economically dominant in the region since the early 2000s. Trade with countries in the region grew exponentially, especially after Chinese president Xi Jinping launched the Belt and Road Initiative in 2013. Trade volume reached US$89 billion in 2023, up from US$70 billion in 2022. The China–Central Asia Summit also institutionalised relations in 2023.

Another important partnership China has with Central Asia is in critical minerals. China operates many underground resources in Kyrgyzstan and Tajikistan, and has strong cooperation with Kazakhstan. In addition to zinc and uranium, China’s imports of molybdenum from Kazakhstan have increased by 444 per cent in 2020 compared to 2017.

Under these circumstances, a critical minerals partnership with the United States brings various opportunities and risks to Central Asia. But countries in the region are afraid of being dominated by China and open to offers from alternative actors.

The United States has a favourable reputation in the region, and there is confidence in its ability to fulfill its commitments. But employing rhetoric about competition with China, a nation with established influence in the region after years of neglect from other nations, is not likely to succeed. The United States needs to move forward with a more moderate policy. Already, the large amounts of debt that countries in the region owe to China makes the United States a more attractive partner.

But regional infrastructure problems, leaders’ pragmatic preferences, irrevocable agreements with China and possible disruptions in the critical minerals supply process are all compelling reasons to stay with China, not to mention the sheer geographical proximity.

While there is no guarantee the United States has the will or ability to engage successfully with Central Asia, it could strengthen its position in the region by offering technology and undertaking critical projects that China has not been able to deliver. A shift in focus from purely military security to a broader energy security strategy could be a key component of this new initiative. The United States has no choice but to create a brand new and deeper regional policy if it desires to compete with China.

Mehmet Fatih Oztarsu is Senior Researcher at the Institute of EU Studies at Hankuk University of Foreign Studies, Seoul.

To read the full article as it was published by East Asia Forum, click here.

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While China’s saber rattling may be performative, it serves an important reminder. If a “Taiwan contingency” was triggered today, it would leave the US desperately short of goods vital to economic security, including pharmaceuticals, critical minerals, and semiconductors. And while many economies in Southeast Asia already provide alternative sources of supply, uncertainty in the region means the US must also cultivate supply chains outside the “weapons engagement zone,” the area within immediate reach of China’s vast missile arsenal. 

Luckily, there are opportunities to diversify much closer to home. But taking advantage of them requires a shift in US policy toward more active engagement with strategic partners throughout the Americas. 

The current US strategy for “de-risking” trade is simply to move as much production back home as possible. The government has already offered a variety of financial incentives, including grants and loans under the CHIPS Act, to reshore semiconductor production. Those efforts, along with tariffs and other trade barriers, are designed to make it more viable financially to manufacture critical goods in the US. 

However, efforts to reshore production run up against two problems. 

First, the US doesn’t have the labor it needs to produce everything at home. Skills shortages have already delayed the opening of semiconductor fabrication plants, such as TSMC’s operation in Arizona. And even where skills are not the issue, US workers are too expensive for the labor-intensive, low-margin jobs that are done more efficiently abroad. That’s precisely why many semiconductor firms globalized pieces of the production process to begin with, moving chip-conventional packaging and testing overseas, where affordable labor is more readily available. 

Second, even if the US had the workers, it doesn’t always have the raw materials. Because it lacks its own deposits, the US imports at least half its supply of 44 minerals and commodities necessary for production. That list includes graphite, which has wide applications in batteries, lubricants, and, of course, semiconductors. The US gets 100 percent of its graphite from overseas—with China being the main supplier. 

Given the economic realities, self-sufficiency isn’t an option. The US can’t produce everything it needs at a scale to insulate the economy from disruptions across the Pacific. 

So, what can it do? One answer is that it can learn from its competitors. China didn’t become a hub of global manufacturing by investing solely in domestic capacity. It pursued an aggressive, decades-long effort to partner with countries of high strategic importance, including those with rich critical mineral reserves. China’s investments in markets across Asia, Africa, and increasingly in Latin America, have placed it in the position we see today as a center of raw materials extraction and processing. 

There’s a lesson in that for the US. Rather than trying in vain to reshore everything, America must remember that its allies and partners can help guarantee its economic security—especially those in the region. 

A more proactive, outward-looking strategy involves two priorities. One is trade agreements. Allies have been exasperated by the perceived uncertainty in US policy in recent years. The US must reboot trade deals to reassure its economic partners. Investments to provide new, reliable sources of supply  require reliable, long-term access to America’s market. Only concrete guarantees will provide the economic incentives to align production with critical US needs. 

At the same time, America’s development finance efforts should be coordinated with trade deals to help partner countries bolster capacity. China has invested hundreds of billions in trade-enabling infrastructure across emerging markets and developing countries, plugging countries into a China-centric supply network and cultivating export markets. The US already has commenced similar efforts in Africa’s Lobito Corridor and in the Philippines Luzon Economic Corridor. These efforts should be expanded, especially in the Americas.

The good news is that several new, bipartisan initiatives are moving in a positive direction. 

The Americas Act seeks to (among other things) extend membership in the USMCA (US, Mexico, Canada Agreement)  to additional Latin American economies. It provides a way to not just balance against China’s growing influence in Latin America and the Caribbean, but to help lock in mutual market access enjoyed under the USMCA umbrella. This could help make the US supply chain more resilient to a Taiwan contingency. 

Similarly, the Semiconductor Supply Chain Security and Diversification Act looks to empower the US International Development Finance Corporation (DFC) to make larger investments in the chips supply chain in the Western Hemisphere. Specifically, it targets investments at all steps of production (from mining through chips testing and production) in countries otherwise not eligible for DFC loans. This recognizes the value of supporting strategic priorities consistent with the DFC’s development mission. 

These two bills are in their early stages and their fate remains uncertain. But sponsorship from both sides of the aisle reflects a growing understanding that the US can’t go it alone. Strength always comes in numbers, and if a fight starts overseas, it will be essential for the US to have friends close to home. 

Jeffery Kucik is a Global Fellow with the Wilson Center and an Associate Professor in the School of Government and Public Policy and the James E. Rogers College of Law, University of Arizona.

Mark Kennedy is the Director for the Wahba Institute for Strategic Competition.

To read the full article as it was published by the Wilson Center, click here.

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Few U.S. presidents have done as much as Joe Biden to strengthen ties with African nations.

Last December, the president hosted nearly 50 African leaders for a three-day summit in Washington. During the meeting, the administration committed to invest at least $55 billion in Africa over the next three years, including private sector initiatives of more than $15 billion. Since then, various senior U.S. officials, including Vice President Kamala Harris and Treasury Secretary Janet Yellen, have visited the continent. Biden has also pledged to visit before the year is out.

But when it comes to one of the most important issues on the administration’s agenda—climate change and the transition to a green economy—Africa is missing. As a result, the United States is forgoing an opportunity to deepen commercial ties with the continent, partner with African nations to strengthen supply and production chains, and diversify away from its reliance on China for more than 50 percent of 26 critical minerals.

This message is implicit in the Inflation Reduction Act (IRA), signed into law last August. One of the act’s key provisions is a tax credit available to American consumers who purchase electric vehicles whose batteries contain a certain percentage of critical minerals extracted or processed in the United States or in any country “with which the United States has a free trade agreement.”

Currently, the United States has 20 free trade agreements in effect but only one with an African nation: Morocco, which has the world’s largest known reserves of phosphates but few other known critical minerals. Moreover, the Biden administration has gotten out of the business of negotiating free trade agreements in favor of nonbinding trade and investment frameworks. As a result, there is little prospect that strategic minerals from Africa will contribute on a significant scale to the U.S. energy transition anytime soon. Given the Biden administration’s push on climate change and its desire to prioritize relations with the continent, the administration should redouble its efforts now to include African nations in its energy transition.

Currently, the United States relies most heavily on China for imported mineral commodities but also Germany, Brazil, South Africa, and Mexico. China also dominates the global market in refining strategic minerals. According to a recent study by the Brookings Institution and Results for Development, China refines 68 percent of nickel globally, 40 percent of copper, 59 percent of lithium, and 73 percent of cobalt. China also accounts for 78 percent of the world’s cell manufacturing capacity for EV batteries.

Africa is home to 30 percent of the world’s critical mineral reserves, many of which—cobalt, lithium, manganese, graphite, and nickel—are essential to renewable and low-carbon technologies. The Democratic Republic of the Congo accounts for nearly 70 percent of the world’s supply of cobalt.

Under the African Continental Free Trade Agreement, Africa has an established framework for engagement and has made clear its desire to be a contributing member to global value chains in the processing of critical minerals as well as manufacturing. Africa also has a comparative advantage in the production and early processing of some EV parts, such as battery precursors.

The Biden administration and Congress have made a strategic error in not providing a way for African nations and their critical mineral supplies and value chains to produce for the U.S. market on an incentivized basis.

If not rectified soon, the IRA will have the unintended consequence of lessening U.S. commercial ties with Africa and ceding the African market in critical minerals to other nations—such as China.

Congress and the administration could rectify this situation by amending the IRA to include not only countries with which the United States has a free trade agreement but those African nations that participate in the African Growth and Opportunity Act (AGOA). The legislation offers duty-free access to U.S. markets for countries in sub-Saharan Africa that meet certain conditions on governance, human rights, and labor protections.

Currently, 36 African countries participate in the AGOA, including those that produce or are known to have the critical minerals that the United States will need for its energy transition, such as Zambia, Namibia, Tanzania, Gabon, Kenya, South Africa, and Niger (for now) as well as Congo. Discoveries of critical minerals are likely to be made in other African nations. Including AGOA-eligible countries in the IRA would provide Washington with a greater number of suppliers of critical minerals and encourage investment in sectors that are a priority for African governments.

During last year’s summit with African leaders, a memorandum of understanding was signed with the Congolese and Zambian governments in which the United States pledged to support the development of a value chain in EV batteries in the two sectors. By including all AGOA-eligible African nations in the IRA, the U.S. government would be deepening its own commercial relationship with the continent as well as enhancing its capability to access the critical minerals it needs for its energy transition without giving greater influence and market share to its adversaries.

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German Chancellor Olaf Scholz’s February 2023 visit to Argentina, Brazil, and Chile is something that the Biden administration could learn from. Germany, one of the world’s oldest and most competitive auto hubs, is deeply concerned about gaining and maintaining access to lithium, a key component in batteries used to power electric vehicles (EVs). Without lithium, there will be serious problems in making the batteries used to power EVs. There is not much lithium in Europe, but around 60 percent of the world’s total supply is in three countries often referred to as the “lithium triangle”; Argentina, Bolivia, and Chile. National security also factors high for Germany, which is seeking to diversify its energy sourcing away from Russia. And it faces another geopolitical risk: the country that has the most access to the world’s lithium is China, which also happens to currently make 79 percent of lithium-ion batteries, handles half of the world’s lithium refining, and has its own rapidly expanding EV industry. For Germany’s Scholz, a trip to Argentina and Chile is worth the visit. Can the same be said of U.S. President Joe Biden?

It is worth briefly reviewing Chancellor Scholz’s visit. He met with the leaders of Argentina, Chile, and Brazil, with the stated intention of helping his country’s companies develop stronger business ties with Latin America. German companies have traditionally been active in the region, especially in the automotive industry and more recently with renewable energy. Germany is one of the top 10 trade partners of the three countries of the 2023 visit and a major foreign direct investor. 

While considerable attention was given during the Scholz visit to Brazil to the revitalization of the European Union-Mercosur trade deal, which languished due to discord with Brazil’s Bolsonaro government, lithium loomed large in talks with Argentina and Chile. Considering that the automotive sector plays a large role in the German economy, securing lithium sources for EV batteries has taken on a sense of urgency in Berlin.

Bolivian Troubles

German companies have made early attempts to access the lithium triangle through Bolivia. According to the U.S. Geological Service, Bolivia sits on the largest reserves at 21 million tons, followed by Argentina with 19 million tons and then Chile with 9.8 million tons. While Argentina and Chile have lithium sectors that are up and exporting, backed by a cadre of foreign companies and expertise, Bolivia’s lithium has largely remained in the ground. Under President Evo Morales (2006–2019) efforts were made to launch the sector, but the strategy was constructed around a poorly-run state company (now called Yacimientos de Litio Bolivianos, or YLB). Complicating matters, Bolivia was generally perceived as non-investor friendly, with the Morales government presiding over an earlier nationalization of the gas industry. However, over time it was understood that lithium could become a new export for the country, though the preference remained that YLB would partner with foreign investors, creating a state-dominated sector that operates everything from salts-to-battery materials. Under such a scheme, Bolivia would move from being just an extractor of lithium to exporting adding value-added goods.

In 2018, Bolivia negotiated two joint venture deals—one with Germany’s ACI Systems to produce lithium hydroxide and another with China’s Xinjiang TBEA to produce lithium from two salt flats. The deal was greeted with considerable excitement in Germany, with the country’s then Economy Minister Peter Altmaier stating, “Germany should become a leading location for battery cell production. A large part of production costs are linked to raw materials. German industry is therefore well advised to secure its needs for lithium early in order to avoid falling behind and slipping into dependency.” 

German excitement over the deal, however, quickly soured when Bolivian protests erupted in 2019 over local demands for higher royalties for the country. Confronted with a nationalist backlash, Morales canceled the contracts. Morales was soon ousted (partially due to his resistance to his wish to extend his presidential tenure beyond the constitutionally-mandated fourteen years). It was also rumored that control over lithium reserves was the real reason for Morales’ forced exit, which was said to have been done with the support of Western governments and Tesla owner Elon Musk.

Bolivia’s interest in accessing foreign help in the lithium sector resumed under the government of President Luis Arce (elected in 2020), who has stated that he wants to make his country “the world capital of lithium.” His objective is for Bolivia to supply 40 percent of global lithium by 2030. A new bidding process to launch the lithium business was initiated in 2022, with a number of foreign companies participating—including three Chinese firms (in a consortium called CBC standing for CATL, Brunp, and CMOC), U.S.-based EnergyX, Russia’s Uranium One, and Lilac Solutions (backed by German automaker BMW and Bill Gates’ Breakthrough Energy Ventures). CATL is the world’s largest maker of batteries, Brunp is majority-owned by CATL and is a recycling technology company, and CMOC is the largest molybdenum miner in the world and a major force in tungsten, cobalt, niobium, and copper production. 

In late January 2023, Bolivia signed a deal with the Chinese CBC to develop the country’s lithium deposits. YLB estimates that lithium will begin export in 2025. As part of the deal, the CBC will undertake the construction of “infrastructure, highways, and necessary conditions to jumpstart the plants.” The deal received a mixed reaction among the public and foreign parties. It was said that China got the deal because it offered an infrastructure overhaul and that the Chinese government actively promoted the deal with a left-leaning Bolivian government that has often harbored anti-U.S. sentiment.

What Berlin Wants

Considering the high political risk in Bolivia, Argentina, and Chile have greater appeal for German companies. Although China is active in both nations, companies from other countries have set up shop, including entities from Australia, Canada, South Korea, and the United States. Despite ongoing political froth, there is a broad consensus in Argentina that lithium is open for business, though environmental challenges exist. Chile has a more structured system and is awaiting government plans to possibly create a state company. 

In Argentina and Chile Scholz made three important points.

First, Germany wants to advance its energy transition away from fossil fuels to cleaner energy, which means greater use of lithium batteries for EVs and other technological goods and public utilities. Buenos Aires and Santiago are imports of Berlin’s new energy map. 

Second, Germany wants to make certain that it secures the right energy sources so end its dependency on Russian fossil fuel and reduce Chinese leverage in lithium batteries. For Germany, the Russo-Ukraine War that erupted in February 2022 has been highly disruptive, as it upended its considerable dependence on Russia for oil, natural gas, and coal. In addition, the shutdown of the country’s nuclear industry and slower-than-expected alternative fuel programs left the Scholz government scrambling to secure new sources of energy, with the Chancellor and other high-ranking officials visiting a number of Middle Eastern and African countries to secure supplies of natural gas and oil. 

Third, Germany is very open to the idea of allowing local value being added to the production process. In Buenos Aires, he stated, “The question is: Can one not move the processing of these materials, which creates thousands of jobs, to those countries where these materials come from?” A country does not have to have a free trade agreement with Germany to develop the trade in lithium and/or batteries, which is the U.S. policy under the Inflation Reduction Act (IRA) passed in 2022. Under the IRA, it will be much easier to export Chilean lithium to the United States than for Argentina to do so. However, the United States, like Germany, faces limitations on its supply of lithium, as well as considerable environmental hurdles (the Biden administration has killed several recent mining deals related to clean energy).

German Lessons

As Chancellor Scholz met with Argentina’s President Alberto Fernandez in Buenos Aires and later his Chilean counterpart Gabriel Boric in Santiago, thought must have been given as to when was the last time a U.S. president ventured into these countries to help generate business and uphold national energy security. President Donald Trump was the last U.S. leader to visit Argentina in 2018, attending the G20 meeting. President Barack Obama was the last U.S. leader to visit Chile in 2011. No U.S. president has visited Bolivia, and Washington has lacked an ambassador in La Paz since 2008, with its business being conducted by the chargé d’affaires. Germany has an ambassador in each country; so does China.

The main lesson from Scholz’s trip to the lithium triangle is quite elementary: if you want to play, you have to show up. This is something that President Joe Biden and his foreign policy and energy teams need to think harder about. 

Dr. Scott B. MacDonald is the Chief Economist for Smith’s Research & Gradings, a Fellow with the Caribbean Policy Consortium, and a Research fellow with Global Americans. Prior to those positions, he worked for the Office of the Comptroller of the Currency, Credit Suisse, Donaldson, Lufkin and Jenrette, KWR International, and Mitsubishi Corporation. His most recent book is The New Cold War, China and the Caribbean (Palgrave Macmillan 2022).

To read the full article, please click here.

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