Demand for critical minerals – used in technologies such as electric vehicles – is rapidly growing. Global Insight examines how dominance of this vital sector is shaping the future of international power.

In an increasingly complex geostrategic environment, the world’s most critical commodities are no longer merely oil, coal or natural gas. The materials beneath them – critical minerals and rare earths – are now the real strategic asset. These will support technologies across a diverse range of areas: electric vehicles, semiconductors, wind turbines, next-generation missile systems and quantum computing infrastructure.

Control over these critical minerals is already shaping international relations. And the country that has spent decades building that control – China – has moved centre stage.

While energy security risks and semiconductor value chains have made headlines in the West, the real vulnerability is one level above and involves the upstream and the midstream of critical minerals. Specifically, their identification, extraction and production, and their storage, processing and transportation. China dominates more than 70 per cent of the production of rare earth elements. Meanwhile, in several refining and processing markets – battery-grade graphite and lithium hydroxide, for example – it has a market share of more than 90 per cent.

But it’s not just about clean energy. All major defence systems, from the US-produced F-35 fighter jet to smart missiles, are constructed using rare earth magnets and specialty alloys derived from neodymium, dysprosium and yttrium. Advanced radar systems, navigation sensors and satellites all rely upon material that’s currently being processed virtually exclusively in China.

Mineral dependencies have already been identified as a threat to national security by the Pentagon. In a crisis, the US could be rendered incapable of resupplying sophisticated weapons systems, not due to technology breakdown but because it doesn’t have access to critical minerals. The same is true for Western powers in Europe and other allies in Asia.

This danger also extends into the private economy. Leading chip and vehicle manufacturers, as well as battery producers, are vulnerable to supply disruptions. The idea that just-in-time supply chains will prove dependable during periods of geopolitical stress is now dangerously naive. And the more electric and digitised the global economy becomes, the more acute the dependence will be.

China’s strategic vision

In contrast to most Western economies, China has not treated critical minerals as mere commodities but as tools of industrial and geopolitical influence. Its pre-eminence is not just a function of reserves – it’s the result of state-directed industrial policy extending across exploration, refining, smelting, component production and export policy.

China’s influence stretches from mines in the Democratic Republic of the Congo and Zambia to the Yunnan and Inner Mongolia refineries closer to home, and then outwards to Southeast Asian and Eastern European battery gigafactories. It’s a vertically integrated materials empire built to feed China’s economy – allowing its rulers to dictate terms to the rest of the world.

Beijing has also been seeking new technologies. It’s spending lavishly on next-generation battery chemistries, permanent magnet recycling and other superconducting alternatives, most of which have the potential to slash or consolidate China’s demand for already-constricted minerals, such as cobalt and lithium. This would have implications globally, easing some pressure on supply chains and potentially shifting the terms of competition. China’s central planners, then, are not only hoarding today’s resources – they’re also betting on tomorrow’s breakthroughs.

While Australia, Canada, the EU, Japan and the US have all articulated mineral strategies, implementation is ad hoc and plodding. Rhetoric about ‘friend-shoring’ – setting up supply chains with countries that share similar values and priorities – and ‘economic security’ has yet to be translated into a coherent, functional set of policies for supply chain resiliency. In most cases, these jurisdictions remain country-siloed with poor coordination in terms of funding, licensing, logistics and technology transfer. While attracting much publicity, projects stall due to lapses in interagency follow-up or capital lethargy. Canadian and US critical mineral programmes have great potential but are constrained by slow permitting, jurisdictional duplication and a lack of infrastructure.

The result is one of contradiction. The West has enormous untapped reserves – in Northern Canada, Western Australia and the Andes – but is unable to process, refine and employ them on a large scale. China, by contrast, processes material it doesn’t even mine within its own country, because it controls the activities taking place after a product is manufactured – the midstream and downstream industrial bases. Western corporations are looking to de-risk supply chains but continue to rely on Chinese refining when importing mined minerals from beyond the country. The vulnerability will persist until this bottleneck is eliminated.

Opportunity and underachievement

Canada is an exemplar of opportunity and underachievement. It has world-class lithium, graphite, rare earths and nickel deposits. It has a stable investment climate, highly skilled labour and deep integration with the US manufacturing base. It ought to lead North American mineral security. The Canadian government’s 2022Critical Minerals Strategy identifies 31 minerals as strategically important. Project announcements in the Canadian provinces of Alberta, New Ontario and Quebec have attracted interest from American, European and South Korean manufacturers.

Most Canadian projects, however, are years away from commercial production. Midstream capacity – specifically refining and upgraded processing – is light. Despite Canadian businesses implementing offtake agreements with car and battery manufacturers – whereby they undertake to purchase or sell some of the producer’s upcoming goods – scale remains lacking.

Without expedited permitting, direct public investment and focused coordination with the US, Canada stands to become a raw material exporter, rather than a strategic hub in an integrated supply chain. The vision is there, but the implementation is lagging.

Outside North America, Ukraine has the potential to reshape the European mineral landscape. The country is laden with lithium, rare earths and titanium reserves. Western businesses had already begun prospecting prior to the Russian invasion. Post-war, Ukraine could provide strategic diversification of supply for Europe if investments are made and infrastructure rebuilt. It’s worth noting, however, that the quantity and value of Ukraine’s rare earths reserves are uncertain and most of those that are mapped are located close to or in areas currently under Russian control, according to Erik Jonsson, senior geologist at the Geological Survey of Sweden.

Interest in Argentina and Chile for lithium, Indonesia for nickel, Namibia for uranium and Greenland for rare earths is growing. But China already has a presence in nearly all these countries. Chinese companies own nickel refining plants in Indonesia. They’ve acquired lithium properties and plants in Chile and have even offered to buy interests in rare earths projects in the Arctic.

Western lawmakers and companies are just beginning to realise that in the case of most of these nations, they’re not leaders, but imitators. If diversification away from China is the goal, more aggressive investment and government engagement is needed – beyond feasibility studies and diplomatic platitudes.

A strategic playbook for the West

There are strategies the West can pursue to rectify the situation. The challenge is not to unravel globalisation, but to rewire it – to strengthen supply chains, diversify them and link them strategically. In this respect, concentrated capital investment is required. African, Australian, Canadian and Ukrainian strategic initiatives call for block financing and de-risking. Governments must move out of subsidies and into equity investment, guarantees of loans and public-private partnerships.

There’s a need for faster permitting and regulatory simplification. Strategic minerals must be treated as infrastructure or defence commodities, with separate fast-track procedures and bilateral coordination with allies.

The West shouldn’t and can’t outsource refining and processing. Investments in smelting, separation and chemical processing must be relocated to the shores of Western countries or allies, with these moves backed by long-term offtake contracts and demand guarantees. Further, as with oil during the Cold War, major stockpiles of minerals must be developed as a shock buffer. National stockpiles of rare earths, battery materials and strategic alloys can provide a cushion in crisis situations.

Finally, if the West wants access to minerals found in Africa, Latin America and Southeast Asia, it must offer more than words. That means infrastructure deals, investment guarantees and a visible presence to rival China.

During the 1970s, Western economies were brought to their knees by an Organization of Arab Petroleum Exporting Countries oil embargo due to a lack of control of the supply chain. During the early 2020s, the shortage of semiconductors crippled vehicle manufacturers, defence contractors and global logistics because manufacturing was localised in one region.

Critical minerals are the chokepoint of today. If the West repeats the same script – outsourcing, ignoring early warning signs and an absence of coordination – then strategic dependence on China won’t just persist but will grow. The window for course correction is still open. If allied democracies can muster the necessary capital, coordination and strategic intent, they can regain a foothold in this foundational space.

Jonathan Miller is a senior fellow at the Macdonald-Laurier Institute. He can be contacted at jonathan@pendulumgroup.ca

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