China Signals Control Over Critical Materials Supply
China is leveraging its dominance over critical materials, with export controls on lithium-ion batteries and graphite highlighting vulnerabilities in defense and manufacturing supply chains. This follows a period where export restrictions on rare earths disrupted global automakers. The West's lack of its own effective pricing system for rare earths leaves it vulnerable to market and political shocks from Beijing.
- China's dominance in the graphite supply chain is substantial, as it produced 79% of the world's natural graphite in 2024 and processes over 90% of it for battery use. This follows a pattern established with rare earth elements, where China's control over processing has been a long-term strategic goal since the 1980s. - The most recent export controls, effective November 8, 2025, target specific high-value materials, including artificial graphite anodes used in lithium-ion batteries and rechargeable lithium-ion batteries with an energy density of 300 Wh/kg or more. These dual-use items now require a specific export license from the Ministry of Commerce. - In a direct response to U.S. tariffs, China has expanded its export controls to include several U.S. aerospace and defense companies like General Dynamics, Boeing Defense, and Lockheed Martin. These companies face restrictions on importing dual-use items from China, which are materials with both civilian and military applications. - The U.S. government is actively trying to counter this dependency through various initiatives aimed at onshoring mining and processing. These efforts include the Unleashing American Energy executive order to accelerate permitting for new mines and providing government-backed financing for domestic projects. The Department of War has also invested $11.8 million under the Defense Production Act to establish domestic processing capabilities for critical optical materials. - Western nations are forming partnerships to build alternative supply chains, such as the Minerals Security Partnership, which includes the U.S., EU, and 12 other countries. The U.S. is also creating a critical minerals trade bloc called FORGE and has signed bilateral agreements with countries like the UK, Japan, and several in South America to diversify sourcing. - For publicly traded manufacturers, these supply chain vulnerabilities are becoming a key disclosure issue. The SEC's climate disclosure rules, while currently facing legal challenges, require companies to report on material risks to their business operations, which includes supply chain disruptions. Even without the final rule, organizations must disclose material supply chain risks if they could have a "significant impact" on financial performance. - This isn't the first time China has used its market position as leverage. In 2010, China restricted rare earth exports to Japan during a territorial dispute, causing global prices to spike and highlighting the vulnerability of concentrated supply chains. - The United States is not just focused on mining, but also on innovation to reduce reliance on these materials. Efforts are underway to develop substitute materials, such as rare-earth-free magnets, and to scale up technologies that extract critical minerals from mine tailings and industrial waste.
