Horizon Advisory released a report on October 31, revealing that China has established dominance over the global battery supply chain through a multifaceted, state-backed industrial policy. This development poses a threat to the sustainability of the U.S. battery industry.
According to the report, China's strategy begins with leveraging its substantial natural resources, such as graphite, where it holds 28% of global reserves and accounts for 77% of global output. Simultaneously, China aggressively pursues overseas resource acquisition through its "Go Out" strategy and Belt and Road Initiative, securing access to critical minerals like cobalt in the Democratic Republic of Congo and nickel in Indonesia. These efforts ensure a steady flow of raw materials to feed China's dominant processing capacity.
Beyond securing raw materials, China has heavily invested in domestic processing capabilities, becoming a global leader in refining critical minerals such as cobalt, nickel, lithium, and manganese. This control over processing creates a bottleneck in the global battery supply chain, making manufacturers worldwide dependent on China for refined materials. The country is also rapidly developing its battery recycling capabilities to create a closed-loop system that further solidifies its control over battery material supply.
The report states that China's control extends beyond the physical supply chain to encompass market pricing and financial mechanisms. Through ownership of the London Metal Exchange (LME), China gains significant influence over the pricing of battery metals, enabling it to manipulate prices and potentially undercut competitors. This pricing power allows China to shape the global battery market and dictate terms to downstream industries like electric vehicles (EV) and clean energy.
The implications of China's dominance are significant for the U.S. and its allies. Despite efforts to bolster domestic battery production, China's control over critical nodes in the supply chain poses substantial risks to U.S. investments and long-term sustainability of its battery industry. Loopholes in U.S. policies, such as the "impracticable-to-trace" exemption for certain materials in the EV tax credit, further exacerbate challenges by unintentionally benefiting Chinese companies. The U.S. faces a critical juncture where it must implement robust protections, strengthen enforcement mechanisms, and foster collaboration with allies to effectively counter China's dominance.
A memo from a congressional hearing said that China "unquestionably" dominates global supply chains of minerals both in terms of raw materials and refined products. New mining projects in the U.S. typically require hundreds of millions of dollars in upfront capital costs and can take up to ten years for permitting processes.
Horizon Advisory is described on its website as an independent consulting firm focused on geopolitical, technological, and economic changes.
