Senator: Avoiding FTAs Doesn't Advance Critical Minerals Diversification

Currently, the U.S. is highly dependent on China, which dominates processing of many minerals used to make advanced batteries, electronics and more.

"When we're dealing with China, at any given day, they could say: 'We're not going to provide lithium anymore if ...,'" Lankford said at the Center for Strategic and International Studies June 11. "That's a dangerous proposition for us."

The Biden administration signed a critical minerals agreement with Japan, which would qualify minerals processed or recycled in Japan and used in electric vehicle batteries to qualify for consumer tax credits for EVs. Lankford dismissed that development as inadequate. "Executive agreements rise and fall at the end of each administration. We need lasting relationships," he said.

The Japan mini-deal, another executive agreement the Trump administration negotiated as a replacement for the more comprehensive Trans-Pacific Partnership, has endured into the next administration.

Lankford said it's frustrating that the current administration is not willing to negotiate tariff liberalizing reciprocal agreements. "They're tweaking existing relationships," he said.

He suggested that it could make sense for minerals mined in Australia to be processed in India -- both countries are members of a "quad" based on defense interests in the Pacific -- but also said the U.S. should consider partnerships with countries in Africa, South America and Asia if the countries can be trusted to be friendly over the long term. He said officials shouldn't limit these efforts to lithium.

Lankford's talk, and a panel of trade experts who followed, were linked to the release of a new CSIS report on friendshoring the lithium-ion battery supply chain.

Lankford compared dependency on China for critical minerals to the 1970s dependency on OPEC for oil. That cartel curtailed shipments to the U.S. because of American support for Israel after it was attacked by Arab neighbors in 1973 in the Yom Kippur War.

"We should continue to be able to trade" with China, but, Lankford said, the U.S. should not make itself vulnerable by overdependency in critical areas "where they have leverage and control over the United States."

On the panel, Vanessa Sciarra, vice president for international trade and competitiveness at the American Clean Power trade association, said that the Biden administration is a bit schizophrenic in pushing for a green energy transition among utilities but also hiking tariffs on the large-scale batteries and solar panels they need to achieve it.

Rory Heslington, vice president of government affairs for Autos Drive America, the trade group that represents 12 foreign name-plate automakers with assembly plants in the U.S., agreed that newly announced tariffs on graphite are at cross purposes to EV adoption, since they could make batteries more expensive and thus EVs would be more expensive.

"Everyone's trying to move supply chains out of China," he said, but said that without more affordable EVs, mass adoption won't happen. He said there is a need for more EVs that sell for less than $30,000. There are two current models that cost less than $30,000 -- the Nissan Leaf and the Mini Cooper -- though the Chevy Equinox is below that level with the aid of the $7,500 tax credit.

Sciarra said she appreciates that the new Section 301 tariffs on large lithium-ion batteries will wait until Jan. 1, 2026; her trade group projects that there will be enough domestic supply for the country's needs by 2027.

Heslington said there won't be enough domestic supply of EV batteries to serve the cars built in North America until 2027 or 2028, and he called it shocking that his industry didn't get the same transition period. Tariffs on EV batteries from China are slated to go up to 27.7% on Aug. 1.

Sciarra said she doesn't only have to respond to contradictions in the administration, but also legislative proposals that would restrict U.S. manufacturers from licensing Chinese technology.

China has the best machinery for making solar panels, the best designs for solar panels and the most advanced designs for EV batteries, she said. "There's a lot of legislative ideas out there that are just wacky," she said. She said she would be talking to House Ways and Means staffers later in the week "on what is an acceptable level of Chinese involvement" in U.S. production.

A Commerce Department investigation on the national security threats of Chinese-owned firms that make connected vehicles or parts for those vehicles, similarly, could restrict manufacturing in the U.S. if the companies are Chinese-owned. Volvo, which is now Chinese owned, makes an EV in South Carolina; Polestar, an EV-only spinoff from Volvo, is about to open a plant there.

Heslington, responding to a question from International Trade Today, said he didn't think the Commerce Department would issue a rule that would shut down those plants. However, he said, "What's going to happen to supply chains could be very disruptive to the entire industry, not just the companies you mentioned in South Carolina."

The panelists, including Carlos Vanderloo, an economic minister-counselor from the Canadian Embassy, said that foreign direct investment from China in the auto sector in Mexico is sure to be a hot topic during the USMCA review. Canada and Mexico both challenged rule of origin calculation methodology from the U.S. under USMCA, and won the case, but the U.S. has not complied, Sciarra noted.

"The automotive rules of origin [rewrite] was one of the biggest changes that was made" to NAFTA as it evolved into the USMCA, Heslington added.