Critical Threat to Transition

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Another week, another top US official visiting Beijing. Treasury Secretary Janet Yellen went last week, after Secretary of State Antony Blinken's trip last month. US Climate Envoy John Kerry will be there on Sunday. But despite this push to re-engage, fracture lines are proving hard to bridge. Even the fight against climate change, often seen as the easiest area of collaboration between the US and China, the largest polluters and clean-energy developers, may not resist technology competition. Beijing plans to impose export controls on two minerals used in electric vehicles (EVs) and solar panels in retaliation for US export controls on semiconductors.

Yellen’s visit, the first by a US treasury secretary in four years, garnered far more positive reviews in China than Blinken's, which inevitably brought to mind the many disputes between the two superpowers, from Taiwan to the South China Sea and Russia. By contrast, Yellen focused on meeting China’s new economic leadership, and avoided talk of decoupling or of the supposedly softer “de-risking” from the Chinese economy, which Beijing equates to containment. Instead, she stressed that the US is looking at “diversifying critical supply chains.”

Kerry’s trip next week, meanwhile, marks a return to high-level climate talks, almost a year after China suspended them in retaliation for then-US House Speaker Nancy Pelosi's Taiwan visit.

China’s slowing economic recovery is prompting Beijing to re-engage with Washington, which remains keen to set “guardrails” to prevent the US-China relationship from veering off course.

Tit-For-Tat Curbs

Yellen’s 10 hours of talks with top Chinese economic officials on thorny policy issues around trade, technology restrictions, investment and a host of other disagreements did not yield any breakthroughs. In fact, a few days before her arrival, Beijing announced export controls, from Aug. 1, on two critical raw materials (CRMs), gallium and germanium, of which China is the largest producer. These two little-known CRMs are used in a range of technologies, from solar photovoltaic and EVs to semiconductors and advanced defense systems.

The looming measure is not targeted at specific countries and was taken for “national security” reasons, Beijing said. But Chinese experts and observers in the West agree that the curbs come in retaliation for US export controls on semiconductors to China, which were first put in place last October and are likely to be further tightened to target artificial-intelligence applications.

National security also ranked high in Yellen’s comments to the press in Beijing after her talks. “The US will continue to take targeted actions that are necessary to protect our national security interests and those of our allies. … Importantly, these actions are motivated by straightforward national security considerations. They are not used by us to gain economic advantage.”

At the heart of the discourse about national security is the growing US-China technology competition. The Biden administration enacted legislation, including the Chips law and the Inflation Reduction Act, which aim to protect and support US technology and goods, including in the energy transition.

Experts agree that export controls on gallium and germanium will not massively disrupt supply chains, as China is not the only supplier of these minerals, and they are not used widely. But the controls are a warning that China could scale up the pressure.

"This is just the beginning of China's countermeasures, and China's toolbox has many more types of measures available. If the high-tech restrictions on China become tougher in the future, China's countermeasures will also escalate," Wei Jianguo, a former vice minister of commerce and economic expert, told the state-run China Daily.

Supply Fears

Global demand for a wide range of materials is set to soar in the coming decades, with the low-carbon transition driving usage of minerals like copper, cobalt, lithium, graphite and rare earths. The World Bank estimates that minerals used in energy technologies could quadruple by 2050, and China’s plans to control gallium and germanium exports have rung energy-transition alarm bells.

The International Energy Agency (IEA), in its first Critical Minerals Markets Review, released this week, was prompt to note the possible impact of Beijing’s move. “While the focus has understandably been on battery metals and copper, recent events such as the export curbs on Chinese gallium and germanium in July 2023 have highlighted the significance of a lesser-known group of critical minerals, often characterized by small volumes, but high levels of supply concentration,” the IEA said.

China accounts for half of the global mine production and up to 95% of refining capacity for certain materials critical to economic growth and the low-carbon transition, according to a recent Energy Intelligence memo. That could allow it to frustrate energy transition efforts in the West if it decides to ban exports of more materials in any tit-for-tat response to future controls on US technology exports.

"The brewing export control contest already poses notable risks for a range of clean energy supply chains, plus the broader chip ecosystem critical to low-carbon tech," Beijing-based consultancy Trivium, which tracks Chinese new-energy developments, said in a note after the export curbs were announced: "Almost any way the situation escalates from here would be a blow to clean energy and low-carbon tech."

Fears of overdependence on China and pressures for a faster low-carbon rollout are spurring Western policymakers. The US is pushing local battery technology through subsidies, Canada and Australia are easing permitting for minerals production, and international cooperation is growing. But for now, the outsized role in mineral supplies that China plays will remain a vulnerability in the West's energy transition plans.

Maryelle Demongeot is Singapore deputy bureau chief and Chase Winter is US foreign policy reporter at Energy Intelligence. A version of this article originally ran in Energy Compass.

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