5 Ways to Break China’s Chokehold on Battery Supply Chains

The United States must fight back against China’s dangerous dominance of the battery industry. Batteries are critical to countless items necessary for daily life, from power tools to power grids, as well as important military equipment, like drones, night-vision goggles, and lasers. However, China has the capability to simply cut off U.S. access to critical batteries because it monopolizes each step of the production process.

China currently produces 80 percent of the world’s lithium-ion batteries. Subcomponents of those batteries include parts called cathodes and anodes — of which China makes 70 and 85 percent, respectively. Even worse, China supplies between 90 percent and 97 percent of the inputs that go into cathodes and anodes, materials made from lithium, nickel, cobalt, and graphite.

Given the unacceptable level of risk posed by China’s chokehold on the world’s battery supply chain, the United States must respond through a coordinated approach that addresses specific supply chain vulnerabilities:

1. The U.S. should ramp up domestic extraction of minerals critical to battery production.

The United States should expand its capacity to produce minerals needed in battery production to reduce reliance on China’s supply. Regulations should be streamlined, and the government should facilitate one-stop shop permitting. Further, Washington can provide investment incentives to accelerate mineral production projects while supporting workforce development and upskilling to supply the necessary talent. Special economic zones should be developed around known mineral deposits, providing needed infrastructure (energy, water, and transportation) for a wide range of extraction, processing, and downstream component projects.

In addition to increasing its own mineral production, the United States should work with allies to increase their capabilities and connectedness to U.S. markets — creating an economic coalition resilient to Chinese market manipulation.

2. The U.S. should invest in alternatives to Chinese processing of critical minerals.

Battery producers must refine and process critical minerals to create mineral forms useful for making batteries. However, many related technologies are Chinese intellectual property, and some refining processes are dangerous and polluting. To develop a domestic processing industry, Washington will need to incentivize and fund mineral processing research, developing cleaner and more efficient techniques to refine graphite, cobalt, nickel, and lithium.

Washington should also help nascent processing efforts take root domestically and in allied countries, providing essential tax breaks at home, along with financial incentives and development support overseas. For example, the U.S. Development Finance Corporation can tailor development funding to support mineral processing initiatives that would help break China’s dominance.

3. The U.S. should prevent intense price fluctuation for key battery inputs.

Free-market companies struggle to survive and plan when the cost of inputs they need frequently change by substantial amounts. This is especially true when many mines and facilities require large upfront expenditures and can take a decade to make fully operational.

China can and does manipulate prices for battery inputs to push competitors out of the market. However, Washington can ensure corporate margins are more consistent by stabilizing prices and cracking down on Chinese price distortions. To cushion profits, the United States should create non-Chinese pricing mechanisms, commit the government to buying excess supply, and set price floors. To deter Chinese price manipulation, the United States should dangle the threat of tariffs and sanctions on China and its enabling companies.

4. The U.S. should use transparency to expose China’s non-market practices.

Chinese market dominance results in large part from opaque or illicit dealings — bribery, debt traps, forced labor, lopsided contractual terms, intellectual property theft, and trade manipulation. Improved financial reporting and transparency laws could shine a light on Beijing’s “bad behavior” and aid regulators.

The United States should begin by preventing China from hiding its hand. U.S.-listed companies should be required to disclose ties to Chinese companies. All goods entering the United States under free-trade regimes should have tagging requirements to ensure they are not merely Chinese goods with an ally’s name stamped on top. Washington should encourage allies to screen foreign direct investment for hidden Chinese ties and provide support to those struggling to identify Chinese influence or to escape a bad deal with China. Lastly, Congress should require large U.S. companies to check their supply chains for instances of forced or child labor.

5. The U.S. should support American innovation and cooperation.

Battery technologies will improve and change over time. Breaking China’s chokehold on battery production depends as much on investment into future technologies as it does on expanding access to battery inputs and production techniques today.

Domestic battery innovators require research funding and support to turn discoveries into market-ready products. The U.S. government should provide targeted, time-limited subsidies for promising battery innovations and help small innovators scale up new products to test commercial viability. In addition, to facilitate corporate collaboration, the United States should promote shared cost models, condition federal funding on cheap technology licensing to other American companies, and champion public-private research consortiums.