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Yesterday, US President Joe Biden announced he would increase import tariffs on key Chinese goods, including some critical minerals. Ostensibly, higher tariffs on critical minerals from China will help protect the US mineral industry by making it more expensive to import minerals from China. Minerals produced by Chinese-linked entities outside China, however, will not face higher duties.
Yet, imports of these Chinese-produced minerals also undermine the US mineral industry because downstream US industries, like the auto industry, often prefer to source and invest in lower-cost foreign minerals over higher-cost US minerals. For example, the US automaker Ford is directly investing in an Indonesian nickel plant partly owned by the Chinese company Zhejiang Huayou Cobalt.
To support and protect the US mineral industry, the US government should increase duties on minerals produced by Chinese-linked entities in other countries. These Chinese producers have unfair cost advantages due to lower environmental standards, lower labor protections, and Chinese state subsidies.
First, Chinese mineral producers in other countries generally have low environmental standards, allowing producers to access minerals in sensitive ecosystems and to forgo costs associated with mitigating carbon emissions. For example, state-backed Chinese and Indonesian companies can clear-cut rainforests in Indonesia, the world’s largest nickel producer, to build open-pit nickel laterite mines. Additionally, the processed nickel is carbon-intensive given the energy intensity of mineral processing and the Chinese processing facilities’ heavy reliance on coal.
Second, Chinese mineral producers in other countries frequently have low labor protections, which mean lower safety regulations. For instance, an explosion at a Chinese-owned nickel refinery in Indonesia killed twenty-one workers in December 2023. Chinese mineral companies operating overseas have also been accused of violating labor rights, including children working seven days a week at cobalt deposits owned or operated by Chinese companies in the Democratic Republic of the Congo. This mined cobalt often enters the global supply chain for electric vehicle batteries.
Third, Chinese mineral producers in other countries commonly receive state financial backing. To illustrate, Chinese state development banks (i.e., China Development Bank, Export-Import Bank of China) and state-owned commercial banks (i.e., Industrial and Commercial Bank of China, the Bank of China) helped finance coal-fired power plants at an Indonesian industrial park with several Chinese nickel producers. This Chinese state financing absorbs part of the Chinese nickel producers’ capital costs, enabling them to build production capacity at lower costs.
These factors—lower environmental standards, lower labor protections, and state subsidies—combine to give unfair cost advantages to minerals produced by Chinese-linked entities in other countries. To decrease this unjust cost advantage, the US government should impose significant duties on all minerals produced by Chinese-linked entities.
For example, high-pressure acid leaching facilities owned by state-backed Chinese and Indonesian companies in Indonesia produce mixed hydroxide precipitate that is often converted into nickel sulfate, which is necessary in certain electric vehicle batteries. However, these processing facilities produce tailings susceptible to seepage and have allegedly polluted local waterways. Consequently, imports of Indonesian-origin, Chinese-produced minerals should face substantial US import duties given their environmental costs.
The US government should also increase import duties on downstream goods containing Chinese-produced minerals, like processed battery materials (e.g., nickel sulfate), battery components (e.g., cathode material), battery cells and packs, and electric vehicles. Increasing tariffs across the supply chain will help prevent Chinese minerals embedded in other goods from circumventing the import duties.
For instance, if Americans can import cheap electric batteries containing Chinese-produced minerals, those minerals—despite their unjust cost advantages—can enter duty-free into the US market. Thus, imposing duties on mineral-rich downstream goods should protect the US mineral industry too.
In conclusion, policy efforts to protect the US mineral industry from unfair Chinese competition must target minerals produced not only in China but also by Chinese-linked entities in other countries. These minerals have unjust cost advantages due to lower environmental standards, lower labor protections, and Chinese state subsidies. To address this issue, the US government should impose high duties on minerals produced by Chinese-linked entities outside China, as well as on mineral-rich downstream goods containing Chinese-produced minerals.
Gregory D. Wischer is the founder and principal of Dei Gratia Minerals, a critical minerals consultancy.
