An article published by Japans Asahi Shimbun on July 21, titled Critical Minerals: Breaking Free from China—U.S. Accelerates Domestic Production, analyzed the challenges the U.S. faces in reducing its reliance on China for critical minerals. With growing demand for high-tech products like electric vehicles and fighter jets, the U.S. has begun accelerating domestic production of critical minerals and imposing tariffs on Chinese products. However, this strategy may bring risks of economic instability.

The U.S. Dependence on China for Critical Minerals

In the southern California desert, Mountain Pass is the only rare earth mine in the U.S. Mountain Pass Materials is dedicated to developing neodymium, a rare earth element critical for manufacturing electric vehicles and wind power equipment. Although the U.S. government will provide over $100 million in subsidies to Mountain Pass Materials, current U.S. lithium production meets only 4% of electric vehicle demand, cobalt production 13%, and nickel and graphite production 0%. In contrast, China processes over 80% of the worlds critical minerals.

U.S. National Security Advisor Jake Sullivan stated that U.S. dependence on China for critical minerals is a threat to national security. To address this, the U.S. government has imposed high tariffs on Chinese-made electric vehicle batteries and critical minerals while accelerating domestic production.

Economic Challenges of Tariffs and Domestic Production

The Biden administrations Inflation Reduction Act, passed in 2022, aims to promote the adoption of electric vehicles in North America, offering up to $7,500 in tax credits per vehicle assembled in North America. However, the act stipulates that these vehicles must use critical minerals mined and processed in countries with free trade agreements with the U.S., or they will not qualify for tax credits.

Although this policy aims to achieve reduced dependence on China and decarbonization goals, its economic costs are high. The high costs of domestic production may lead to price increases and fiscal deterioration, undermining economic stability. Abandoning this option could achieve decarbonization and economic stability, but this is undesirable for the U.S. and its allies, who view China as an adversary.

The Trilemma Faced

In advancing its decoupling from China strategy, the U.S. faces a trilemma:

Balancing reduced dependence on China with economic stability

Choosing complete decoupling from China means the U.S. must pursue high-cost domestic production, which could lead to economic instability. High production costs and supply chain adjustments would place significant pressure on the U.S. economy, potentially triggering inflation and rising fiscal deficits.

2. Delays in decarbonization progress

If the U.S. chooses to reduce dependence on China while maintaining economic stability, decarbonization progress will inevitably be affected. Chinas low-cost minerals and components largely support global decarbonization efforts. Without reliance on Chinese minerals, the costs of electric vehicles and renewable energy equipment would rise sharply, hindering decarbonization goals.

3. Dual pressures from international politics and economics

On the international political front, the U.S. and its allies cannot ignore U.S. intentions. Continuing to rely on China may be seen as weakness and irresponsibility. Economically, however, reducing dependence on China presents significant challenges. Finding a balance between these two is a major dilemma for the U.S.