On Friday, April 24, the European Union and the United States signed a memorandum of understanding on critical minerals for energy, defense, and digital technologies with the aim of reducing dependence on China, the country that currently dominates the supply chains of most of these materials.
WHAT THE EU-US MEMORANDUM ON CRITICAL MINERALS PROVIDES
The document, signed by European Commissioner for Trade Maros Sefcovic and U.S. Secretary of State Marco Rubio, represents the formalization of the “strategic partnership” – as it was defined – between the two countries for the development of “secure and sustainable critical minerals supply chains,” as well as comprehensive: the initiative indeed covers all phases of the supply chain, from extraction to recycling, including processing and refining of the raw material.
“Critical minerals are at the foundation of every future-oriented sector: resilience is therefore essential and addressing vulnerabilities is an imperative,” said Sefcovic.
AN ANTI-CHINA MEASURE
The anti-China intent of the memorandum is clear, even though the country was not explicitly mentioned. Rubio, however, stated that “the excessive concentration of these resources and the fact that they are dominated by one or two locations represent an unacceptable risk. We need diversification in our supply chains, diversification in the sources from which we obtain critical minerals.”
Currently, China exerts a very significant influence over the supply chains of most critical minerals, from lithium to rare earths, from antimony to tungsten. Control of the physical supplies of these raw materials allows Beijing to limit their sales, damaging the economies of dependent countries. Control of the value of these raw materials – that is, the ability to raise or lower prices through less or more production – also allows it to potentially stifle Western mining projects, undermining their profitability.
AMERICAN AND EUROPEAN INITIATIVES
For years, the United States has been trying to reduce its mining dependence on China through the development of alternative supply chains – located in allied, friendly, or nearby countries – and a domestic supply chain. This policy saw further acceleration with the start of President Donald Trump’s second term: the American government even became a shareholder in several mining companies specialized in critical elements, such as USA Rare Earth and MP Materials (rare earths), Trilogy Metals (copper, cobalt, gallium, and germanium), and Lithium Americas (lithium).
The European Union, with the Critical Raw Materials Act, has established that by 2030 it must extract at least 10 percent of the critical minerals it consumes internally, process 40 percent, and recycle 15 percent. The bloc must also not depend on a single external supplier for more than 65 percent of its needs. In March of last year, the Commission adopted the final list of forty-seven strategic projects for critical raw materials, which will require a total investment of 22.5 billion euros: the expenditure will be supported by the Commission, member states, and financial institutions.
– Also read: Recycling, the EU wants to stop the export of used batteries and rare earth waste
The ACTION PLAN FOR CRITICAL MINERALS SUPPLY CHAIN RESILIENCE
In addition to signing the memorandum, Washington and Brussels also drafted a “action plan” to improve cooperation on a series of economic measures and operational practices: for example, setting minimum prices for critical minerals, harmonizing supply agreements, promoting investments, creating standards for extraction and processing of elements, establishing strategic reserves, and developing rapid response mechanisms to supply crises.
A MULTILATERAL AGREEMENT?
According to the European Commission, this Action Plan “paves the way for a possible plurilateral trade initiative with global partners.” The United States, moreover, has already signed similar documents with Japan and Mexico. And last February, Vice President J.D. Vance revealed America’s intention to create a trade bloc for critical minerals together with allied and friendly countries. More recently, Trade Representative Jamieson Greer said that American allies must be willing to pay prices higher than market rates for minerals extracted and processed outside China.
Not everyone is enthusiastic about this last proposal, however, fearing it could lead to increased costs for companies using critical materials or provoke a trade reaction from Beijing.
The text of the Action Plan between the European Union and the United States, however, states that “pervasive non-market policies and practices have made critical minerals supply chains of market economies vulnerable to a myriad of disruptions, including economic coercion. Addressing these vulnerabilities is an imperative.”
