With the creation of electric lithium batteries that light in weight and have the capacity to power vehicles and machines has made the lithium in the wake of the energy transition and the creation of non-fuel powered renewable sources a central asset to control.
This article intends on providing an analysis on the current state of the global control of lithium and how the strategies that are being played by the two main competing powers- the US and China- to control such a resource play a central role in the energy dynamics of the energy transition and what can the EU and the US do to preserve their strategic autonomy in the lithium battery industry sector.
The majority of the lithium´s reserves are currently located in Latin America, with Peru, followed by Argentina and Chile having the majority of the worlds known lithium reserves. Other countries such as Mexico and Australia- one of the worlds most important lithium providers also possess considerable amounts.
With the growth of the economic importance of the renewable energy sector and the technologies necessary to be able to create the enough of renewable to power to sustain industrial societies, the control of such resources will be a critical geopolitical instrument.
Given the seriousness of the control of lithium, Chile and Mexico have already created nationalization measures to fully control the exploration of such a resource, signalling that lithium might become in the near future as much an important asset as oil currently is.
China currently dominates the majority of the worlds known lithium explorations in the global south, with the US being left behind in terms of the amount it has invested in the exploration of lithium exploration.
Currently, lithium value chain remains scattered and the Covid-19 pandemic has accelerated the conclusion that the worlds heavy reliance on China for industrial goods is a strategic risk for the US and Europe.
This recognition has recently led European states and the US to create plans to reduce their strategic dependence on China for lithium downstream processing and the manufacture of lithium batteries, with the EU including lithium among its strategically critical raw materials and the US Senate introducing legislation that addresses supply chain weaknesses on the renewable energy sector and with a focus on lithium dependency which has been exposed by the economic turmoil created by Covid-19.
Additionally, the UN has published a report that highlights electric mobility as a rising sector in Latin America that could be instrumental in generating green jobs globally during a post-coronavirus economic recovery, where the investment of the US is currently being funnelled-has it should.
Lithium and the production of lithium batteries is thus a central element from the geo-economic perspective for power on the world stage, where China is dominating.
In relation to China and the US, Europe and the EU were too strategically slow in their discovery of how geopolitically disruptive the lithium battery technology would become, with the EU only recently identifying batteries as the “heart of the ongoing industrial revolution”, playing a strategic role in the worlds transition to clean mobility and energy systems.
This has however done little since in terms of practicality the European car industry has been reluctant to support the creation of an “Airbus for batteries” largely as they still feel uncertain in regards to the future of lithium.
In addition, critics of such an initiative- that would be more strategically focused making an autonomous industrial lithium policy in Europe- have made the argument that the “global markets” and “free trade” would solve such challenges, completely ignoring China´s protectionist nationalist economic policies and placing their faith on their assumptions being based on best-case scenarios that are not realistic.
It should also be taken into account that the rising trend of the global economy´s rising dependence on critical raw materials (CRM´s) and battery cell production controlled by China will create a future scenario that will inevitably shift economic power and change the rules of trade, rebalancing in the process geopolitical influence and if Europe fails to act make the EU effectively dependent on Asia for lithium batteries.
Currently this is already the case with most lithium explorations globally being financed and controlled at least partially by China. Additionally, when analysing closely the dependence that European industry has on Asian manufacturers one can comprehend the serious fragility of the European lithium battery supply chain.
Although about 90% of Germany´s car industry, the continents most powerful industrialized economy, are produced within its national territory by Germans, if things are left unchanged and China unchallenged in the near future about 40% of the value chain of vehicles that will have to be powered by lithium batteries with the climate change energy transformation will be inevitably located in Asia.
Currently Europe lacks any significant battery cell production and the continents most important industrial corporations-from Siemens to Mercedes Benz- import its batteries mostly from China and to a lesser extent South Korea and Japan.
The only major western-based and owned corporation that even manages to compete with Chinese, Japanese and Korean battery making corporations is US based and owned Tesla with China´s megacorporation’s BYD and CATL dominating the market globally and with the combined industrial output of and these players be equal to roughly 80% of the global production of lithium batteries.
In addition to China´s domination of most of the explorations currently underway in the African continent and Asia of lithium its industrial power and its still ongoing expansion can be explained by its government having created a strategic plan of generous state subsidies as part of the Made in China 2025 program which has successfully made China in addition to its already dominating solar panel and wind powered tech industry, the major world producer of batteries, holding the industrial output of 69% of the global battery cell production.
China´s nationalist economic policies have additionally created a hostile environment for fair competition by putting numerous restrictions on foreign companies doing business related with lithium battery production in China, giving preferential treatment to domestic producers
In comparison the US accounts for a mere 15 % and the EU an insignificant 5,3%, with must international consultancies predicting that with the coming consolidation of the lithium battery industry by 2025 only 10 out of the 30 major manufactures will endure the competition, meaning that if the US and Europe do not do anything their industrial output will only diminish even more.
The only industrial sector that is impeding Asia from dominating the market is the battery cell production of the EU, with the Asian manufacturers having strategically a high chance of man ging to establish domination of the European markets due to the benefit of lower transportation cost and better-quality control.
Consequently, if Europe fails to act strategically and does not adapt to the fast-changing dynamics in the industry, it will lose critical industrial job numbers, with a current risk of about 600,000 jobs being lost in Germany out of the 820,500 currently employed industrial workers in its domestic industry, which is the continents most important.
As of now, one to key institutional steps taken by the EU was the launch in 2017 of the European Battery Alliance- a platform for cooperation between key stakeholders in the battery industry, member-states and the European Investment Bank to create a competitive battery-manufacturing industry in Europe.
Additionally, it must be understood that the main objective strategically of the EU is to effectively capture a competitive global market share of 250 billion euros a year by 2025 with the aim of creating 10 to 20 large plants where battery cells will be mass produced, with the industrial output created set to be enough to satisfy EU demand while maintaining the bloc´s competitiveness in relation to the US and China as well as the rest of Asia.
There is also the strategic fear felt within the EU wishes to avoid such an effort ending with the same result as the past collective EU effort to defend the European solar panel industry, which overlooked China´s long-term strategic advantages and was not strong enough to compete with China on a global scale, ending up in failure.
It should be also understood that the greatest’s asset for the success of the European plan currently is the connection between the European Battery alliance and the EU´s Clean Mobility Package which represents a collective EU initiative through legislative measures to lower carbon dioxide emissions from vehicles.
Beijing has further made strategic use of its economic power to assert its global dominance in the solar panel industry sector through a series of policy subsidies and loans that have overtaken Europe as the largest manufacturer, with most of the European industry going bankrupt in this sector, and it obviously intends on doing the same with the industry of lithium batteries which it already dominates globally.
A realistic and strategically speaking pragmatic policy decision on the global scale for the West- and more specifically the EU countries and the US to successfully confront and successfully compete with China and other world industrial power-houses such as India and Japan would be to form a strategic industrial alliance in the lithium battery sector.
Such an endeavour could create a future prosperous collective effort between the EU and the US in combination with special deals made with Latin America´s top lithium producers- Peru, Argentina and Chile, creating in the process an interconnected market based on the liberal democratic world order that could stop to growth of China´s power.
If successfully implemented, the plan could drive great sums of wealth to all the participating sides and allow more critically needed investment to those Latin American countries through what would need to be a series of balanced and carefully crafted trade deals, which in turn would benefit also the US by assuring a steady supply of lithium to its industry and avoid the growth of Chinese power in the Latin American region.
Thus, the two main objectives in such an alliance would be to secure the supply of lithium from the worlds most lithium rich region, which would be in accordance with the current changing dynamic in the economic global paradigm where natural resources are increasingly playing a bigger role, and also allow for the technological expertise of the US and Europe through collaboration to remain autonomous from China and less dependent in the long-term form other Asian industrial economies.
It should be noted however that even if such an ambitious plan would not come into fruition, the powers dynamics that are already at play and the US and Europe will inevitably have to play a role of inter-cooperation or be left behind the lithium competition in relation with the BRICS and specifically with China´s power.
By The European Institute for International Law and International Relations.
