The United States and the European Union are on the verge of creating a powerful alliance for critical minerals, a move designed to secure their own supply chains and lessen their dependence on China.
At the heart of this issue is China's significant control over the processing of essential battery metals and rare earths. According to the International Energy Agency (IEA), China refines between 47% and 87% of key minerals like lithium, cobalt, and graphite. This dominance allows it to influence global prices, creating extreme volatility. For instance, lithium prices crashed by over 86% from their peak in early 2023 to mid-2025, only to rebound and fall again. Such wild swings make it incredibly risky and expensive for Western companies to invest in new mines and processing plants, as their financial viability becomes unpredictable.
This situation has prompted a major policy shift. The initial idea of using simple tools like government-set 'price floors' has been set aside. Instead, the US and EU are pursuing a more sophisticated, collaborative strategy. The causal chain is clear: first, Western leaders identified China's market power as a national security risk. Second, they saw how price manipulation deterred their own domestic projects. Third, they concluded that acting alone was insufficient, leading to the current push for a transatlantic partnership.
The proposed pact is essentially a plan to create a resilient, alternative market. It's not about tariffs, but about building a stable ecosystem for Western producers. This will be achieved through several key mechanisms. One is joint offtake and stockpiling, where allies commit to buying minerals, guaranteeing demand and creating a safety net against price collapses. Another is aligning subsidies and standards, like the US Inflation Reduction Act (IRA) and the EU's Critical Raw Materials Act (CRMA), so they work in harmony. Finally, they will coordinate investment screening to prevent Chinese state-linked entities from acquiring stakes in these strategic projects.
In essence, the US and EU are moving from playing defense to playing offense. Instead of just reacting to China's moves, they are building a rules-based, investment-friendly architecture. The EU brings a pipeline of 47 shovel-ready projects under its CRMA, while the US brings immense financial power and defense-related demand. The success of this transatlantic accord will depend on whether this framework is backed by real, predictable financing and firm commitments.
- Glossary
- Offtake Agreement: A pre-purchase agreement where a buyer commits to purchasing a certain amount of a future product from a producer, guaranteeing revenue for the project.
- Critical Raw Materials Act (CRMA): An EU regulation aimed at ensuring a secure and sustainable supply of critical raw materials for Europe's industries.
- Price Floor: A government- or group-imposed price control or limit on how low a price can be charged for a product. It is a type of price support.