The graphite war: a new clash between the USA and China

The trade tensions between United States and China also and above all concern the allocation of the strategic resources necessary to develop new technologies, such as electric vehicles and their batteries. It is no coincidence that Washington is pressuring EV and battery manufacturers to build a new non-Chinese supply chain for graphite anodes, a crucial component in the production of the heart of almost everything that competes with green mobility.

It seems that from June the USA will apply 25% duties on the aforementioned natural and synthetic graphite anodes from China, after having already announced tariffs of 25%, starting from 2026, also on natural graphite processed beyond the Wall. And this despite a non-negligible aspect: Chinese production of anodes represents 97% of the entire global sector.

The reason for Chinese dominance is simple: the West has spent the last few years without investing in an adequate supply chain alternative, preferring to continue to depend on the Dragon. It’s a shame that today the worsening of the geopolitical climate has overturned every scenario of win-win cooperation.

Graphite between the USA and China

As the Financial Times explained, the US crackdown on Chinese graphite materialized after American officials granted a two-year waiver, starting in January 2025, to allow vehicles with batteries containing graphite made in China to continue to benefit from federal subsidies under the Inflation Reduction Act (IRA). The risk now is that all these subsidies could evaporate like snow in the sun without a new and clearer exemption.

After all, graphite has emerged as Washington’s Achilles’ heel in the trade confrontation with China. “The US government has been forced to recognize that battery manufacturers need Chinese graphite in the short term if vehicles are to qualify for IRA tax credits,” explained Georgi Georgiev, materials analyst battery primes at the consultancy firm Fastmarkets.

At the same time, however, the White House intends to close this gap as soon as possible, giving companies a handful of years to build, almost from scratch, a new supply chain that bypasses Beijing. There’s just one little big problem: even though natural graphite is abundant, almost all the processing of natural graphite and 98% of the production of synthetic graphite for battery anodes are concentrated in China.

Objective: Bypass the Dragon

Anodes make up about 50% of the volume of a battery cell but only 10% of the cost. Result: Companies seeking to build an IRA-compliant battery supply chain have focused on sourcing higher-value minerals (such as lithium, nickel, and cobalt) used in battery cathodes. In short, up to now, the perception has always been that the aforementioned anodes were too easy to obtain from Beijing to justify the investments necessary to find alternatives to the Dragon.

Let’s get to the present. It’s ok to bypass the Asian giant: but the US could lose its race against time. The reason is simple: as the FT explained, it is true that the United States is a net exporter to China of the needle coke used to produce synthetic graphite, and that the American industry should be able to convert the existing plants to produce anode powders for batteries within three to four years. It is also true that natural graphite can be found almost everywhere, primarily in Canada and Mozambique.

Be careful though, as not many analysts believe that non-Chinese companies will be able to replicate the capacity of made-in-China graphite anodes before the US government’s IRA waiver on graphite itself expires at the end of 2027. Moral of the story: Washington could extend the aforementioned waiver. The trade war against China is a huge Everest to climb. Even for the USA.

Original article published on Money.it Italy 2024-06-18 06:48:00. Original title: La guerra della grafite: il nuovo scontro tra Usa e Cina