Production, processing and use of critical minerals
- Global production patterns and geographical concentration
Global critical mineral (cobalt, lithium, copper, and rare earth elements) extraction exhibits extreme geographical concentration that exceeds even oil and gas markets in some cases. China leads global production with approximately 25% of total critical material extraction, followed by Australia at 14% and the Democratic Republic of the Congo (DRC) at 10%. This concentration becomes even more pronounced for specific minerals: China controls around 70% of rare earth element and graphite mining, Australia dominates lithium extraction with approximately 50% market share, and the DRC accounts for over 60% of global cobalt extraction. - Processing and refining bottlenecks
The geographical concentration becomes even more severe at the processing stage, where China refines over 40% of critical materials required for the low-carbon transition. Chinese facilities process 60% of global cobalt, manganese, and lithium, and an overwhelming 95% of rare earth elements. This processing dominance creates potential bottlenecks that could significantly impact global supply chains. Other countries have developed specialized refining capabilities: Chile has become the world’s second-largest refiner of copper (10% market share) and lithium (32%), while Argentina accounts for 11% of global lithium refining capacity. However, these secondary players remain dwarfed by Chinese capacity, creating systemic vulnerabilities for countries dependent on processed materials. - Critical minerals in clean energy technologies
Critical materials form the backbone of clean energy infrastructure. These minerals are essential components in solar photovoltaic panels, wind turbine generators, electric vehicle batteries, and electrical grid systems. The scale of transformation required is substantial: by 2050, wind energy generation needs to increase globally by 15%, solar energy by 25%, and electric vehicle manufacturing by 60% to meet Paris Agreement goals. The criticality of these materials stems from their irreplaceable role in clean technologies combined with potential supply constraints. Copper, for example, is fundamental to electricity grids, EV batteries, and solar installations, with projections suggesting that nearly 90% of currently known copper resources may be extracted by 2050. This combination of high demand and finite resources categorizes these minerals as strategically critical for the energy transition.
The EU’s dependency on critical materials
Authors: Capucine Nobletz, Romain Svartzman, Simon Dikau
From: Bocconi University, LSE
The impact of Chinese rare earth export restrictions
This paper by Laura Alfaro, Harald Fadinger, Jay Schymik, and Gede Virananda employed a multi-pronged approach to analyze the effects of China’s 2010 rare earth elements (REEs) export restrictions. The authors constructed a novel input-output table integrating REE usage across U.S. industries, weighted by element-specific substitutability indices based on physical-chemical properties. Patent data, classified via GPT-4, linked REE-related innovation to downstream sectors, while sectoral productivity and trade data (2002–2018) quantified economic impacts. A difference-in-differences framework exploited China’s 2010 export curbs as a quasi-natural experiment, measuring sectoral exposure via REE intensity and substitutability. A quantitative trade model embedded directed technological change (DTC) theory, calibrating substitution elasticities and innovation responses to price shocks.
- Global innovation surge:
China’s 2010 restrictions triggered a 7.4% increase in REE-enhancing patents per standard deviation of exposure in non-Chinese sectors. Innovation focused on efficiency (e.g., reducing dysprosium in magnets) and substitution (e.g., yttrium alternatives), driven by Japan, Europe, and the U.S. Chinese sectors showed no comparable response, reflecting reliance on state-controlled supply chains. - Productivity and export growth:
Exposed non-Chinese industries saw annual TFP growth rise by 0.19 percentage points, with Japan and Europe gaining most (0.5–1.0 pp). Export growth in these sectors increased by 0.3 pp annually, driven by output expansion rather than price hikes. Conversely, Chinese downstream sectors contracted due to reduced global REE demand. - Structural shifts via directed innovation:
Low substitutability and inelastic REE supply amplified innovation incentives. DTC mechanisms led to REE-saving technologies, reducing global dependence and mitigating cost pressures. This shifted competitive advantages: non-Chinese firms expanded, while China’s domestic industries stagnated. - Policy repercussions:
China’s restrictions backfired by accelerating foreign innovation, undermining its downstream dominance. The 2010 episode became a blueprint for later measures (e.g., 2023–2025 gallium/germanium curbs), highlighting risks of supply chain weaponization.
Trade and Industrial Policy in Supply Chains: Directed Technological Change in Rare Earths
Authors: Laura Alfaro, Harald Fadinger, Jay Schymik, Gede Virananda
From: Harvard Business School, University of Vienna, University of Mannheim, NYU Stern
