China's Lithium Market Vulnerabilities and the Strategic Case for Diversification

The global transition to clean energy and electric vehicles hinges on a fragile pillar: the lithium-ion battery supply chain. For years, China has dominated this critical sector, controlling over 98% of lithium iron phosphate (LFP) production and 91% of anode manufacturing. While this dominance has driven efficiency and cost reductions, it has also created systemic vulnerabilities that threaten the stability of energy and industrial systems worldwide. As geopolitical tensions escalate and supply chains face increasing scrutiny, the imperative to diversify is no longer a luxury—it is a necessity.

The Chinese Overhang: A Double-Edged Sword

China's grip on the lithium-ion battery ecosystem is both a marvel of industrial policy and a potential albatross. By 2025, it leads in 11 of 12 key supply chain stages, from raw material processing to cell production. Its control over synthetic and spherical graphite—essential for anodes—leaves global competitors with limited alternatives. Even in regions like Indonesia, where lithium and nickel extraction is geographically dispersed, Chinese firms like Tsingshan Group and Guizhou Dalong Huichen exert outsized influence through ownership stakes and processing partnerships.

This dominance has allowed China to manipulate prices, restrict exports, and deter private investment in rival supply chains. For instance, the U.S. imports 75% of its lithium-ion batteries from China, with over 30% of its battery needs still sourced from Beijing despite the Inflation Reduction Act's (IRA) incentives for domestic production. The problem is not merely economic; it is strategic. China's ability to weaponize its supply chain leverage—whether through export curbs or industrial espionage—poses a direct threat to national security and technological sovereignty.

The U.S. and G7: A Race Against Time

The U.S. and its G7 allies are acutely aware of the risks. The IRA's focus on domestic battery production and mineral sourcing is a step forward, but it is hampered by outdated trade data systems. The Harmonized Tariff Schedule (HTS) codes obscure firm-level details, making it difficult to track supply chain concentration. For example, U.S. firms can obscure import relationships through freight forwarders or confidential treatment with CBP, further complicating transparency.

G7 nations have responded with initiatives like the Lobito Corridor—a $6 billion infrastructure project connecting the DRC and Zambia to global markets via Angola's Port of Lobito. This project, supported by the Partnership for Global Infrastructure and Investment (PGI), aims to reduce transportation costs for copper, cobalt, and lithium by 50%. However, progress is slow, and the U.S. commitment of $4 billion is dwarfed by the scale of China's $679 billion in global mining investments from 2013 to 2022.

The Minerals Security Partnership (MSP), a joint G7 effort, has funded 30 projects, but most are small-scale and fragmented. A $20 million cobalt sulfate refining project in Canada or an $8 million nickel initiative in Australia lacks the scale to rival China's vertically integrated supply chains. Worse, projects like Brazil's Serra Verde rare earths mine—backed by the MSP—risk feeding China's refineries due to a lack of allied processing capacity.

The North American Resurgence: Underappreciated Opportunities

Amid these challenges, North America is emerging as a beacon of potential. Companies like Trigg Minerals (ASX:TMG, OTCQB:TMGLF) and Energy Fuels (NYSE:UUUU, TSX:EFR) are leveraging favorable geology, regulatory clarity, and U.S. government initiatives to build strategic assets.

Trigg Minerals, for instance, has acquired the Antimony Canyon project in Utah—a high-grade antimony deposit with the potential to become the U.S.'s first domestic producer in over two decades. Antimony is critical for flame retardants, batteries, and defense applications, yet China controls 83% of global production. Trigg's proximity to infrastructure and Utah's mining-friendly environment position it to capitalize on the IRA's demand for domestic sourcing.

Energy Fuels, meanwhile, is the only U.S. company producing neodymium-praseodymium (NDPR) oxide and separating dysprosium and terbium—rare earths essential for electric vehicle motors and defense technologies. Its White Mesa Mill, the only licensed rare earth processing facility in the U.S., provides a unique advantage. The company's Pinion Plain uranium project in Utah, with grades exceeding expectations, further diversifies its revenue streams and aligns with U.S. nuclear energy goals.

The G7's Path Forward: Capital, Coordination, and Offtake Agreements

To counter China's dominance, the G7 must shift from diplomatic posturing to concrete action. A G7 Critical Minerals Investment Fund, pooling capital from all seven nations, could de-risk projects and incentivize private investment. Japan's JOGMEC model—where state financing is tied to offtake agreements—offers a template. For example, JOGMEC's 51% stake in Namibia's Lofdal rare earths project ensures stable access to heavy rare earths, a sector where China holds a near-monopoly.

Strategic investments in underdeveloped regions are equally vital. Vietnam's rare earths sector, with the world's second-largest reserves, remains untapped despite a 2023 U.S.-Vietnam MOU. A multibillion-dollar G7-backed fund could unlock Vietnam's potential, creating a mine-to-magnet supply chain independent of Chinese refineries. Similarly, Namibia's uranium deposits—77% of which flow to China—could be redirected to G7 enrichment facilities through targeted investments.

The DRC, despite its challenges, presents another opportunity. Chinese firms control 15 of its largest copper and cobalt operations, but a U.S.-DRC security partnership—exchanging minerals access for security assistance—could attract non-PRC investment. The key is vertical integration: G7 projects must align mining with allied refining and processing to prevent critical minerals from flowing into Chinese supply chains.

Investment Advice: Balancing Risk and Reward

For investors, the lithium and critical minerals sector is a high-stakes game. While China's dominance ensures short-term volatility, the long-term trend is clear: diversification is inevitable. North American producers like Trigg Minerals and Energy Fuels offer exposure to this transition, with strong technical capabilities and alignment with U.S. policy.

However, due diligence is essential. Investors should prioritize companies with:
1. Proven geological assets (e.g., high-grade deposits with clear reserves).
2. Government support (e.g., IRA incentives or DFC financing).
3. Vertical integration (e.g., processing capabilities or offtake agreements).
4. Strategic partnerships (e.g., alliances with G7-aligned nations or institutions).

The G7's upcoming summit in Kananaskis, Canada, will be a litmus test for collective action. If member states commit to a unified investment strategy, the critical minerals landscape could shift dramatically. For now, the market rewards those who act early—before geopolitical risks crystallize into full-blown crises.

In the end, the lithium crisis is not just about batteries. It is a battle for the future of energy, technology, and global stability. The time to diversify is not tomorrow—it is today.