Trade
The highly charged geopolitics of lithium
Author: Marina Yue Zhang, UTS
Clean energy technologies are essential to achieve the decarbonisation targets set in the Paris Agreement. Critical minerals — including lithium, nickel, cobalt, graphite, copper and rare earth elements — are vital to produce clean energy products like solar panels, wind turbines and power batteries for electric vehicles (EVs).
Demand for lithium, a key component in lithium-ion batteries, has soared over the past three years as the clean energy transition accelerates. Though abundant, lithium is unevenly distributed and non-renewable. And until an alternative material for or approach to power batteries becomes available, lithium looks set to be at the centre of geopolitical tensions over the control of critical resources.
The top three producing countries process over 80 per cent of the most critical minerals used in lithium batteries. China dominates the processing of almost all minerals, with more than 50 per cent of total market share — except for nickel and copper — of which China controls 35 and 40 per cent, respectively.
Technology-intensive industries rely on interdependencies between countries with different endowments. This works well during periods of geopolitical stability and cooperation but the high concentration of processing in the lithium battery supply chain means that it is vulnerable to disruption by war, global pandemics, natural disasters or geopolitical tensions.
Australia has the world’s largest battery-grade lithium deposits, and export revenues have skyrocketed, with lithium becoming Australia’s sixth most valuable commodity export. Australia needs to consider how to profit from the boom and what role it can play in the lithium race.
Lithium battery production relies on a global supply chain composed of mineral extraction and production, mineral refinement and processing, and battery-cell production and battery-pack assembly. This supply chain is a complex network of organisations, people, activities, information and resources.
Australia and China complement each other in this supply chain. Australia supplies 46 per cent of lithium chemicals and a large proportion goes to Chinese processing facilities and then to Chinese battery and EV makers. China produces 60 per cent of the world’s lithium products and 75 per cent of all lithium-ion batteries, primarily powering its rapidly growing EV market, which accounts for 60 per cent of the world’s total.
The severity of supply chain vulnerability is different for Australia and China. China relies on imports of lithium chemicals from Australia for downstream productions, but it can source lithium from other channels, including its domestic supplies or from South America.
Yet China’s dominance in lithium processing means that few countries could absorb Australia’s supply if China looks to alternative sources. Long lead times in building lithium processing facilities limit the speed at which new production can be ramped up to meet rapid demand increases. Building such capabilities requires capital investment, skilled workers, and an ecosystem where complementary suppliers of components, equipment and services are clustered to minimise costs.
Prioritising national security over economic benefits, the United States and European Union aim to increase their self-sufficiency in the lithium supply chain out of a concern about potential disruption to battery supplies stemming from China’s dominance of production. China could face the possibility of being cut off from the US-led supply chain system.
Australian Industry and Science Minister, Ed Husic, commented: ‘Australia has globally significant deposits of essential battery materials and strong local innovation and research capabilities. By drawing on these strengths, Australia can take its place in the profitable global battery supply chain’. He implied that faced with the geopolitical tensions of lithium, Australia should move from low-value-adding ‘digging it and shipping it’ to a higher value-adding position, including lithium chemical processing and even battery manufacturing.
While Australia has not suffered a ‘resources curse’ in the traditional sense, its resources boom in iron ore and natural gas in the past thirty years has led to the appreciation of the Australian dollar, which has lowered the competitiveness of other exports, especially in manufacturing. In 2021, value-added in manufacturing dropped to less than 6 per cent of Australia’s GDP, down from almost 14 per cent in 1990.
Australia moving up the value chain would…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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