“Mineral security” policies: Insights from oil markets

Abstract

China's large market share in producing and processing many “critical minerals” has provoked much discussion around “mineral security” for the United States. We examine that issue through the lens of prior research on international oil insecurity. Oil security analysis focused on targeted supply cuts, the negative impacts of supplier market power, and economic burdens from oil price jumps (none of which turned out to be an issue). Broadly similar concerns arise regarding critical mineral security, but how justified are those concerns? We conclude that targeted supply cuts for critical minerals do not appear to be a major concern; and trying to suppress price volatility is likely to be mostly ineffectual and costly. China previously has raised export prices over domestic prices for some critical minerals, and it remains to be seen if they would undertake similar use of market power in the future. The scale of sunk costs required to ameliorate that uncertainty through critical mineral processing investment outside China will be substantial, and the tradeoffs in doing so require careful consideration.