Why lithium-ion batteries could be the next friction point in China-US trade war
POLITICS
7 min read
Why lithium-ion batteries could be the next friction point in China-US trade warChina’s expanding role in battery production through its Indonesia partnership is setting the stage for sharper competition with the US over clean energy supply chains.
Chinese companies currently control nearly 75 percent of the world’s lithium-ion battery cell production capacity by value. / Reuters
5 hours ago

Indonesia’s announcement on Sunday of a major lithium-ion battery plant backed by Chinese giant Contemporary Amperex Technology Co Ltd (CATL) marks a new chapter in the global contest for clean energy dominance. 

The plant, which is set to open by the end of 2026, will produce batteries for electric vehicles and energy storage systems, beginning with a capacity of 6.9 gigawatt hours and potentially expanding to 40 gigawatt hours.

The battery plant will be built in West Java, while the remaining sub-projects will be in eastern Indonesia’s nickel-rich province of North Maluku.

Indonesia holds the world’s largest nickel reserves, and nickel is a crucial raw material for lithium-ion batteries. 

The Southeast Asian nation has now set an ambitious goal of producing about 600,000 electric vehicles by 2030. This would be nearly 13 times the number sold in the country last year.

These figures gain greater importance amid escalating US-China trade tensions. 

President Trump’s so-called “Liberation Day” tariffs, introduced in April, had initially pushed US duties on Chinese goods to 145 percent, with China retaliating by imposing a 125 percent levy on US goods. 

But following the Geneva talks in May, US tariffs were reduced to 30 percent, while China lowered its duties to 10 percent.

The strategic importance of critical materials —such as nickel, lithium, and rare earth elements— needed for batteries and other advanced technologies has forced both sides towards a compromise.

Last month, the countries formalised a deal on rare earth shipments after China leveraged its 90 percent control of global processing to impose export restrictions. 

The curbs caused a 37 percent drop in the sale of rare earth minerals and 58 percent drop in the sale of rare earth magnets to the US, triggering a “panic” over production shutdowns. 

In 2023, China accounted for 58 percent of global processed battery mineral exports, 53 percent of battery material exports, and 74 percent of battery pack and component exports.

The United States, in comparison, has struggled to establish lithium supply chains that are independent of China and continues to rely on Chinese-controlled processing and battery components despite the government’s growing security concerns.

While the US scrambles to build domestic capacity through the Inflation Reduction Act’s $7.5 billion investment, China’s $6 billion power battery partnership with Indonesia illustrates how control over raw materials and new production sites is shaping the global battery supply chain.

As the two superpowers compete for dominance in battery manufacturing and access to critical minerals, the future of the clean energy transition may depend on which country can secure these supply chains first.

Clean energy and EVs

Lithium-ion batteries have a central role in the clean energy transformation.

These rechargeable power sources play a vital role in making renewable energy dependable and are essential for technologies that support the transition to a low-carbon future.

While lithium does not generate power, lithium-ion batteries store energy when production is high and supply it when needed, helping to balance the use of wind, solar, and other clean sources.

In electric vehicles, batteries make up about a third of the total cost and are key to how far the car can travel, how fast it charges, and how long it lasts. The shift from petrol and diesel engines to electric motors depends fully on having enough batteries that perform well at a reasonable price. 

By 2030, more than 40 percent of cars sold worldwide are expected to be EVs, but battery production will be the main factor limiting how fast this change can happen.

“Control over lithium-ion battery supply chains equates to control over critical technology for the 21st century,” says global risk specialist Tony Loughran of Zero Risk International, a security and risk-management consultancy. 

The impact of battery technology goes beyond the automotive sector, as it now supports the economies of major nations and creates new dependencies across a wide range of industries.

Consumer electronics, from watches to calculators, as well as medical devices, telecommunications equipment and military systems, all depend on reliable battery supply

China’s supply chain power

China’s dominance in lithium-ion battery production stems from two decades of strategic industrial policy that has created an integrated ecosystem from raw materials to finished products.

Chinese companies currently control nearly 75 percent of the world’s lithium-ion battery cell production capacity by value, with industry giants CATL and BYD alone commanding over 50 percent market share.

This manufacturing dominance rests on even more comprehensive control over upstream supply chains. Apart from its 90 percent control over global processing of rare earth minerals, China processes 60-70 percent of lithium and cobalt. 

“All these indicators suggest to me that China is pulling ahead not just by producing batteries, but by locking in upstream materials and regional production hubs in ways that the US and its allies have yet to replicate,” Loughran tells TRT World

His assessment reflects growing concern among Western policymakers about structural disadvantages in battery supply chains.

The Indonesia partnership exemplifies China’s systematic approach to supply chain control. By investing in battery production near raw material sources, China effectively localises supply chains while securing upstream access. 

This strategy contrasts sharply with Western approaches that often separate mining, processing, and manufacturing across different continents.

American efforts to build domestic battery capacity face daunting challenges. Despite the Inflation Reduction Act’s $7.5 billion allocation for battery supply chains and generous manufacturing tax credits, the US currently produces only 10-12 percent of global battery capacity. 

Reaching the planned 1,000 GWh annual capacity by 2030 would require building more battery factories in six years than China constructed over two decades.

“The Indonesia-CATL battery plant is a potent example of how China is advancing its long-term strategy to dominate clean energy technologies by integrating raw material access with high-end manufacturing,” says Loughran.

He describes this as both “a wake-up call and a challenge” for the US as it confronts rising competition from China.

Escalation scenarios and strategic vulnerabilities

The concentration of battery supply chains creates multiple vectors for potential trade conflicts. China’s control over critical processing stages provides powerful economic weapons that could quickly reshape global industries.

“Additionally, if China begins to restrict exports or impose tariffs on high-grade battery components, it could dramatically impact Western EV makers and energy storage firms,” warns Loughran.

Already, Beijing is tightening control by setting a six-month limit on rare-earth export licences for US automakers and manufacturers, giving more leverage to China if trade tensions flare up again.

Major Western automakers, including Tesla, BMW, and Volkswagen, rely on Chinese battery suppliers for significant portions of their EV production. 

Even companies attempting to build alternative supply chains often discover that processing equipment, technical expertise, and refined materials still trace back to Chinese sources.

A restriction on Chinese cathode materials would simultaneously impact EV production in Detroit, grid storage projects in California, and consumer electronics manufacturing across Asia. 

Such battery supply restrictions wouldn’t just hit transportation, they would strike at the heart of the digital economy.

The challenge for the US now is how to secure these supply chains and remain competitive.

Loughran believes this will require a far more coordinated strategy from Washington. 

“The US must accelerate investments, strengthen alliances, and secure access to critical minerals if it hopes to remain competitive in the battery and EV arms race,” he says.


SOURCE:TRT World and Agencies
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