‘Both sides of the border’ aware of the strategic importance of critical minerals amid trade war: expert

Battery materials analyst at BMO Capital Markets Greg Jones breaks down the outlook for critical minerals.

A new report highlights supply side risks associated with critical minerals, saying disruptions could impact the U.S. economy and tech industry amid a trade war between Canada and the U.S.

Shaz Merwat, energy lead at RBC Climate Action Institute, said in the report earlier this week that Canada and the U.S. are each other’s largest mineral trading markets, which accounts for $146 billion in bilateral trade. Much of the demand for these minerals is in tech-oriented growth sectors, the report said. In an interview with BNNBloomberg.ca Merwat said there is a smaller “niche group of critical minerals that aren’t necessarily commercial, but are strategically important.”

The list of niche minerals, includes gallium, graphite, nickel, tungsten, germanium and more. While the U.S. is largely dependent on China for those minerals, acting as the primary foreign source for one quarter of critical minerals in the U.S., the report says Canada can help in de-risking supply chains.

“That’s where I think this relationship is because of the small volumes, we can be a large player. We might be a small player, but it wouldn’t take a lot to become a large player, and those are the areas where I think the trade tensions are actually more problematic,” Merwat said.

The report suggests that those disruptions to the supply of critical minerals poses a downside risk to the U.S. economy, noting an example that a 30 per cent restriction of gallium supplies could cause a US$600 billion decline in U.S. gross domestic product. China accounts for 90 per cent of the global supply of gallium and the report said could act alone to cause a US$600 billion hit to the U.S. economy.

Merwat said Gallium is used in semiconductors.

“In the near to mid-term, Canada has an opportunity to gradually displace Chinese supply, while also furthering a U.S.-Canadian strategy to secure production across a range of technologies and applications critical to both continental security and the fourth industrial revolution,” the report said.

Supply concerns for critical minerals come amid a “battle for global tech supremacy,” the report said, which the U.S. is “at risk” of loosing to China.

“Even more concerning is that the U.S. has little to no presence across the critical minerals value chain. The country is 100 per cent import reliant for almost a quarter of its identified 50 critical minerals, and over 50 per cent import reliant on 29 minerals,” the report said.

Trade tensions have ratchetted up this week with Canada imposing counter tariffs on U.S. products in retaliation to 25 per cent tariffs placed on Canadian steel and aluminum imports to the U.S.

“One of the ways to do that is to say, ‘I have a lot of stuff you need, and you have nothing that I need,’” he said.

Merwat added that is “not inherently true of the relationship between Canada and the U.S.” noting a dependence on Canadian oil.

“I put critical minerals in that same bucket,” he said.

“I think at the core, Trump is aware that he needs our critical minerals…I think that aspect of the relationship of needing the critical minerals across industry on both sides of the border are very much aware of it in the strategic importance, and I don’t really see tariffs derailing that.”