The Sino-US Competition for Strategic Minerals
The competition between the United States and China is expanding across multiple sectors, with minerals becoming a new "battlefield" of competition. This trend can "politicize" the global mineral issue, particularly in Asia.
China holds an advantage in the race for minerals. With abundant mineral resources and a comprehensive long-term plan, China currently leads as the world's top "producer" of 29 commodities, including 22 types of metal and 7 industrial minerals. China also refines up to 90% of the world's rare earth ores. In addition, China has formulated a decades-long strategy to control the mineral supply chain. Its priorities include maintaining mineral advantage through: (i) promoting the application of the "Two Resources, Two Markets" strategy and granting power to state-owned enterprises; (ii) implementing export bans or market restrictions on minerals by the United States; (iii) actively participating in the global supply chain, leveraging initiatives such as the Belt and Road Initiative (BRI), the Asian Infrastructure Investment Bank (AIIB), or the Global Development Initiative (GDI) to maximize access to minerals from extraction to processing, trading, and consumption.
The United States also has its own advantages. The U.S. possesses mineral resources such as iron, aluminum, rare earth elements, and titanium dioxide, sufficient to meet domestic demand. However, for other minerals, particularly those critical for defense products and technology, the country relies on imports from various nations. Political instability and competition from other countries can disrupt the import of these minerals, leading to shortages and high import prices in the U.S. market.
In response, the U.S. government has implemented solutions to improve the critical mineral supply chain to keep pace with and compete with China, including: (i) restraining China's rise through strategic export and import bans of strategic minerals, especially "war minerals"; (ii) simultaneously promoting strategic autonomy through investments based on the Bipartisan Infrastructure Act, the Inflation Reduction Act, and the Chips and Science Act announced by President Joe Biden in 2021 and 2022; (iii) mobilizing forces through multilateral mechanisms (notably the Mineral Security Partnership and the National Technology and Industrial Base) and bilateral mechanisms (with Australia, Canada, Japan, South Korea, and mineral-rich countries like South Africa and Argentina) to reshore production to partner countries (friendshoring), diversify supply sources, and reduce global dependence on Chinese minerals.
Challenges for Vietnam
The global trend of strategic mineral competition presents several challenges for Vietnam. Firstly, as strategic minerals become parts of the great power rivalry, the pressure to "pick sides" looms larger, making it more difficult for Vietnam to pursue a balanced policy with major countries. With China dominating the supply chain of many strategic minerals, Western countries are seeking alternative sources, especially from Southeast Asia. The United States and its allies are also pursuing strategies like friendshoring, economic derisking, decoupling, promoting mineral-specific coalitions, including the Mineral Security Partnership (with suggestions to expand it to Vietnam), CHIP 4, and potentially pushing for specific strategic mineral agreements within the International Public-Private Economic Forum (IPEF). While many believe that Vietnam is a primary beneficiary, the country is also caught in a "dilemma" in terms of cooperation in the field of strategic minerals with the United States and China.
Secondly, the economic dependence on China could increase. Vietnam currently relies heavily on exporting raw materials to China due to: (i) China is considered a traditional market with convenient geographical proximity; (ii) Vietnamese companies have not proactively upgraded their refining capabilities post-extraction to obtain high-quality minerals and explore demanding markets for higher prices; (iii) China has a large demand for raw minerals, leading to increased procurement and increased mining partnerships in Asia. China is also a major investor in thermal energy projects using minerals in Vietnam, such as Vung Ang 2, Vinh Tan 1-2, or Quynh Lap 1.
In the future, the United States might not only separate itself from direct mineral supply from China but also from indirectly related sources. This trend could - indirectly force Vietnamese companies to either rely more on the Chinese market or completely separate from China, which may not be feasible.
Dependency on China for minerals also brings many security and economic consequences: (i) Vietnamese mineral products are at risk of being price-squeezed and wastefully exploited by China if only exported in raw form; (ii) the US could increase tariffs on Vietnamese solar panels due to their connection to Chinese mineral resources; (iii) Chinese mining projects abroad often lack proper governance, labor, and environmental conditions. The Business & Human Rights Resource Centre in London has identified 102 human rights and environmental violations by Chinese companies in 2021-2022 (it is worth noting that many projects by the US and Europe also cause similar concerns); (iv) Vietnamese products imported back from the West that utilize Chinese mineral resources could also face price increases.
Third, the race for minerals and the trend of mineral politicization could lead to security risks in the South China Sea. To compete with the US, China may intensify exploration and mining of minerals in the continental shelves of the South China Sea, resulting in certain risks: (i) China has more advanced technology than Southeast Asia nations, making it easier to control mineral mines and use them as bargaining chips with other claimants; (ii) China could use its mineral survey ships in the South China Sea for "gray zone" purposes, cementing its presence in disputed entities or creating a "new normal" situation in the contested region (such as the case of Hua Yang 10 in 2023); (iii) deep-sea mining without sufficient research could pose risks of seabed pollution, affecting the entire region (similar to China's land reclamation activities that have damaged coral reefs in the Spratly Islands).
Fourth, strategic mineral competition could intensify to market competition. As the US and the West seek partners outside of China, countries in the region with significant advantages in mineral resources like Indonesia, machinery and engine production like Thailand, or advancved logistics and technology like Singapore are actively developing their domestic capabilities to find new markets and compete with Vietnam. Western countries searching for supply sources tend to prioritize countries that: (i) have advanced mining and processing experience; (ii) have the potential to build domestic facilities in the US and become domestic suppliers; (iii) are geographically closer (nearshoring). Vietnam, focusing primarily on raw mineral production, faces challenges in finding comparative advantages against these manufacturers, making it difficult to find a new position in the global supply chain.
Fifth, mineral competition could exacerbate global issues and indirectly affect Vietnam's security, especially given Vietnam’s vulnerability to climate change. Many suggest that China's control over critical minerals into Europe could hinder the EU's decarbonization process, as the EU currently relies on China for minerals used in solar panels and electric vehicles. Beyond Europe, the US also faces difficulties. Pursuing green transition, Biden's policies have been criticized as protectionist by some European countries or seen as aiding China by some Republican lawmakers. Companies like Ford Motor, Microvast, or solar panel installers are at risk of increased tariffs due to their use of components manufactured in the US. Meanwhile, both the EU and the US are among the highest net greenhouse gas emitters in the world.
Developing countries may also face similar consequences: China's Ministry of Foreign Affairs has stated that the US's "economic decoupling" prevents many countries from accessing clean energy technologies. Meanwhile the US often accuses China of not being "sincere" in climate cooperation, using climate issues to negotiate cooperation in other areas. Some studies also show that many developing countries in Asia are unable to implement energy transition projects due to receiving funding from both China and the US.
Opportunities for Vietnam
However, great power rivalry on strategic minerals might have some positive impacts.
First, competition can stimulate the restructuring of global supply chains outside of China, creating greater interests for Vietnam's mineral resources. As analyzed, to escape mineral dependence on China, countries like the United States, Japan, South Korea, and European countries are looking upon nations with abundant mineral resources. Vietnam, with its aforementioned strengths, could be an optimal choice, especially when China cannot rely on the strategy of "dumping" (selling bulk minerals at low prices to monopolize the market). On the contrary, China also needs to find new demand for its raw minerals due to losing parts of the Western market, which could lead to increased investment in refining mineral factories in Vietnam. Chinese investors are also showing more interest in Vietnam after Vietnam's successful negotiation of the CP-TPP and the signing of a series of FTAs with partners such as the EU, UK, and South Korea.
Second, due to increased foreign interest and investment, Vietnam has the opportunity to enhance its position in the strategic mineral supply chain through: (i) expanding mineral extraction, especially with untapped or underexploited minerals with significant potential; (ii) attracting infrastructure investment projects (this could be realized if constraints regarding the lack of high-skilled labor and legal frameworks are addressed); (iii) having the opportunity to receive technology transfer in mineral screening and processing, enabling Vietnam to gradually shift from raw mineral production to processing high-value-added products downstream, such as the production of electric vehicles or gallium (minerals needed for 5G-6G production, electric vehicles, new-generation radars). Vietnam can also export minerals in exchange for benefits in technology and semiconductor materials; (iv) working with ASEAN to adopt a common approach to minerals, as other ASEAN countries also have their own strengths and are receiving attention from the diversification of supply sources; (v) gaining additional motivation to implement reforms in the environment, labor protection, or combating illegal mining.
Third, strategically, due to the aforementioned reasons, Vietnam also has the opportunity to consolidate some foreign policy objectives, including: (i) strengthening its reputation and position as a middle power in the region and a center for a restructured global mineral supply chain; (ii) balancing its strategic approach and diversifying relationships, as Vietnam can attract attention from both China and the US and the West; (iii) promoting the central role of ASEAN in the region (if ASEAN can present a common voice on strategic minerals); (iv) deepening international economic integration in a sustainable manner, thereby contributing to the green transition, climate change mitigation, and the achievement of the United Nations' Millennium Development Goals. Additionally, Vietnam can also utilize resources from the Indo-Pacific Strategies that mention regional cooperation in supply chains, minerals, and green transitions.
Fourth, some of the mentioned challenges can also contain positive aspects: (i) China's restriction on mineral exports and the resulting increase in global prices can benefit Vietnam; (ii) climate change cooperation between the US and China may stall, but other countries will be motivated to promote green transitions domestically; (iii) if Vietnam diversifies its supply-demand sources for minerals and improves its position in the production chain, the risk of being dependent or isolated related to minerals will decrease, making it difficult for China to use minerals as leverage against Vietnam in the South China Sea; (iv) a more dynamic and highly competitive mineral market can create motivation for Vietnam's self-development; (v) China and the US may not completely separate in minerals because both will suffer losses. In 2023, the Biden administration had to adjust US economic “decoupling” strategy to "derisking," seemingly because separation was not a feasible option.
Recommendations
To harness the strategic advantages of mineral resources, mitigate the impacts, and seize opportunities from competition between major powers, the authors propose the following recommendations for Vietnam:
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- Classify the strategic importance and urgency of different minerals based on their significance to national development. Based on this classification, Vietnam could develop appropriate plan and policies, encourage investment, and establish management mechanisms for effective exploration, exploitation, and processing for each mineral class and category.
- Engage in high-tech strategic mineral value chains. Vietnam should utilize its strategic mineral strengths as a bargaining chip to support domestic enterprises in participating in value chains and gaining a foothold in the "friendshoring" strategy of the United States and other technological powerhouses.
- Link negotiations for strategic mineral development with the implementation of new-generation trade agreements. This is to secure preferential tax treatment and assistance programs for the transition to sustainable energy for products that utilize Vietnam's strategic minerals.
- Adopt the public-private partnership. Specifically, in the rare earth sector, establish a mechanism for cooperation between state-owned enterprises with mining rights and private enterprises with extraction and separation technologies to maximize the value of rare earth resources. This model has been applied by China to maximize resources and develop the strategic mineral industry.Promote comprehensive, multilevel approaches and cooperation within ASEAN. In this regard, Vietnam can encourage the development of a strategic mining plan that encompasses various aspects such as geopolitical, strategic, security, and economic considerations. Additionally, enhancing cooperation within the IPEF and strengthening links with Africa should also be considered.
- Foster fundamental research and human resource training in strategic minerals. Vietnam should onsider conducting research on potential mineral capacities in the South China Sea while incorporating strategic minerals into its maritime spatial planning towards sustainable economic development.
Hoang Do - Ngoc Mai - Viet Ha
East Sea Institute, Diplomatic Academy of Vietnam
Translated and edited by ND, NN, DH
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