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Until someone comes up with a better solution, most lithium-ion batteries manufactured today use an anode made of graphite, and the vast majority of battery-grade graphite comes from China. That is not to say that it is all mined in China. Much of the raw graphite is dug out of the ground in other countries by Chinese controlled companies, then exported to China where it is refined and processed. All told, China is responsible for around 91% of all the battery-grade graphite in the world, a fact that makes producers in other countries upset.
In the US, a group of domestic graphite manufacturers calling themselves the American Active Anode Material Producers banded together last December to file a complaint with the US Trade Representative. The nub of their petition is that China sells graphite too cheaply. “AAAMP is filing this case to help protect the North American graphite industry, which is at risk of being smothered by China’s malicious trade practices,” Erik Olson, a spokesperson for the coalition, said. “Without trade relief from the U.S. government, the domestic graphite industry is in peril. China’s anti-competitive actions make it challenging for graphite producers to find secure financial footing, which prevents them from becoming established players in the global market,” Olson added. The upshot of the trade case is the US graphite producers want the tariff on Chinese graphite increased by — are you sitting down? — 920%, according to OilPrice.com.
Classic economic theory suggests that if you have the lowest price, the world will beat a path to your door and you will be successful. But in the arcane world of international trade, if people in Country A can show that people in Country B are selling products for less than it cost to make them, then Country A is within its rights to impose a tariff to level the playing field. That discussion, however, ignores that Country A invented the lithium ion-battery but failed to commercialize it because nobody had ever heard of electric cars or grid-scale battery storage at the time. In fact, Country A was perfectly happy for Country B to use the technology it created to found new industries. Thanks to economies of scale, Country B can now produce things cheaper than anyone else on Earth. Not surprisingly, when people in Country A belatedly attempted to leverage the technology themselves, they are ten years behind Country B and do not have the competitive advantage of economies of scale. So they cry “Foul!” and try to work the refs while they race to catch up.
Many people like to bang the drum for capitalism when it is to their advantage to do so, but run to Uncle Sugar to protect them when it is not. It should be obvious that there are many opportunities for fraud and abuse of the system here. A tiny startup in South Succotash decides to jump into manufacturing widgets, only to find it can’t manufacture them as cheaply as a company in another country can. So it picks up the phone to ask the trade authorities to build a tariff wall for it. It helps if it utters a few phrases like “national security” or “energy emergency” during the conversation.
To guard against such shenanigans, the trade officials conduct a detailed investigation to determine the facts of the situation and then decide what action to take, if any. That’s the theory. The reality is that trade officials are political appointees and it is not uncommon for the appointing authority to influence the process in subtle or not so subtle ways. On January 31, 2025, the US International Trade Commission voted for the Commerce Department to proceed with an investigation that could lead to higher tariffs on graphite imported from China.
A 920% Tariff On Chinese Graphite
A 920% tariff on imports of graphite from China for making battery anodes could more than double the cost of the anode part of the batteries, Roth Capital Partners has said, according to a report by the South China Morning Post. “We estimate the incremental cost could be about US$135 per kWh, representing a 125 per cent increase in the DC-block to around US$255 per kWh,” said managing director Justin Clare, He added that anode materials are responsible for about 15% of the cost of an entire battery. Higher battery prices would dampen the EV revolution in America by making EVs more expensive.
US graphite producers benefited greatly from the provisions of the Inflation Reduction Act which provided generous production credits for the producers of domestically sourced graphite, but the new administration is moving quickly to dismantle that legislation. That may be the reason the graphite industry is suddenly so concerned with tariffs. All of this puts Elon Musk in the unenviable position of choosing between his unwavering support for the so-called president or protecting the interests of the shareholders of the electric car manufacturing company he created. According to Bloomberg, Musk is leading an effort to block the proposed tariffs on graphite imported from China. The showdown will be an early test of his influence within an administration he helped bring to power and in which he has his own quasi-governmental role.
Conflicts Of Interest
While nominally in charge of the Department of Government Efficiency, it isn’t clear whether Musk is an employee of the executive branch, which would make him subject to conflict of interest statutes barring him from affecting matters related to his businesses. “It’s an obvious conflict,” Richard Painter, a professor of corporate law at the University of Minnesota, told Bloomberg. “This is the problem — we don’t know whether he’s in the government or out of it.” Painter was the top ethics lawyer in the George W. Bush administration.
In her Substack post for February 5, 2205, historian Heather Cox Richardson noted that White House press secretary Karoline Leavitt said that Trump had already promised that “if Elon Musk comes across a conflict of interest with the contracts and the funding that DOGE is overseeing, that Elon will excuse himself from those contracts.” Donald Kettl, a scholar of public policy, told Dana Hull of Bloomberg: “I don’t know of any other case, anywhere, in which an individual could determine for himself whether he had a conflict of interest. In fact, self-determination of a conflict of interest is itself a conflict of interest.”
Readers sometimes complain that CleanTechnica should not concern itself with politics, but everything is political in America today. Here’s proof. Howard Lutnick and Musk worked closely together on the transition, spending weeks at together at Mar-a-Loco evaluating personnel choices. Musk endorsed Lutnick for Treasury secretary during a contentious fight that was eventually won by Scott Bessent. As a consolation prize, Lutnick was put in charge of overseeing trade and tariff strategy. At his confirmation hearing last week, Lutnick repeatedly hailed tariffs as an economic tool, particularly for dealing with China. “I take a very jaundiced view of China,” he said. “I think they only care about themselves and seek to harm us, and so we need to protect ourselves. We need to drive our innovation, right? And we need to stop helping them. It is important for American national security that the key rare earths and minerals we create ourselves,” he said. Remember how we suggested earlier that national security is often invoked to justify tariffs? This is just the most recent example.
Tesla & Panasonic Oppose Tariffs
Tesla and Panasonic say tariffs are a blunt instrument that will drive up production costs and make EVs more expensive for consumers. Why that wouldn’t be true of all tariffs is a question no one wants to answer. Tesla spent years successfully seeking exclusions for graphite during Trump’s first term, but the Biden administration declined to extend them last year. On the most recent Tesla earnings call, Chief Financial Officer Vaibhav Taneja said tariffs could be painful for Tesla. “Over the years, we’ve tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses,” Taneja said. Tariffs “will have an impact on our business and profitability.”
Tesla said in federal filings this month that it relies on Chinese graphite imports because the domestic industry hasn’t developed enough to meet the quality standards and volume that the carmaker requires. The industry’s fate “lies with these companies’ ability to do the hard technical, scientific work needed to meet customer specifications,” Matthew Nicely, a Tesla attorney, wrote in a January filing. At an ITC hearing earlier this month, Tesla battery executives said they were in the process of moving their supply chain to the US, motivated by a requirement in the IRA that EV batteries not include Chinese raw materials by 2027 in order for electric cars to continue to qualify for the $7,500 tax credit. That credit may soon be revoked, however. They said it could take years to develop a domestic graphite industry that can produce material with the purity required for EV cells. “Additional duties would not speed up that process,” said Dinesh Swamynathan, Tesla’s senior director for battery cell supply chain.
Synthetic Graphite
There are solutions on the horizon in the form of synthetic graphite, which could substitute for the graphite sourced from China today and break China’s stranglehold on the EV supply chain. Companies like Norway’s Vianode and Australia’s Novonix are planning to build factories in America to produce synthetic graphite. India’s Epsilon Advanced Materials is building a factory in North Carolina it says will be the largest of its kind. It turns out that both Novonix and Epsilon are members of the American Active Anode Material Producers, the organization that is pushing for those tariffs against China. Sharp-eyed readers will note that Vianode, Novonix, and Epsilon are all foreign corporations which rely on technology created outside America.
The US has been sound asleep when it comes to promoting basic and applied research, content to let other countries do the heavy lifting while it focused on video games and sports betting. Punishing China won’t make America great again. It will keep it weak and dependent on others for the technologies it needs. Putting on mad faces and stomping our feet may make for interesting political theater, but will not advance America’s national interests one iota.
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