Rearranging Battery Hegemony: Seven Countries, Seven Different Answer Sheets
Executive Summary
The competition over the lithium-ion battery supply chain is being decided not by the scale of subsidies, but by structural asymmetries in the refining and processing stages. China continues to maintain its dominance in raw material processing based on state-owned enterprise (SOE)-centered vertical integration and long-term national planning, while adjusting its policy stance from quantitative growth to qualitative transition by setting a goal for the commercialization of solid-state batteries and reducing tax incentives. The United States is shifting from a subsidy-based approach to direct intervention linked to the Department of Defense budget. In this process, the principle of prioritizing domestic companies in defense- and aerospace-related materials sectors could potentially lead to the exclusion of South Korean companies. The EU is responding with tariffs and regional industrial standards as its main pillars; as seen in the case of the United Kingdom, the cohesion of the regional trade defense system, rather than individual responses by member states, determines policy effectiveness. Across the domains of trade and economic security, US-China strategic competition, and EU trends, the restructuring of critical minerals and battery supply chains is unfolding according to different institutional logics in each country rather than a single prescription. Therefore, South Korea needs a dual response strategy addressing both security procurement systems and trade defense logic.
I. Analysis of the Issue
Rearranging Battery Hegemony: Seven Countries, Seven Different Answer Sheets
A Story That Begins with Minerals and Ends with Policy
Xinhua News Agency recently reported that the Jiada lithium mine in Sichuan Province increased its reserves by 1.05 million metric tons of lithium carbonate equivalent [10]. This represents a 70% increase compared to previous reserves. Why does such news attract attention outside Beijing? It is because a single figure for lithium reserves serves as an indicator showing the center of gravity of the entire battery supply chain. The Moroccan media outlet *TelQuel* mentioned lithium alongside copper, silicon, and titanium, writing that "China holds the reins of production and processing" [1]. Whether in Africa, the Middle East, or Europe, perspectives on the critical minerals issue are converging in a similar direction.
Supply chain competition in the battery industry is not an agenda that emerged overnight. During the COVID-19 pandemic, disruptions in the procurement of masks and pharmaceuticals escalated into a broader concern over dependence on China, and the scope of securitization subsequently expanded to semiconductors, batteries, and rare earths [7]. The United States chose to inject domestic production subsidies through the Inflation Reduction Act (IRA) [7]. However, this approach failed to cover the entire production phase. The electric vehicle (EV) battery supply chain is divided into several stages: critical mineral extraction, component material processing, battery component manufacturing, cell manufacturing and pack assembly, production, and recycling [3]. US and European companies remain confined to pack assembly—the final stage—while raw material extraction, processing, and cell manufacturing are structured to be handled by South Korea and China [3]. The top battery cell manufacturers consist of four Chinese, three South Korean, and three Japanese companies, together accounting for 90% of the global market [3].
What Carnegie's Comparative Table Reveals
A report published in September by the Carnegie Endowment for International Peace compared seven policy ecosystems side-by-side: China, South Korea, Japan, the EU (including some member states), the United States, Canada, and India [2]. The report's author, Darcie Draudt-Véjares, evaluated that governments "have deployed a range of tools at different speeds and scales," concluding that the results are "mixed" [2]. This assessment is intriguing because it makes clear that there is no single policy prescription. Some countries approach the issue through subsidies, others through tariffs, and still others by mobilizing state-owned enterprises. This is precisely why the restructuring of critical minerals and supply chains is considered a key monitoring point in the trade and economic security domains. The sheer diversity of policy instruments complicates the assessment of supply chain risks.
China's recent moves are two-sided. In September, seven government ministries, including the Ministry of Industry and Information Technology (MIIT), jointly announced a battery industry development plan for the "15th Five-Year Plan" period (2026–2030). It set a goal for the initial large-scale commercialization of all-solid-state batteries by 2030 [8]. At the same time, China rolled back its tax incentives for lithium-ion EV batteries for the first time in 11 years. It reintroduced a consumption tax starting in September and plans to end the vehicle purchase tax exemption in 2028 [11]. *Nikkei Asia* interpreted this as "a reduction in support that could trigger restructuring in an overcrowded auto market" [11]. This signals that China is shifting its policy direction from quantitative growth to a qualitative transition. Taiwan's *DigiTimes Asia* described this as entering a "post-scale era," analyzing that Beijing is shifting its focus to competition over solid-state batteries and high-grade material quality [5].
The US Calculus, Repositioned toward Security Priorities
The situation on the US side appears to be shifting from subsidies to more direct intervention. The Department of Energy (DOE) of the second Trump administration is pursuing a critical minerals workforce development policy as of August 2026, and is moving to apply a principle of prioritizing domestic companies in defense- and aerospace-related materials sectors centered on defense demand [7]. *Fastmarkets* reported that the US government is investing more than $2 billion in defense-related projects [16]. However, structural limitations are pointed out regarding the effectiveness of these policies. Tomasz Naidrowski of the Center on Global Energy Policy (CGEP) at Columbia University diagnosed that "private capital has disappointed us. It disappointed because it was pulled toward the ultimate center of gravity through labor arbitrage and arbitrage on negative externalities" [7]. This points out that even when the government injects subsidies, private capital still migrates to countries with low wages and lax environmental regulations. His colleague Tom Moerenhout added, "The problem we are facing now is that we are only injecting public funds without first identifying and resolving the binding constraints on why private capital is not flowing in" [7]. If this diagnosis is correct, China's comparative advantage in the refining and processing stages is highly likely to persist for a considerable period [7].
An analysis by EY UK places this trend in a broader context. It explains that supply chain vulnerabilities exposed by the pandemic and US-China tensions highlighted the risks of economic interdependence, which in turn elevated industrial policy from the periphery of economic thought to the mainstream [4]. However, debates over expanding government intervention coexist, pitting concerns over market distortion against arguments for the necessity of correcting market failures and seizing strategic opportunities [4].
Europe and Africa, Pressures from Different Angles
The EU is both a subject of comparison in the battery policy ecosystem and a source of trade pressure. The *South China Morning Post* reported that the EU is demanding that the United Kingdom raise tariffs on Chinese electric vehicles. Even after Brexit, assessments suggest that the UK "cannot easily escape the framework of EU industrial policy" [14]. This demonstrates that the EU possesses the leverage to pressure non-member states to align with its efforts to check the Chinese EV and battery supply chains. This is also why EU trends are treated as a subject of policy comparison rather than an independent decision-maker in this comparative analysis report. The EU's internal industrial policy appears to be adjusting relatively gradually compared to those of the United States and China.
Another front in the scramble for minerals is Africa. France's *The Africa Report* reported that the $210 million acquisition of Ghana's Atlantic Lithium by Zhejiang Huayou Cobalt received approval from the Australian Foreign Investment Review Board (FIRB) [15]. Morocco's *TelQuel* also pointed out that the country possesses "resources waiting for a strategy," highlighting the trend of major economic powers moving to secure supply chains in response to China's dominance in production and processing [1]. The competition to secure African deposits is functioning as a downstream front in the US-China technological hegemony competition.
Key Issues: Three Lines of Tension
The first line of tension is how quickly and deeply China's comparative advantage in the refining and processing stages can be eroded. From the perspective of South Korean companies, a dual strategy is being discussed: maintaining the use of China's refining networks for the time being while simultaneously entering the US security-linked supply chain [7]. However, there is a real risk that the US principle of prioritizing domestic companies could exclude South Korean firms from defense- and aerospace-related materials sectors [7].
The second is the spillover effect of China's internal policy shift. As the reduction of tax incentives and the technological transition to solid-state batteries proceed simultaneously, the potential for restructuring in the Chinese battery industry and the competition to secure next-generation technologies are overlapping [8][11].
The third is the extraterritorial application of trade norms. As seen in the case where tariff demands originating from the EU ripple out to non-member states, policies surrounding supply chain restructuring are expanding beyond bilateral relations to constrain the options of third countries [14]. At the intersection of these three lines of tension, the Carnegie report's assessment of "mixed results" is likely to remain valid for the foreseeable future [2].
II. In-Depth Analysis of the Issue
The Grammar of the Supply Chain War: What Lies Beyond Subsidies
The "mixed results" shown in the Carnegie report are no accident. There are structural reasons why the seven policy ecosystems achieved different outcomes despite aiming for the same goal. Without looking into this structure, the "critical item dependency risk" pointed out in the trade and economic security domains will only lead to the repetition of the same prescriptions every time.
Binding Constraints Summarized in a Single Sentence
China's dominance in refining and processing was not built on a subsidy battle. It is the cumulative result of decades of state-owned enterprise (SOE)-centered vertical integration, the externalization of environmental costs, and long-term national planning. The case of Zhejiang Huayou Cobalt, which received approval to acquire Atlantic Lithium in Ghana, shows that this pattern is still operating today [15]. The "lining up" for critical minerals from Africa and the Middle East is not a matter of price competition, but of who secured processing infrastructure first. This is precisely why the Moroccan media outlet ran the headline "Resources Waiting for a Strategy" [1]. The asymmetry—where countries with resources differ from those with processing capabilities—is the fundamental reason why this issue cannot be easily resolved no matter how much the West increases subsidies.
The EAI report pointed this out precisely. The policies of the United States and Europe were "a method of merely injecting subsidies and loans without resolving the structural factors that private capital avoids" [7]. The point is that even when funds are released, private capital flows toward areas with lower wages and laxer environmental regulations. This is the background against which the "industrial subsidy competition among major countries" discussed in the trade and economic security domains is less effective than expected. Competing over the amount of subsidies is closer to chasing the results of comparative advantage rather than its cause.
Industrial Policy Rewritten through the Department of Defense Budget
This is where the character of policy shifts. The second Trump administration is moving its policy stance from subsidies to "more direct government intervention" [7]. While the Department of Energy is working on critical minerals workforce development, project investments linked to the Department of Defense budget have exceeded $2 billion [16]. This means that industrial policy is no longer a tool for market supplementation but is being restructured as part of the security procurement system. The warning in the EAI report points precisely to this: "In the defense- and aerospace-related materials sectors that the United States is pushing forward centered on defense demand, the principle of prioritizing domestic companies operates, creating a real risk that South Korean companies could be excluded" [7]. This implies that the "advanced technology controls against China" focused on in the domain of US-China strategic competition could manifest as selective exclusion of allies in the procurement system for minerals and battery materials.
The structure on the EU side has a different texture. The EU responds with tariffs and regional industrial standards rather than subsidies or defense procurement. When the United Kingdom tried to adopt a tariff policy on Chinese electric vehicles different from that of the EU, the EU pressured the UK. One column commented on this, stating that "even after Brexit, London cannot easily escape the framework of EU industrial policy" [14]. This case reveals a key point to be addressed in the domain of EU trends: the EU's battery and EV policies are determined not by individual member states' decisions, but by the cohesion of the regional trade defense system as a whole. In other words, the United States, the EU, and China are employing industrial policies with different grammars—based on security logic, trade defense logic, and national planning logic, respectively.
The Return of the 1970s: Recycling the Concept of Energy Security
The current logic surrounding critical minerals is not new. A recent analysis by an energy information and analysis agency noted that through the blockade of the Strait of Hormuz, "the meaning of energy security is shifting from securing sufficient fossil fuels to reducing dependence on fossil fuels itself" [13]. This expression shares the exact same structure as the security concept created by the two oil shocks of the 1970s. Back then, oil-producing countries controlled the supply, and consuming countries responded by stockpiling and securing alternative sources. Today, China controls refining and processing, and consuming countries respond by building up inventories and securing alternative supply chains. The difference is that there are no viable alternatives. While crude oil can be obtained from various producing countries, the refining of lithium, cobalt, and graphite is concentrated in virtually a single nation.
China's recent choices can also be read within this historical pattern. Rolling back tax incentives for lithium-ion batteries for the first time in 11 years [11] while simultaneously formalizing the technological transition to solid-state batteries [8][5] is a classic two-stage strategy of a resource-rich nation shifting the battlefield to qualitative dominance once quantitative dominance is sufficiently secured. This is similar to the trend in the 1970s when oil-producing countries secured pricing power and then expanded their domain by entering downstream refining and petrochemicals.
Four Variables Shaping the Next Five Years
The EAI analysis views the next three to five years as a "baseline scenario where partial and uneven restructuring continues," assigning it a probability of 55% [7]. The variables that could disrupt this outlook can be narrowed down to four.
First is the political calendar in the United States. As the 2026 reauthorization deadline for the Export-Import Bank overlaps with the midterm election cycle, clean energy overseas investment finance policy is entering a "critical phase" [6]. If the reauthorization is delayed, the entirety of overseas battery and mineral project financing will be shaken.
Second is the speed of China's technological transition. If the goal of large-scale commercialization of solid-state batteries by 2030 is realized as planned [8], the debate over comparative advantage in the existing lithium-ion supply chain will shift to next-generation technological competition.
Third is the cohesion within the EU. As seen in the UK case, when individual member states or neighboring countries take independent tariff paths, the key is how well the EU's trade defense system can absorb this [14].
Fourth is the scope of the US principle of prioritizing domestic companies regarding its allies. The extent to which South Korean and Japanese companies are granted exceptions in defense-demand-linked sectors is the practical turning point that will shape the outlook for "supply chain restructuring" in the trade and economic security domains [7][16].
References
[1] [TelQuel] [EP.1] Critical minerals: A recourse waiting for a strategy
[2] [Carnegie Endowment] Battery Ecosystems: A Comparative Analysis of Lithium-Ion Tech Policy
[4] [EY (Ernst & Young) - Geostrategic] Sovereign Industrial Policy
[6] [Carnegie Endowment] Sustainability, Climate, and Geopolitics
[9] [CRU Group] Clean Technologies: Capitalise on opportunities and mitigate risks.
[11] [Nikkei Asia] China ends tax break on lithium-ion EV batteries after 11 years
[12] [Metal Bulletin (Fastmarkets)] Battery raw materials
[13] [Energy Intelligence] Ongoing Wars Put Low-Carbon Energy in Security Spotlight
[14] [South China Morning Post] Can Britain really afford to diverge from EU tariffs on Chinese EVs?
[15] [The Africa Report] How China took control of Africa’s lithium
*This text is an AI translation of an original written in Korean. Some translations or nuances may be inaccurate.
This report is an in-depth analysis planned by an EAI researcher, grounded in sophisticated AI-assisted research, and finalized by the EAI researcher.
How can I help you?