In the last several years, lithium prices have undergone dramatic fluctuation. Demand grew by 30% in 2023, largely fueled by EV production. Yet a slowdown in the Chinese EV market and subsequent overproduction caused prices to crater by 75%. This price crash in 2023 followed a sharp increase the year prior, with prices jumping 123% between January and November. This lack of stability has negative consequences for American miners and refiners, and more acutely, disrupts strategic efforts to grow a domestic lithium refining industry. Albemarle, a major player in lithium markets, paused construction of a lithium processing plant in South Carolina as a result of price instability.
In his second term, President Trump has the opportunity to capitalize on America’s abundant supply of raw lithium. A newly discovered lithium deposit in southwest Arkansas could contain up to 19 million tons of lithium – enough to meet projected global demand for car batteries nine times over. Already, companies such as ExxonMobil have expressed interest in extracting this new resource, which could lead to new production as soon as 2027. Promoting these partnerships by expediting permitting requests and expanding tax credit eligibility could be a first step to securing our lithium supply chain. But it would not be the only step; the U.S. is even more reliant on China for refining lithium, a process that Elon Musk described as “much more of a choke point” than mining.
China produces only 8% of the world’s raw lithium, but has 72% of the world’s processing capacity. Even if American companies overcome the technical obstacles of extracting lithium from the Arkansas deposit, more action is necessary to support domestic refineries. For example, policy makers could set higher tariffs on finished lithium than raw lithium products in order to encourage domestic manufacturers to create facilities in the US. In addition, regulators could consider expediting environmental review for new lithium refineries, especially given the enormous EPA backlog. In addition, investments such as Albemarle’s South Carolina factory could be made eligible for additional clean energy tax credits. Finally, regulators may pursue more loan programs like Lithium Americas Corp’s $2.9 billion guarantee through the DOE Loan Programs Office to build a lithium refinery in Nevada.
The Trump administration also needs to find a way to counter Chinese overproduction and state subsidies, particularly in the EV supply chain. Currently, America imports $13.2 billion annually in EV batteries from China’s automotive industry, which is fueled by nearly $100 billion in state subsidies that aim to forcibly deindustrialize China’s strategic competitors through unfair trade practices. This represents a major national security threat, as well as enabling China to erode traditional American advantages in the auto market, particularly in cost-sensitive third world markets. For example, China’s BYD Seagull has a base price of only around $10,000, compared to over $40,000 for Tesla’s Model 3. Overall, China produced over 30 million cars last year, twice America’s production while growing at a faster rate. This subsidy-driven production in the Chinese market accompanied weakening domestic demand. Through increased domestication of supply chains and a more resilient manufacturing base, an incoming administration has the opportunity to combat this overproduction and protect America’s automotive industry from destabilizing trade practices.
Promoting the domestic mining industry provides a key opportunity to stabilize American manufacturing and combat Chinese influence abroad, particularly through the utilization of tariffs and price floors. The extent to which President Trump will use tariffs is unclear, but when it comes to critical minerals, they could be an essential component of a broader strategy to grow America’s mining and refining capacity. On the other hand, price floors, which were allegedly under consideration in the Biden DOE, could set a minimum price for lithium that would help domestic producers weather price shocks from abroad.
In the coming years, national security imperatives will force America to reorient its lithium supply chain. The incoming Trump administration has the opportunity to initiate a forward-looking set of policies that fortify America’s critical mineral supply chains before it’s too late. Building an alternative network of lithium mines and refineries – either domestically or in an allied nation – will force shifts in behavior for American manufacturers and consumers. These policies will be costly – but continued reliance on our competitors for a mineral so essential for automotive and military applications has the potential to be far costlier.
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Farrell Gregory is research assistant at the Yorktown Institute. He is currently a visiting student at Mansfield College, Oxford, studying politics, philosophy, and economics.
Sasha Gordon is a junior studying economics at the University of Michigan.