By Somit Dasgupta, Visiting Professor, ICRIER
The latest initiative in the area of critical minerals is Pax Silica (PS). It is a US-led move which also includes countries such as Japan, South Korea, Singapore, the Netherlands, the UK, Israel, the UAE, and Australia. The word “Pax” probably refers to the Greek goddess of peace and Silica is obviously a reference to silicon, which is used extensively in semiconductor chips and artificial intelligence (AI) hardware.
Not very long ago, the US had taken the lead to form the Minerals Security Partnership (MSP). Today it has about 14 countries including the European Union (EU) and India, which joined the MSP in 2023, a year after its formation. The objective of the MSP was to counter China’s monopoly in critical minerals, both in mining and in processing.
The composition of countries in the MSP, however, is somewhat intriguing. Take the case of India. One does not know its expected functionality in the MSP. India is not really endowed with critical minerals or rare earths beneath the earth’s crust and neither does it have access to processing technology. It is said that India has reserves of about eight critical minerals, though not all of them are proven. Recently, there were reports that India has ample reserves of lithium in Jammu and Kashmir but here again, they were inferred and not proven.
Mining them has also elicited a poor response due to various reasons. India, however, is a big market for critical minerals given its target to have 500 gigawatts of renewable capacity by 2030, and have 30% production of electric vehicles at the margin by 2030, etc.
Whether its Pax Silica or the MSP, their objective is similar—initiating a counter measure to China’s monopoly on critical minerals and rare earths. China controls 70% of the mining of critical minerals and 90% of its processing, making its dominance absolute. Any attempt to break this would be a Herculean task for both technical and financial reasons. From the technical side, the time horizon for mining of critical minerals to getting to the final products may take 15 years or more.
Given the pace of demand for critical minerals, this stiff time period is going to be a spoilsport. Moreover, the environment laws in the West are much more stringent and mining may prove to be an uphill task. On the economic front, China produces critical minerals at a fraction of the cost compared to the West. Clearly, such a cost difference will make it very difficult for any enterprise to counter China and ultimately stand on its own feet. The head start that China has in the area of critical minerals and rare earth is stupendous. It has come through years of strategic planning coupled with intense mining to the extent of being indiscriminate, as it suffered severe environmental issues in areas of Inner Mongolia.
China has benefitted from having lax environmental norms vis-à-vis the West and cheap labour too. Countries like the US sent their mined critical minerals to China for processing since they did not want to sully their own environment given that processing is highly energy-intensive and enhances carbon footprints. The US, for sure, must be repenting this policy of the past since it is not in a position to dictate terms to China—unlike with other countries including India. China has been using its dominance to not only counter the US, but has also browbeaten Japan in the past—way back in 2010—to settle a border dispute by banning exports of some critical minerals temporarily.
It would be good to compare the composition of the MSP with that of the PS. While the PS is a compact body consisting of about nine countries, the MSP has 14 member countries. The new entrants in the PS include Singapore, the Netherlands, Israel, and the UAE. The composition of the PS gives an impression that care has been taken to include those countries which have an edge in research initiatives in AI algorithms, semiconductor design and manufacturing, research and innovation, cybersecurity applications, etc. The inclusion of the UAE, however, is a little surprising.
India was excluded from the PS and there was a lot of speculation as to why this was the case. The fact is that India is not the lone country that was dropped. There are others like Canada, Estonia, Finland, France, Germany, Italy, Norway, Sweden, and the EU as well. Therefore, perhaps too much should not be read into India’s exclusion. In my view, it is surprising that India was made a member of the MSP to begin with since it has nothing to offer in terms of reserves or technology for processing. India, however, will be a major market where demand for critical minerals and rare earths may grow in leaps and bounds.
The moot point is whether the new body in the form of PS will be able to break the monopoly of China, especially when the latter is one of the leading countries in AI technology. Can AI really help in countering the headstart China has gained over the last three decades? Can AI undo the advantage China has gained today from its rigorous mining and processing of critical minerals and rare earths? The answer is perhaps no, at least not in the short or even medium term. To that extent, we can safely conclude that the decision to set up PS is nothing but a case of new wine in old bottles. At best, it is a case of optics.