Think the Chinese are Riskier, Think Again

Highlights

• Cullen Hendrix argues that diversifying away from China’s mineral supply chains introduces complex risks in politically unstable regions like Mozambique.
• The Balama graphite mine closure demonstrates the challenges of securing critical minerals in frontier markets with unpredictable geopolitical landscapes.
• U.S. policymakers must adopt a nuanced approach that balances strategic diversification with realistic risk assessment in critical mineral sourcing.

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Cullen Hendrix (opens in a new tab) at the Peterson Institute for International Economics (opens in a new tab) underscores a critical flaw in the U.S. strategy to “de-risk” its critical mineral supply chains: the risks are not eliminated but merely shifted to less predictable and murkier frontier markets. Using the case of Mozambique’s Balama graphite mine, which was closed due to local unrest, Hendrix argues that diversifying away from Chinese dominance introduces new and complex challenges in politically unstable regions like Cabo Delgado, Mozambique.

Core Point

The main thrust of Hendrix’s argument is that the U.S. substitution of China’s well-established supply chains for less familiar sources in frontier markets introduces significant operational and geopolitical risks.  Take the Balama mine, central to U.S. plans to diversify graphite supply, and its failure due to a combination of farmer protests, national political unrest, and the logistical and governance challenges endemic to Mozambique’s Cabo Delgado region.

Despite U.S. government backing and a strategic partnership with Syrah Resources, the Balama project succumbed to risks that, while foreseeable, were underestimated. This failure highlights the precarious nature of relying on politically volatile regions for critical minerals.

Likely also are the artificially inflated expectations for success.

Hendrix further contextualizes the issue within broader trends: China, despite its dominance, imports graphite for processing, leveraging its established infrastructure and stable supply chains. The U.S., as a latecomer, is forced to explore higher-risk markets like Mozambique and Madagascar, which are less integrated into the global graphite trade.

Any Underlying Issues with the Analysis?

Hendrix assumes that U.S. policymakers and private sector actors lack sufficient expertise in navigating frontier markets compared to their deep familiarity with China. He highlights the disparity in knowledge, which is illustrated by his anecdote at a mining conference where few Western attendees had experience working in Mozambique. While this point is compelling, it assumes a static learning curve and may underestimate the ability of Western entities to adapt to these challenges over time.

The article also leans on a critical stance toward U.S. policy, suggesting that diversifying away from China may be overambitious or ill-conceived. This bias could underplay the broader strategic rationale for reducing dependence on an increasingly antagonistic geopolitical rival.

Conclusion

Hendrix’s piece presents a sobering perspective on U.S. efforts to secure critical mineral supply chains. The Balama mine closure serves as a cautionary tale of the challenges in substituting the “devil you know” (China) with the “devil you don’t” (frontier markets). While diversification remains a strategic necessity, the U.S. must confront the complexities of operating in high-risk regions by improving risk assessment, building local expertise, and tempering expectations of rapid independence from China.

Hendrix’s argument invites policymakers to embrace a more nuanced approach that balances ambition with realism in addressing critical mineral vulnerabilities.