The Problem with a Supply-Side-Only Critical Minerals Policy

China overwhelmingly controls the global graphite supply chain, and its market dominance, distortions, and dependency weaponization depress global prices, increase the likelihood of supply chain disruptions, threaten U.S. economic and national security, and give urgency to diversification efforts.

U.S. efforts to increase domestic graphite production and reduce dependence on China made progress in recent years after Australian-owned Syrah Resources’ decision to invest in the United States, but imbalances created by supply-side-only policies are jeopardizing their success.

Offtake agreements with customers have not resulted in sales despite years of qualification work; policies that drive consumption of U.S.-produced critical minerals have been rescinded; and trade remedy laws have failed to provide relief from unfairly traded imports. As a result, Syrah is facing financial challenges, and the future of the U.S. graphite industry is uncertain.

Syrah, which owns the world’s largest natural graphite mining and processing operation in Mozambique, is seeking to become the first fully integrated ex-China producer of graphite for lithium-ion batteries. After selecting Vidalia, Louisiana, as the site for its first commercial scale active anode material (AAM) facility in 2019, the company secured an offtake agreement with Tesla, government financial backing, and incentives under the Inflation Reduction Act to support domestic graphite production.

Unfortunately, much of the demand-related progress has been reversed. In May 2024, the Biden Administration created a loophole allowing automakers to source graphite from China and still qualify for the IRA EV tax credits until 2026. In July 2025, President Trump signed into law provisions eliminating the IRA EV tax credits all together, removing a key demand driver for U.S.-produced graphite. And the offtake agreement with Tesla has faced setbacks that have been resolved but still not resulted in commercial sales. 

To make matters worse, Syrah and other domestic producers filed trade remedy petitions to obtain relief from unfairly traded Chinese imports, but were unsuccessful due to opposition from their potential customers. In March 2026, the International Trade Commission (ITC) made its final determination that imports from China were not “materially retarding” efforts to establish a U.S. industry, denying Syrah and other U.S. producers the possibility of additional 160% additional tariffs on Chinese imports as recommended by the Department of Commerce.

Downstream consumers persuaded a majority of commissioners that the capacity to manufacture qualifying AAM is a bigger factor than low-cost Chinese products in determining whether to source from U.S. companies. Commissioner Jason Kearns’ dissenting views, however, point out that offtake agreements are negotiated before product qualification and include price considerations, and the rescission of the IRA EV tax credits reduced incentives for U.S. battery companies and automakers to qualify domestic AAM producers in the first place.

That’s why demand-side policies are so critical. And there are several near-term options the Trump Administration and Congress could pursue. First, the Trump Administration could issue updated guidance and regulations for the Prohibited Foreign Entity provisions of IRA energy and manufacturing tax credits, establishing strict interpretations of “foreign entity” and creating incentives for U.S.-sourced minerals in eligible projects. Second, policies to prohibit defense procurement of advanced batteries from Foreign Entities of Concern are important but insufficient to sustain an entire U.S. graphite industry. Congress could pass demand incentives and requirements for commercial end-users of lithium-ion batteries to buttress the defense industrial base and domestic mineral production.

Third, the Export-Import Bank’s Project Vault could stockpile U.S.-produced AAM to protect against China’s export controls and to align with other policies to expand domestic mineral production. This would require repurposing the initiative, which is currently driven by downstream consumer interests. Finally, while the U.S. industry is new and most vulnerable to unfair trade practices, the Administration should use trade tools – ideally in coordination with allies and partners – to fully protect U.S. and allied graphite producers from the harms of China’s market distortions. Doing so will also protect taxpayers’ investment in the industry.

The United States is on the cusp of drastically reducing its reliance on Chinese graphite, but key obstacles remain unaddressed. Unless investments in domestic critical minerals production, including but not limited to graphite, are paired with demand-side initiatives to align downstream commercial and national security interests, customers for U.S. critical minerals may not materialize, supply-side policies may fail to achieve their objectives, and companies like Syrah may not succeed.

Nora Todd

Senior Fellow, EconClimate Lab

Nora Todd is a senior fellow at the Kleinman Center with the EconClimate Lab. She served as Special Assistant to the President and Senior Director for International Economics and Labor to President Biden.