Bringing a tariff to a graphite fight

0:00This message comes from NPR sponsor Veeam. AI promised intelligence, but it also exposed everything people couldn't see. Veeam and Security AI bring protection, governance, and AI trust together to accelerate safe AI at scale. Learn more at Veeam.com. This is Planet Money from NPR. Keith Romer. Sally Helm. For the last couple of weeks, I have been, shall we say, a little bit obsessed with... Graphite. Graphite. I've been talking about it a lot. Graphite of pencil fame. But also, as you keep pointing out, also of battery fame. It is a key ingredient in batteries, which I did not know before I started looking into this.

0:44Which makes it a critical mineral. It is important for the whole green energy electric future. And also important, almost all of the battery-ready graphite in the world comes from one single place, which is China. And that is actually true of lots of the materials that go into batteries, like processed lithium, processed cobalt. But, you know, Keith, you hear about those other metals. Graphite is flying under the radar. Another person who shares your concerns, Sally, John Jacobs. He works for a company that is getting into graphite processing. Is it kind of like the underdog critical mineral? I think, well, I mean, I'm biased, but it is.

1:27It has not been given its fair shake, I would argue. There's more graphite by weight in a lithium-ion battery than anything else. So, I mean, you know. Than lithium. So there's more graphite than lithium. In the battery world, graphite has kind of been like always the bridesmaid, never the bride. Lately, however, it has started to step into the spotlight. About a month ago, John Jacobs gets an email. I almost deleted because I thought it was spam. The email in question is cordially inviting John to a ceremony in the Rose Garden at the White House. You know, President Joe Biden would like the pleasure of your company.

2:08Unfortunately, the event is just a few days away. John's not able to make it, but he thinks he knows what's going to happen there. We heard inklings this was coming. So we knew there was going to be some announcement related to tariffs. Tariffs and import tax. The idea that we were invited was a clear hint that graphite was probably going to be included in this. John was right. At that Rose Garden ceremony that he could not attend, President Biden announces a tariff package that will make a bunch of Chinese imports more expensive. And included in this package are some tariffs on Chinese graphite.

2:45This is part of a much larger strategy by the Biden administration to build up future clean tech industries here in the United States. and to reduce our reliance on China. Electric vehicles, batteries, the minerals that go into batteries, those are all a big part of this. Hence, tariffs. I think these are clear shots across the bow from the administration to the car companies to say, you need to now start being serious about using sources outside of China. And based on my front lines experience in talking to these companies, they are engaged. They are ready to do that. They're noticing. They're like, OK, the clock has started.

3:26We've got to figure this out. Yes. Hello and welcome to Planet Money. I'm Keith Romer. And I'm Sally Helm. President Biden says he wants to create a new battery future, one that doesn't rely so much on China. And he is using tariffs, putting up a big old fence around our tiny fledgling battery industry. But announcing a tariff in the Rose Garden, that is one thing. Actually building a brand new supply chain in the real physical world, that is harder. Today on the show, graphite finally gets its due. We get down on the ground and look at this big supply chain story through the lens of one often forgotten critical mineral.

4:09And we visit a small town that realizes it might be the perfect place to create an American graphite industry. if it can figure out a tricky situation with one very expensive pipe.

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5:10Want to be the best? Work with the best. Insperity. How UHR matters. Learn more at insperity.com slash tiger. The tariffs on graphite, they are part of an effort to move the battery supply chain away from China. Because when it comes to batteries, China has been way ahead for years. So how'd that happen? In the 2010s, the Chinese government decided it wanted to jumpstart the electric car industry in China. So it started giving incentives for people to buy electric cars, which ended up increasing worldwide demand for batteries. I heard the next part of the story from a guy named Hugh Jackman. Wolverine!

5:54It is not French Hugh Jackman, famous Wolverine actor. This Hugh is a graphite guy. He is the CEO of a mining company in Canada. I can tell you a funny story, though. So my daughter, I was meeting her in London, and I booked a hotel where I was staying, and she came in before me. And she goes, hi, I'm Hugh Jackman's daughter. And the guy at the desk said, you're Hugh Jackman's daughter? Really? We got a really nice room. Hugh has been in minerals a long time. And when China started really building its battery industry, he was there. He told me there was one particular meeting about a decade ago.

6:35I remember it quite vividly. It was a trip to China, actually. And I went to visit a customer using our material. This customer was making lithium-ion batteries for consumer electronics. So Hug has his meeting. It's basically a small room with a couple of chairs and a table, and these two guys sitting around the table, and they go, so we're looking at going into the EV battery market. They're like, we also want to buy some of your materials to start making batteries for electric vehicles, EVs. And they start talking about these huge numbers. And I said, wow, if these guys are for real, this industry is absolutely going to explode.

7:19Now, battery people, they measure the size of their industry by the amount of power it can produce. And at that time, around 2014, the entire car battery industry worldwide was measured in gigawatts. But these guys? They're not talking gigawatt size. They're talking terawatt size. So bigger than the whole industry at that time. A thousand times bigger. And so there was a huge opportunity. An opportunity that China wanted to seize. So around 2016, they tried to juice the demand for Chinese batteries. They tell Chinese consumers, those incentives we're offering to help you buy electric cars, Now you only get them if your car has a battery that was made in China.

8:03And it works. The Chinese battery industry grows and grows. It becomes dominant. By 2023, China supplies about 80 % of the world's battery cells. You know, nobody else thought about the battery industry. The Chinese believed in it, but nobody else really did. So that is how China got way ahead on batteries. Now let's talk about how the tariffs come into this. If you are President Joe Biden looking at China's huge battery industry, you might be worried about a few things. First, what if something happens in China and you can't get any more batteries? Like, I mean, natural disaster, pandemic, or a conflict between the U.S.

8:46and China? Yeah, you can see how relying on China for all of our batteries could potentially be a problem. Another thing Biden might be worried about is jobs. Because if EVs are the future and we're importing all of our EV batteries and end up importing EVs themselves, that could tank the American auto industry. Jobs would go away. And finally, President Biden claims that by subsidizing these industries, China isn't playing fair. That they're supporting their industries in a way that makes it too hard for the U.S. to compete. President Trump also made claims along these lines. And in fact, he put some tariffs on graphite.

9:26They were announced back in 2018. Then after requests from Tesla and some battery makers in 2020, those tariffs were paused. Now, President Biden doing graphite tariffs all over again. Some go into effect this week, others not until 2026. Hugh Jackman is among those who have reaped the rewards from this big global fight. Because remember, these tariffs are only on imports from China. Graphite from Canada? No problem. So Hugh's graphite mine in Quebec stands to benefit. The phone's been ringing quite a lot. So that's been good for us. Our emails are coming in, our video calls are going on. Just in the past week since this happened.

10:08The last couple of weeks, yeah. But mining graphite is really only part of the story. For one thing, you can also make synthetic graphite. And in either case, the real game in town is graphite processing. because you cannot just, like, dig up some graphite from the ground, put it straight into a battery, and expect that to work. I would not. No, don't do it. There is a whole very technical way that you have to mill the graphite down and reshape it and coat it. And on that whole thing, China is even further ahead. When it comes to battery-ready natural graphite, they produce 93 % of the world's supply.

10:48So what the U.S. really needs to do is build up its graphite processing capacity. And to see what that is potentially going to look like, we are going to visit one small town in Alabama, a town that wants to become one of our nation's leading graphite processors. All right. We just passed into Carissa County, right on the line between Carissa and Talapusa. I went down to east-central Alabama to understand what it is going to take to physically build a new battery industry from nothing. Yeah, or basically nothing. Because there is some graphite in the United States, including in Alabama. The deposits there have not been mined for something like 70 years.

11:34But this region was once called the graphite belt. It is the purest, largest graphite deposit in North America. You sound proud of that. I am. That is Woody Baird. And he might be overstating things a little bit here, but, you know, this graphite means a lot to him. He is the mayor of Alexander City. Alex City to locals. Alex City's got about 15 ,000 people. It's about 30 minutes away from that graphite deposit. And Woody, he's lived here his whole life. Do you think people who knew you would have thought you would end up the mayor of Alex City? Oh, hell no. He told me he barely made out of high school, failed out of junior college, then he ended up in the National Guard, then he became a nurse.

12:11Woody's lived a lot of lives. And a while back, he started getting really interested in bringing business to Alex City. Because actually, this is not the first time that Alex City has been caught up by the big forces of global trade. For decades, a really major employer there was the clothing brand Russell. They made sweatshirts, sweatpants, uniforms. But in the late 90s and early 2000s, textile manufacturing started falling apart in the U.S. In part because after NAFTA, some factories moved to Mexico. And in part because of what economists have termed the China shock. Cheap Chinese imports undercut all kinds of American-made products.

12:52Alex City lost a lot of jobs. Buildings that had been busy every day of the week, they were empty. It was absolutely depressing. Everything was going down. Businesses were closing. Everything's fixing to collapse. And, you know, you can't leave a building empty for long. And it starts deteriorating. I saw some of this as I was driving around. Some of the Russell buildings have been repurposed over the last two or three decades, but you can still find abandoned warehouses. There was one with a big red X painted on it. It said, condemned. A couple years ago, Woody decides he wants to do something to help bring Alex City back.

13:27He runs for mayor, and he wins. And in 2021, something important happens. A group of people walk into his office and they say, we want to start up an industry of the future right here in Alex City. It all depends on graphite. They said they wanted to talk to us, and they came in, and they showed us, you know, they told us what they wanted to do. These folks are from a company called Westwater Resources, and they say we've bought the rights to the graphite deposit in Coosa County. And we want to open a mine, and we also want to open a processing plant. And they played this big game. if y 'all were lucky enough, you know, we could bring that process and plant here.

14:07Remember, it's not enough to dig up the graphite. You also have to process it. And to do that here, the company says they're going to need a couple of things. High on the list, a really, really big wastewater treatment facility, one that can handle the runoff from the plant. What he tells them, no problem. Alex City has one because the textile industry that used to be here. He tells the Westwater people, our wastewater plant is exactly what you need. They're skeptical. I said, get in a damn truck. So we drive out there, and I watched their head scientist look around at the president of the company, and he just nodded at the president like, this is it.

14:45The wastewater plant will work. It has everything. Well, almost everything. Only thing they needed was a pipe going from there to there. What kind of pipe? A sewer pipe. A wastewater pipe. In the quest to start up a graphite processing business in Alabama to compete with China's 93 % dominance, we have just encountered problem number one, the pipe. The company needs a pipe for their wastewater. And Alex City wants this company to set up here, right? If the plant gets built, it will lead to these good-paying jobs for people in town. The pipe is going to cost$9 million. But Woody says he's going to make it happen.

15:25We borrowed$9 million and ran a wastewater line from our plant all the way up there and tied it into their plant on good faith. The company promises this is going to work out. We'll pay you to use the pipe once we get up and running. So Alex City starts building. We had to go under all these driveways, bore, dig, plant grass. I mean, it took about four or five months, and we administered all that. And, you know, it's not often discussed, but this is what it looks like to build an industry that doesn't exist. You know, you have to figure out permits, you have to build pipes and roads and whole factories.

16:04If the U.S. battery industry wants to compete with China, it is going to take a lot of down-on-the-ground work like this. It might take a lot of new sewer pipes. In 2022, Westwater Resources breaks ground on their new processing plant. Today, they have three big buildings and an industrial park about 10 minutes drive from Woody's office. Oh, here we go. So I'm going to ask you to put one of these things on. Sorry, I should have told you that before you got off. No, that's great. We need hard hats. Cool. I drove out there to get a tour from John Jacobs, that guy from the beginning who got the email invitation to the Rose Garden tariff ceremony.

16:41There's a little vest in here, too, for you. He takes me out to a huge building, like as big as a cathedral. steel beams rising up to support this tall, tall roof. Inside, there are cylindrical tubes. There are a couple big gray machines that are shaped kind of like an upside-down rocket ship. Towards the back are a couple of big circular metallic spinny machines. Okay, so what you're looking at here is the world's largest blender. And there's a series of metallic blades in this thing, and then it can be spun basically at different energies or speeds. This machine makes the graphite particles smaller, and you also have to shape them into a bunch of tiny, consistent little spheres.

17:23John walks me over to where that will happen. Right now we have 10 spheridizing machines installed, and so this would be the next step. Spheridizing! It's a good word. It means what it sounds like, and it is super important for batteries because the graphite will eventually get mixed into a giant slurry and basically painted onto a sheet of metal. If it's not a sphere, it's going to be clumpy. So imagine like you're painting your wall. at home. If you get a little speck on your paint roller, it's going to leave a streak. That's bad. When John's company first tried to make these spheres, there was some room for improvement.

17:57I think the technical term was it was too much like a potato shape. It needs to be more like a sphere. This is problem number two for building a battery industry in the U.S., the potato problem. What you're really trying to do is find the correct settings. How long are you going to mix it and how How much impact are you going to subject the particles to to create what you want? If you do too much, it destroys the sphere. Yeah, he says their particles were like too flat. So they would try some setting, send out a sample, hear from the battery makers. The feedback months later through our battery partners would be make it more of a sphere.

18:35So we'd go back to them again and they would do it again. Do you get sick of hearing that? Like more of a sphere? Yeah, you do. Yeah, believe me. Yeah, it's it just never seems to be spheroidal enough. They're looking for something really specific. It's actually, it's like kind of like a sphere. It is kind of a potato. Sphere-tato. It's a sphere-tato. It's kind of, that's what it is. It has to be just the right shape. And this, the sphere-tato problem, this is a huge issue for any new graphite processor. And it's really a huge issue for the entire battery industry overall. When you are building a new industry from scratch, there's just a lot of technical learning that has to happen.

19:13It can take years. Westwater has actually been working on the potato problem since about 2022, and they just recently solved it. They can now make their graphite into the exact right sort of sphere, sort of potato shape, and that means they can sell it. In fact, they recently signed their first sales agreement with this big battery company called SK On. Which is good news for John. But this plant, it is not open yet. Like, I was hoping for giant containers overflowing with graphite. I wanted to lay down in a big pile of graphite and make a graphite snow angel. But in this big room full of new equipment, I did not see any graphite.

19:57Because it's not being processed here yet. This building we're in, after two years, it's still not finished. The fact that we still need money to complete the construction of the plant is a fact. And so in the absence of that, we wouldn't be able to finish it. And that brings us to the third and final problem in the story of building a battery industry in the United States. Money. That's after the break.

20:34Okay, so about a month ago, President Biden signed a tariff package to try and help build a battery supply chain that doesn't rely on China. And we've been in Alex City to see exactly what that will take. So far, Westwater's graphite processing plant has solved their infrastructure problem. They've got a key sewer pipe. They've solved their technical problem, the whole potato issue. But the plant is still not up and running. And for Woody Baird, the mayor of Alex City, that has become an issue. And it just dragged and dragged and dragged and dragged. About May of 23, we got word that they had run out of capital.

21:14And they were seeking$150 million in capital to try to finish. $150 million. To finish the plant, Westwater needs money. And so, as of today, they're not using that sewer pipe, which means Alex City is not getting paid. And remember, they had to take out a loan for$9 million. You know, I want my money. I want them to pay this damn loan. We're paying it out of the sewer department fun. So how do you feel about all this? It pisses me off. When I was at the plant, I told John from Westwater about my conversation with Woody. So I mean, I think his real question is like, what's taking so long? Well, actually, it's a nice way to tie the story home is the tariffs.

22:00It's without those governmental assistance things, you're sort of spinning your wheels. John says, look, they need$150 million to finish their plant. They only got their first sales agreement a few months ago. Now that they have that, it should be easier to convince lenders and investors to give them the money. And tariffs will give them an even better case. Because, like, it's hard to break into an industry where China is just so dominant. You have all these startup costs, and it's hard to convince companies to switch from their normal graphite supplier to you. But if tariffs make Chinese graphite more expensive, it starts to become an easier sell.

22:41Of course, a lot of companies want government protection for their industry. But tariffs are not necessarily good for the rest of us. Like, it's good for you guys that there's a tariff on graphite. But the argument against tariffs is they make things more expensive for consumers, for regular people. So why should you guys get a tariff? Well, okay, so all in all, because it's not a terribly labor-intensive process, once we're doing it, the costs should be very similar to China. But figuring out how to do it is expensive. The argument John is making here, it's what economists would call the infant industry argument.

23:17The idea is it sometimes makes economic sense to temporarily protect a young industry that's getting on its feet. If it has some time and space to grow, it'll eventually be able to compete on its own. And then producers and consumers might be better off. We'd have more graphite for batteries, a more resilient supply chain, and maybe even like some new technological innovations. But it's honestly kind of murky whether graphite processing in the United States is the kind of infant industry where protection is justified. For economists, the bar is really, really high. And in practice, countries often are not using tariffs for reasons economists would approve of.

23:58They're really just trying to prop up some politically important industry. One key thing economists look for, the tariffs should be temporary. Eventually, the infant industry should grow up and be able to compete on its own. John says he agrees with that. A business that would have to rely on governmental support and incentives and tariffs and all this stuff forever, that's a dangerous business because, you know, policies change, these things come and they go. And so you cannot bet on these tariffs being around forever. Right now, these tariffs are set to be indefinite. Some will kick in this week, others in a couple of years.

24:37So the U.S. has time to build up its supply chain. Though, as we have seen, that's not going to be easy. When I was at the not-quite-finished graphite processing plant, I saw something that reminded me of this whole laborious supply chain building process. Laid out on a huge concrete slab were piles and piles of steel beams, each labeled with some kind of particular letter or number. It was like a giant life-size Lego set. And there were two guys picking through them to find the exact steel piece they needed. While I was there, I saw them fit one into place, literally putting in the latest piece of this new battery supply chain.

25:19But just at this one plant, this one building, there were still hundreds more pieces of steel to go.

25:37Over the past 10 or 15 years, there has been this quiet revolution at the grocery store. The stuff we buy now comes in just this overwhelming number of sizes, from teeny snack sizes to mega jumbo sizes and everything in between. This is queso in a can. Queso in a can. But also queso in a jar. Yep. Also queso in a small jar. It's a lot of queso. On our next episode, a packaging expert takes us to the grocery store and shares some of the secrets behind how companies get us to buy more stuff. After this job, I will never walk through a grocery store in the same way ever again. Like, you can't unsee it, right?