'Not a trump card,' but can Canadian critical minerals help cushion U.S. tariffs?

Canadian trade negotiators are wagering that the country’s vast critical minerals resources could be decisive in talks over U.S. President-elect Donald Trump’s threatened 25-per-cent tariff on industrial exports this month.

But playing the critical minerals card will be tactically tricky and the odds of success are long, energy transition experts say.

Trump this week doubled down on a threat to impose crippling tariffs on Canadian imports after he takes office on Jan. 20, saying the U.S. did not need anything from its neighbour and may use “economic force” to pressure Canada to become the 51st state.

The U.S. tariffs threaten $600 billion in Canadian exports and could trigger mass layoffs, hiring freezes and undercut corporate capital investment, according to a survey last month by Canadian Manufacturers and Exporters, an industry body.

This has sparked calls for a tougher response from Canada, with some premiers backing a retaliatory 25-per-cent export tax on critical minerals, among other commodities shipped south of the border.

Joanna Kyriazis, director of global public affairs at Clean Energy Canada, a climate action think-tank at Simon Fraser University in B.C., reckons critical minerals are “one of our biggest strengths” in tackling U.S. tariffs and accelerating Canada’s energy transition.

“We are fortunate to have many of the minerals and metals core to clean energy technologies — and that few countries around the world have. This should be an advantage,” she told Canada’s National Observer.

"We are fortunate to have many of the minerals and metals core to clean energy technologies — and that few countries around the world have. This should be an advantage."

Ottawa is betting Canada’s abundance of cobalt, graphite, lithium, nickel and rare earth materials, will have significant clout in trade talks as the U.S. looks to reduce its reliance on China, the world’s largest critical mineral supplier.

Canada will not stand by and watch its industries decimated by U.S. tariffs, Jonathan Wilkinson, the federal energy and natural resources minister, told Bloomberg after Trump’s latest threats.

“We will need to respond in a thoughtful way, in ways that actually create maximum pressure on the president and on states that derive benefit from the trade they do with Canada,” Wilkinson said, adding that all options were on the table.

He specifically highlighted the U.S. need for critical minerals “where we provide significant amounts and have the opportunity to provide much more.”

“Their alternative is to buy from China. And that’s actually not an alternative in some cases, because the Chinese have banned the export of a certain number of critical minerals,” Wilkinson said.

“One card, but not a trump card”

China processes 60 to 70 per cent of the world’s lithium and cobalt used in batteries for electric vehicles. It also mines 60 per cent of the rare earth elements (REE) found in solar panel and wind turbine components, and processes 90 per cent of REEs also used in semiconductors.  

Beijing last week announced fresh export restrictions and bans on niche minerals and processing technology amid heightened trade tensions with Washington and retaliatory Western tariffs on Chinese EVs.

This could play into Canada’s hands in the long term as the global critical mineral sector eyes a doubling in market value to US$770 billion by 2040, according to a bullish forecast by the International Energy Agency.

But in the short term, the Canadian sector is still too small to be a decisive bargaining chip in imminent tariff talks, said Frik Els, a mining sector specialist at Adamas Intelligence, a research house. 

“Critical minerals is certainly one card Canada can play in these negotiations — but it is not a trump card, as some have been suggesting” due to the fact that Canada hasn’t yet developed most of its potential critical minerals deposits, Els told Canada’s National Observer.

“Canada’s volumes in mining these key energy transition materials are currently far too small,” he said. “We still have limited exports of lithium to the U.S., for example, and the economics of lithium, nickel, and cobalt mining aren’t there yet.”

“Canada’s volumes in mining these key energy transition materials are currently far too small."

The U.S. is Canada’s top trading partner for critical minerals, buying $29.8 billion or 60 per cent of production in 2023. Canada, meanwhile, imported $8.4 billion of critical minerals from the U.S., resulting in a positive trade balance of $21.8 billion, although this was down 11 per cent from the previous year.

In a bid to ramp up mining of critical minerals, Ottawa announced $3.8 billion in federal funding in 2022 to finance geoscience and exploration, mineral processing, manufacturing and recycling applications, as well as research and development. 

Last year, Canada’s critical minerals list was updated with three new materials, bringing the total to 34. 

Canada’s ambition for a nationwide network of critical mineral mines “makes sense,” Els said, “but trying to use as-yet-unbuilt mines as leverage in a trade war I don’t think will work.”

Instead, pressure to “carve out” Canadian critical minerals from U.S. tariffs could come from U.S. industries reliant on these materials. But such a move would likely be delinked from the main talks on bigger sectors such as autos and oil and gas, Els said.

Fast-track projects

A focus on “getting things built” — from building mines and the EV supply chain to renewable energy technologies — would boost Canada’s energy transition and its trading relationship with the U.S., said industrial policy analyst Alexa Young.

“Canada has what the U.S. wants and needs, so we are well-positioned to be a strategic partner on critical minerals and maintain strong trade ties, regardless of what scenarios unfold under Donald Trump’s second term,” said Young, vice president of policy and government relations at New Economy Canada, an energy transition industrial development group. 

Ottawa has not set firm targets for new mines under its critical minerals strategy, which instead aims to invest $1.5 billion in infrastructure over seven years and $192 million in research to support the “sustainable development of responsibly sourced critical minerals,” a spokesperson for Natural Resources Canada told CNO.

Only a handful of critical minerals projects have gained traction in the past year. The first commercial lithium from Sayona Mining’s mine in Quebec was shipped last August. Mining giant Glencore opened Quebec’s Anuri mine in February to extend the life of its Raglan nickel and copper operations by at least 20 years. And Galaxy Lithium’s James Bay lithium project also passed its environmental impact assessment. 

A typical Canadian mine from discovery to production can average 27 years, according to a study by S&P Global, slightly faster than the United States (29 years) but longer than Australia’s 20 years. 

Canadian mines, despite a lengthy development timeline, are more likely to enter production than new U.S. projects, S&P said. But Canada still needs to speed up permitting and regulatory processes and “get out of our own way to get these projects — including critical mineral mines — built,” Young said.

Quicker permitting of new mines is possible while still conducting environmental due diligence and respecting Indigenous communities, she said, but it is also important to "get the business fundamentals right" to attract investment and scale-up projects.

“Critical mineral mines should be fast-tracked as projects of national significance,” Young said.