Executive Summary

For critical materials strategies to succeed, policymakers must better understand the nature of the Chinese energy-industrial system that domestic vital industries are competing against. Aluminum provides an interesting case of a large-volume commodity market and a highly electricity-intensive production process that other countries desire to participate in without quite being able to rely on the same industrial policy playbook that Chinese industry benefited from.

Some might dispute that common aluminum—a ubiquitous and globally-traded commodity—carries any special strategic importance. However, aluminum is not only key for electricity infrastructure development and aerospace and defense applications but also possesses important parallels with other strategic electricity-intensive industries that governments are currently seeking to diversify, such as high-purity polysilicon and battery graphite. Electrolytic cells similar to those at the heart of aluminum smelting are key not only for producing aluminum metal but also magnesium, copper, rare earth metals, and potentially gallium, cobalt, and decarbonized steel—technological synergies that Chinese industrial strategists have recognized for around half a century.

A survey of the primary aluminum sector reveals a number of insights. Although goods may be freely traded, today’s industry landscape did not develop through free markets. Such electricity-intensive heavy industry capacity does not spring forth without explicit public sector support, and in its absence the natural market equilibrium for a given critical industrial capability may mean producing little to nothing. Affordable industrial electricity is non-negotiable, posing important tradeoffs between electricity-intensive heavy industry and data center development.

At the same time, blanket tariffs alone will not deliver industry innovation or growth. For countries hoping to start catching up with China, mastery of production requires allied cooperation. An allied effort enables both flexible trade of intermediate products and coordinated development of new facilities or major retrofits that builds fresh technical familiarity and installs state-of-the-art equipment. Lastly, while rebuilding experience with today’s production techniques is important for establishing a solid base of knowledge, industrial policies must look ahead towards the commercialization of future-proof technologies that will ensure continued sectoral competitiveness a decade from now. None of this will be cheap, but policymakers inclined to balk at market interventions must recognize large capital investments as the price of admission for rebuilding atrophied industry knowledge. Efforts to more globally diversify and revitalize these strategic sectors will advance both supply chain security and progress towards more advanced, cleaner industries.