The US Targets Chinese Graphite, A First Shot in the New Energy Supply Chain Cold War

On May 20, the US Commerce Department issued a preliminary ruling that Chinese exports of battery anode materials—mainly graphite—have been unfairly subsidized, with the highest subsidy rates reaching up to 721%. This opens the door for potential countervailing duties in the near future.

This isn’t just another trade spat—it’s a strategic strike in the US’s broader campaign to restructure global clean energy supply chains away from China. Let me walk you through this with five core points: policy background, graphite’s strategic role, the US’s logic, China’s likely response, and investment implications.

1｜What does “721%” mean—and is it a tariff?

First, let’s clear this up: 721% is not a tariff. It refers to the estimated value of Chinese government subsidies received by some companies that export battery-grade graphite. In short, the US believes Chinese companies are undercutting prices using state-backed support, creating an unfair market advantage.

There are two investigations underway:

• Countervailing duty (CVD) case: looking at whether Chinese companies benefit from unfair subsidies.

• Antidumping case: probing whether Chinese exporters are selling below cost to distort competition.

This week’s ruling is just the CVD preliminary finding. Final tariffs—if imposed—will be decided later this year. But historically, once the US makes such a preliminary determination, duties almost always follow.

2｜Why Graphite Matters: It’s Not Just “Raw Material”

Graphite may not sound as exciting as lithium or cobalt, but it is essential to the batteries that power EVs, smartphones, and energy storage systems.

In a lithium-ion battery:

• The cathode uses lithium-based compounds (like NCM or LFP).

• The anode is almost always graphite, due to its ideal structure for storing and releasing lithium ions.

While research into alternatives like silicon is ongoing, graphite remains the dominant material, especially for electric vehicles and grid storage.

But not just any graphite will do. Battery-grade graphite requires multiple high-tech processing steps:

• Spheronization: turning raw flakes into spherical particles.

• Purification: removing impurities to >99.95% carbon.

• Coating: enhancing conductivity and cycle life.

👉 Here’s the key: China dominates every one of these steps. According to Benchmark Minerals, China controls:

• Over 90% of global spherical graphite capacity.

• More than 80% of advanced coating and purification technologies.

In contrast, US and European producers are either early-stage or still dependent on China for midstream processing.

3｜Why is the US Starting with Graphite (and Not Lithium or Cobalt)?

It’s a strategic choice. Here’s why graphite was selected:

1. Low political cost, high strategic value

Targeting graphite doesn’t directly hit consumer products like EVs or phones. It’s a “soft entry” into decoupling without shocking end users or US allies like Japan or Korea.

2. Perceived national security risk

The US Department of Energy has listed natural graphite as a “critical mineral” since 2022. It’s seen as too dependent on one country—China.

3. Hard to replace, but not impossible

While China dominates today, countries like Canada, Mozambique, and even the US have untapped graphite resources. Washington sees this as a controlled-risk experiment to test reshoring efforts.

4｜What’s the Bigger Picture? Let’s Lay Out the Logic Chain

This move isn’t random. It fits into a broader, methodical strategy:

• The US views China’s green tech industry as a systemic threat to its industrial and geopolitical edge.

• To build an alternative supply chain, the US must weaken China’s grip on key materials.

• Targeting graphite lets the US test economic pressure on a Chinese-dominated segment with manageable domestic impact.

• Meanwhile, it pressures companies to rebuild supply chains through US or allied countries.

• Long term, it’s about shifting standard-setting power and market leadership in clean energy.

This is not about banning graphite imports entirely, but about resetting the terms of engagement.

5｜What Will China Do? Likely Responses on Two Fronts

This isn’t just an attack on one product—it’s a stress test for China’s entire green tech export engine.

On the industry side:

• Diversify markets: Chinese exporters may shift more volumes to Southeast Asia and Europe.

• Integrate downstream: Some producers may pivot into battery or EV manufacturing to absorb more graphite domestically.

• Avoid tariffs creatively: By rerouting trade through third countries or changing product categories.

On the policy side:

• Export controls are already in place: Since 2023, China has added natural graphite to its export licensing regime, giving Beijing the ability to retaliate or restrict sales if needed.

• Build leverage: China may bundle graphite with other critical materials like rare earths or gallium to gain negotiation power.

Ultimately, this may push China to double down on its “dual circulation” strategy, reducing dependence on overseas markets and securing domestic supply chains.

6｜My Take: This is Just the Beginning

This graphite case isn’t an isolated event—it’s the first shot in a long campaign to reshape the global clean energy order.

I expect:

• Graphite will be followed by actions on electrolytes, separators, and even software for energy storage.

• Cost structures in the EV industry will shift, especially in non-Chinese markets.

• China’s response will accelerate local self-sufficiency and global vertical integration in clean tech.

This is not about tariffs. It’s about who writes the rules in the next energy era.