The South Korean battery manufacturing industry not only holds significant importance in the country’s national economy but also plays a pivotal role in the global transition towards greener transportation and technologies. However, this critical industry faces a major challenge stemming from its heavy dependence on Chinese critical minerals, specifically lithium and nickel. This reliance leaves Korean battery makers vulnerable to price fluctuations, unstable supply chains, and geopolitical risks that can impact the nation’s sustainable growth trajectory. In particular, considering recent policy trends in the United States (U.S.) that aim to minimize China’s involvement in their battery supply chain, Korean battery manufacturers targeting the U.S. market must take decisive action to diversify their sources and secure alternative mineral supplies. This article delves into why and how South Korea must continue to reduce its dependency on China and enhance the diversification of its supply chain through Canada.

Status Quo: Dependency of South Korean Battery Manufacturing on Chinese Critical Minerals

Korea’s battery industry has experienced significant growth in recent years, positioning itself as a global leader in the production of electric vehicle batteries. However, this success has come with a cost: a heavy reliance on China for raw critical materials. A recent article reports that China accounted for 87.9% of Korea’s lithium hydroxide and lithium oxide imports in 2022, which amounted to $3.676 billion USD. Cobalt (cobalt oxide and cobalt hydroxide) imported from China also accounted for 72.8% ($179 million USD) of Korea’s total imports of $246 million USD in 2022. South Korean battery makers’ reliance on a single source is well demonstrated compared to their rivals. According to this report, South Korea topped Japan, China, and Germany with the highest ratio of 77.1% on reliance on a single country for the imports of critical battery minerals. Meanwhile, Japan secured second place with 66.5%, China came in third at 60%, and Germany was fourth with 51.1% reliance. Compared to their rivals, South Korean battery makers have a long way to go to diversify their supply chain. 

Their high dependence on China poses several vulnerabilities to Korea’s battery supply chain. First and foremost, it leaves Korean companies exposed to price fluctuations in the lithium market, which can directly impact the cost of battery production. Additionally, it can make the industry vulnerable to external disruptions such as unexpected export restrictions, as witnessed in 2021, when the South Korean economy suffered a shock from Chinese export restrictions on urea solutions due to its high dependency on a single source. Moreover, Korean companies exporting a significant portion of their batteries to the United States face potential risks due to U.S. sanctions imposed on Chinese companies. Thus, to achieve stable economic growth and ensure future industrial sustainability, it is crucial for South Korean battery makers to diversify their raw material supply chains and reduce their dependence on China.

Need for Diversification: U.S. Effort for Economic Security and Its Implications to South Korean Battery Makers

Recognizing the importance of securing critical minerals, the U.S. has already taken significant steps to establish stable supply chains for their carbon neutrality and high-tech industries. Specifically, the Inflation Reduction Act (IRA) requires 50% of the value of battery components to be produced or assembled in North America to qualify for a $3,750 USD tax credit. Additionally, 40% of the value of critical minerals must be sourced from the United States or a free trade partner for an additional $3,750 USD tax credit. Considering such requirements, South Korean battery makers will have to gradually increase the ratio of critical minerals mined and processed in North American countries, or the countries that maintain free trade partnerships with the United States.

The IRA also imposes limitations on companies associated with “foreign entities of concern,” referring to any foreign organization that is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation [China, Russia, Iran, or North Korea]”. Hence, South Korean battery makers are now in a situation where they have to diversify their critical mineral supply from China to other countries by 2025.

Canada as an Alternative Key Mineral Powerhouse

Amid the call for proactive measures to address the risks mentioned above, Canada can serve as a viable alternative for South Korean battery manufacturers. The two countries can complement each other in the battery supply chain as South Korea specializes in the manufacturing process while Canada shows its strength in raw materials. According to Bloomberg NEF’s global battery supply chain ranking in November 2022, Canada came in second after China, reflecting its “large raw material resources and mining activities, as well as its good positioning in environmental, social, and governance factors (ESG) and infrastructure, innovation, and industry”. As risks related to China’s minerals are increasing, Canada’s rise to second place deserves significant attention. Canada’s emergence as a strong player in the next-generation battery supply chain can be understood through the following factors: abundant reserves, reliable sources, government policy support, and geographical advantages. Canada reportedly held the world’s sixth-largest lithium (930,000 tons) and seventh-largest cobalt (220,000 tons) reserves in 2022. Additionally, for nickel, graphite, and rare earth elements, the nation was ranked within the top ten largest reserves in the world.

One of Canada’s notable advantages is its ability to establish a sustainable and reliable supply chain. In BNEF’s evaluation, Brazil ranked fourth in the raw material sector due to its abundant resources but only achieved the 23rd position in the ESG category. Similarly, China ranked first overall but was 17th in ESG. In contrast, Canada was ranked 6th in ESG, demonstrating that its production and manufacturing processes in the EV and battery supply chains are more sustainable compared to its rivals. Moreover, being part of the Minerals Security Partnership (MSP), a multilateral partnership focused on promoting stable mineral supply chains, further highlights Canada’s status as a reliable source for critical minerals.

Indeed, Natural Resources Canada announced the Critical Minerals Strategy in December 2022 to acknowledge the importance of Canada’s critical minerals in “greening” the world economy and put substantial effort into expanding mining and reinforcing supply chains. Specifically, priority is given to the development of six critical minerals essential for battery production, including lithium, graphite, nickel, cobalt, copper, and rare earth elements. In sharp contrast with the recent announcement by President Boric of Chile to nationalize its lithium, Canada’s approach makes it a more reliable supplier for battery makers.

Moreover, Canada’s easy access to the U.S. market is another strategic advantage. As Canadian critical minerals comply with the requirements for tax credits within the IRA, as mentioned above, Canada can be recognized as a stable source for raw materials. The Canada-United States-Mexico Agreement (CUSMA) also significantly impacts Canada’s battery supply chain formation as the agreement dictates that over 75% of electric vehicle parts must be produced locally in North America. Canada meets these duty-free benefits conditions while excelling in supply chain efficiency, eco-friendly policies, and operational costs, making it a favourable alternative. Considering all these factors, Canada emerges as the most reliable and accessible alternative for South Korean battery companies. A mutually beneficial relationship between Canada and Korea in the battery supply chain can strengthen the battery industry’s collaborations further.

Key Mineral Cooperation between Korea and Canada in Practice

Building upon the recognition of Canada’s potential as an alternative source for core minerals, South Korea and Canada have taken concrete steps to strengthen cooperation in this field. During a summit meeting in September 2022, discussions were held on ways to enhance cooperation in both the semiconductor and battery core mineral sectors. The partnership between the two countries further deepened during a subsequent summit in May 2023. At this meeting, additional Memoranda of Understanding (MoUs) were signed to facilitate cooperation in key mineral supply chains, clean energy transition, and energy security. The scope of these agreements indicates the comprehensive approach that both countries are taking to ensure a stable and sustainable supply of core minerals. The cooperative system envisaged by these MoUs covers the entire process of core mineral procurement, including mining, smelting, trade, and recycling. Notably, the Canadian government’s support alongside Canada’s easy access to the U.S. market has attracted significant investment from Korean companies. For instance, POSCO Future M has initiated the construction of a joint plant for cathode materials with General Motors (GM) in Quebec. The aim is to achieve mass production by March 2025, contributing to the establishment of a robust battery supply chain. Similarly, LG Energy Solutions, one of Korea’s major battery manufacturers, has also taken active steps; agreements have been signed with Electra, Avalon, and Snowlake, 3 Canadian suppliers, to secure supplies of cobalt sulfate and lithium hydroxide — crucial materials for high-performance EV batteries. These agreements demonstrate the commitment of Korean companies to diversify their core mineral procurement capabilities and reduce reliance on a single supplier.


The South Korean battery manufacturing industry’s dependency on Chinese critical minerals poses challenges that must be addressed to ensure sustainable growth and resilience. Thus, looking ahead, South Korea and Canada must continue to navigate challenges, work collaboratively, and take proactive measures to secure a stable supply of critical raw materials. In doing so, they can contribute to the growth of green industries, promote carbon neutrality efforts, and enhance their respective positions in the global battery market. Ultimately, diversification and cooperation in the critical mineral supply chain will be instrumental in ensuring the sustainable growth of the electric vehicle and battery industries into the future.

About the Author

Chan Mo Ku is a Staff Assistant Intern at the Canada Institute and the Hyundai Motor-Korea Foundation Center. He is currently a Master of Arts in International Relations candidate at the Johns Hopkins University School of Advanced International Studies, with concentrations in States, Markets, and Institutions. Previously, Chan Mo worked as an intelligence officer at strategy and policy directorate of Republic of Korea – United States Combined Forces Command. He also worked as a research assistant at Foreign Policy Institute, providing research assistance to various projects related to integration in North America.

Biography from The Wilson Centre

Photo via Adam Scotti (PMO)

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