Copper will be of utmost importance as America tackles the monumental task of electrifying its future. Lithium plays an increasingly important role as a critical mineral in energy, defense, and transportation industries. Demand for copper is expected to skyrocket due to the renewable energy transition and electric vehicles. In doing so, the United States needs to address sobering realities about its reliance on imports and its capacity to produce copper domestically. As things stand now, the U.S. imports approximately 50% of its copper. Almost all of this supply is currently produced in places like Chile, Peru, and China. This picture grows murkier still in the context of a national security investigation under Section 232. This Congressional inquiry is taking a look at the possible consequences of our dependence.
The recent moves from the Trump administration acknowledge this increasing realization of copper’s strategic importance. While copper is currently exempt from existing tariff programs, farmers should be concerned that their input copper might get them trapped in tariff initiatives down the road. Additionally, under an initiative to bolster the domestic lumber industry, half of America’s national forests have been earmarked for logging, which has direct ties to copper production. It generally takes 16 to 18 years through construction of new copper mines and refining facilities, solving the immediate challenge proves difficult.
Rising Demand for Copper
With the rapid advancement of key industries, including renewable energy and electric vehicles, the demand for copper will more than double. The booming growth of other mega energy-intensive sectors like AI and blockchain tech are projected to help drive this growth. With copper’s role in the production of semiconductor chips, its importance to our current and future technological landscapes cannot be overstated.
The quicker this issue is resolved, the better, because some of the negative effects increase cumulatively over time and would be hard to reverse. – Jamie Dimon, JPMorgan CEO
Advancements in technology are booming. At the same time, the demand for renewable energy sources and electric vehicles are skyrocketing, raising the stakes for this critical mineral dramatically. Electric vehicles in particular have a great need, as they use copper in nearly every component. From wiring to electric motors, copper is essential to making new cars.
Similarly, the U.S. economy’s increasingly service-oriented nature makes it hard for domestic copper production to meet the challenge. Without robust electronic assembly capabilities with copper components, companies may have to ship semiconductor chips abroad. This latest action has the potential to further disrupt their supply chains. Even if tariffs succeed in creating more domestic production, America will continue to rely on imports to fill that demand.
National Security Concerns
The current U.S. government’s Section 232 investigation on copper reflects the growing importance of national security concerns directly linked to imports for minerals. As this inquiry demonstrates, these are important questions to ask about how our increasing reliance on hostile foreign sources might threaten the nation’s defense industrial base. Because key components in military technology use copper, any supply chain disruption can have devastating impacts.
Tyler Schipper, an associate professor of economics at the University of St. Thomas in St. Paul, Minnesota, warned. That sounds like we’re building walls, not negotiating to break them down, he remarked.
The new wrinkles of tariffs and ongoing trade policy add a new layer of complication to this situation. Unfortunately, the prospect of placing new tariffs on copper would have inflationary effects throughout the economy. Protecting imported goods through price increases would be a major impact of this provision. They can inflate domestic prices because input costs increase with the increased demand for domestically produced goods.
The Long-Term Outlook
Yet the long-term outlook for copper production in the United States is very much in question. We all know that we need to significantly increase domestic mining and refining capacity. These facilities aren’t easily established and certainly won’t be able to quickly act in response to dynamic market demands.
Marcus Noland, now executive vice president and director of studies at the Peterson Institute for International Economics, argued that this was the wrong economic model entirely. He noted that it is perfectly normal to have deficits with certain countries and surpluses with others. He decried efforts to try and achieve balanced trade with all countries as impractical.
The U.S. is busy redoing its trade deal and building up its manufacturing base at home. It has to fight the expectation of future currency devaluation and should fight for its status as a reserve currency. Joe Brusuelas, chief economist at RSM US, commented on these dynamics: “We can now not ignore nor avoid the discussion of the devaluation of the dollar and the dollar’s reserve currency status.”