Why critical minerals are a bargaining chip in the Canada-U.S. trade war

Over history, gold and silver coins have been major trade darlings, and can still spur investor frenzy depending on how they're faring in markets. But as industries and economies deepen their dependence on critical minerals, these metals appear to be becoming as valuable as any commodity or currency.

Last week, Ukraine President Volodymyr Zelenskyy aimed to sign a minerals deal with the U.S. in hopes of securing longer-term support during the war against Russia. But the Oval Office meeting with President Donald Trump was cut short and any deal put on hold as the two, along with the U.S. vice-president, got wrapped up in a fiery exchange. The two presidents appear to still be willing to work towards a deal.

Ukraine isn't known for its critical minerals, but it does have reserves of copper, lithium, cobalt and nickel, and rare earth elements such as lanthanum, cerium and neodymium. These are essential components of many of today's rapidly growing energy technologies.

While mining companies may be hesitant to set up shop in a country that has been embroiled in a war, the Ukraine-U.S. talks show critical minerals can be used as a negotiating tool as countries scramble to secure supply chains amid an uncertain economic climate.

Critical minerals are helping drive modern economies because they're essential in the production of smartphones, computers, electric vehicles, renewable energy systems, batteries and satellite systems. 

Securing access to critical minerals

Under the previous U.S. administration of Joe Biden, hundreds of millions of dollars were on offer for Canadian firms mining or processing critical minerals. 

The U.S. Department of Defence funded several projects north of the border with no strings attached in a bid to boost the North American supply and reduce dependence on China.

The Trump administration, however, seems to be favouring a different approach to secure the U.S. supply chain.

Prime Minister Justin Trudeau recently told business leaders at the Canada-U.S. Economic Summit in Toronto that Trump's threat to annex Canada "is a real thing" motivated by his desire to tap into the country's critical minerals.

However, annexation would be an impractical way for the U.S. to access Canada's critical minerals, according to Andrew Grant, associate professor in political studies at Queen's University in Kingston, Ont. 

"Logistically, it would be very difficult to implement."

Grant said there's a long history of Canada-U.S. co-operation, between companies and the different levels of government. 

The U.S. crossing the border uninvited would disrupt this collaboration and knowledge exchange, ultimately making it harder to extract the minerals from the ground for all involved. 

Grant suggested that if Canada were to leverage critical minerals as a bargaining tool in the trade war, it could secure some advantages.

"I think it is something that if done in the proper way, it could be something that would perhaps result in concessions coming back Canada's way," he said. "It would perhaps be even more valuable than what would be sent in terms of access to certain critical mineral deposits."

Could Canada cut off access to critical minerals? 

Ontario and B.C. have threatened to slap export bans on critical minerals if the U.S. maintains its 25 per cent tariffs, launched Tuesday, on Canadian goods. 

The federal government has yet to make that threat, but it has intervened in the mining industry before in the name of geopolitics. 

It ordered three Chinese resource companies to sell their interest in Canadian critical mineral firms in 2022. 

One of these companies was Power Metals, a junior miner advancing a cesium project near Cochrane in northern Ontario. 

Australians were quick to buy up the interests left behind by Chinese interests and Power Metals is now looking to enter into production next summer. 

Cesium is used in atomic clocks, electronics, and oil and gas drilling, to name a few. China currently dominates the entire supply chain for this mineral, hence the U.S. interest in seeing mines open up in North America. 

The company still needs partners to open its mine and was in talks with the U.S. Department of Defence for funding opportunities last year. 

"The change of government in the U.S. sparked the closure of pretty much all that funding," said Haydn Daxter, chief executive officer of Power Metals. 

"It's reopened … but it won't be a high priority for us until the dust settles south of the border." 

Daxter said his company isn't concerned the current trade war could slow its project down. 

Tariffs themselves are not a benefit, but the increased interest in critical minerals is, he said.

"The U.S. can impose tariffs, but they'll get to a point where they're not buying from China and they can't get supply elsewhere, and they've got supply in Canada.

"I think it's a bit of muscle flexing to align things better for the U.S., but it won't be sustainable."

'Where else are they going to get it?'

Ian London, executive director of the non-profit Canadian Critical Minerals and Materials Alliance (C2M2A), also said the U.S. is using threats as a negotiating tactic. 

"You don't have to cross the border or make these threats — collaboration is key."

London said Canada has a lot of leverage because the U.S. doesn't have many options if it's looking for supplies outside China. "Where else are they going to get it?

"Mining is not the big cost — it's the transportation and movement. Are they going to buy raw materials in Australia and get boatloads into the Panama Canal?" London asked. "It's a very complex supply chain. And while we're talking and continuing in a trade war, China is implementing another five year plan."

London said Canada should put its resources into processing and manufacturing, and not mine critical minerals. 

"As long as it remains in the ground, it's an advantage … We shouldn't be mining it and selling it to others," he said.

"We should mine it, refine it and produce the manufactured products. That is what's in Canada's interests."