The trade war between the U.S. and China just took a turn for the worse.

Last week, new U.S. regulations were unveiled that would restrict China’s access to advanced semiconductors.

The move is the latest attempt by the U.S. to restrict China’s ability to develop cutting-edge technologies, like artificial intelligence (AI).

But retaliation by China could threaten a $130 trillion transition that’s just getting underway.

That’s because China dominates the market for key metals and minerals needed to secure the global energy transition to low-carbon power.

The price tag for that transition is set to come out to $5.8 trillion every year through 2030.

Inside Wall Street editor Nomi Prins already showed you how China is leveraging its position in rare earth elements to upend supply chains (catch up here).

Those commodities are used in everything from iPhones to fighter jets.

And the energy transition could be China’s next target.

That’s because China dominates the market for one key commodity. A commodity that could stop the global energy transition in its tracks if supply is compromised.

Critical Battery Metals

No matter how you feel about the push for green energy, the reality is that there’s big money behind this shift.

Forbes puts the price tag for this megatrend at $130 trillion in the next few years. And electric vehicles (EVs) are a big part of that.

EVs have been taking more and more market share away from traditional vehicles. They’re projected to account for 35% of new vehicle sales by 2030, up from 14% last year.

But the boom in EV production can’t happen without the metals critical to battery technology.

One crucial mineral that often goes overlooked is graphite. Most of our available supply comes from China.

China is the world’s top graphite producer. It controls 65% of global production. It’s also responsible for more than 90% of the refining capacity that makes graphite usable in EV batteries.

Plus, it alone supplies a third of the graphite used in the U.S.

And China just pulled a move that could jeopardize EV production and derail the energy transition.

Is the Energy Transition in Jeopardy?

Just days after the Biden administration revealed new restrictions on AI chips, China announced that it would curb exports of graphite by requiring permits.

That couldn’t come at a worse time. EV sales jumped 55% to over 10 million vehicles last year alone and are projected to increase another 35% this year.

The surge in EV sales means that the graphite demand for the battery market is up 250% just in the past five years.

But soon, in 2025, the graphite market is expected to tip into a supply deficit… meaning there won’t be enough graphite to meet demand.

And that projection was before China announced measures that could restrict the supply of graphite. The move further jeopardizes a key part of the energy transition.

So just like we’ve seen with other industries critical to the energy transition, you should expect a massive upheaval in the graphite supply chain.

With the threat to EV sales posed by China’s control over graphite, the U.S. could turn to an important ally already supplying commodities for the energy transition.

Australian graphite stocks surged after China’s announcement. That’s because Australian companies are developing graphite projects around the world and on their own turf.

Australia is already the world’s largest producer of lithium, another commodity that EV makers rely on. It produces 56% more lithium than the next largest country.

Graphite could become the latest commodity needed from Australian companies in order to secure the energy transition.

And you can get exposure to those companies with the iShares MSCI Australia ETF (EWA).

It holds 59 Australian companies in different sectors. The combined materials and energy sector is the second-largest in the exchange-traded fund (ETF), at over 30%.

The bottom line is, geopolitical tensions are overhauling supply chains. And graphite looks to be next in line. EWA is a one-click way you can use this knowledge to your advantage.


Clint Brewer
Analyst, Inside Wall Street with Nomi Prins