China Strikes Back as US Secures Indonesia's Nickel Treasure

47%. That's Indonesia's share of global nickel production. Last Thursday, the United States secured unrestricted access to this treasure trove through a landmark deal with Jakarta. China's response? Double down on alternative sources and tighten its grip on the entire supply chain.

America's Strategic Coup

The US-Indonesia agreement isn't just another trade deal—it's a direct challenge to China's dominance in the nickel supply chain. For years, Beijing has controlled roughly 70% of global nickel processing, despite producing very little of the raw material itself.

Here's the catch: Indonesia, the world's largest nickel producer, banned raw ore exports in 2020, forcing all nickel to be processed domestically. The problem? Most of those processing facilities are Chinese-owned. Beijing has poured over $20 billion into Indonesian nickel smelting infrastructure, creating a chokehold on the supply chain for electric vehicle batteries.

The US deal potentially breaks this stranglehold, though last week's Supreme Court tariff ruling adds some uncertainty to the mix. Still, for American automakers and battery manufacturers, this represents a crucial step toward supply chain independence.

China's Counterstrike

Analysts say China won't sit idle. The country is already accelerating investments in alternative nickel sources while strengthening its role across the metal's wider supply chain. Translation: if you thought the nickel market was complicated before, buckle up.

China's options are numerous. The Philippines ranks as the world's second-largest nickel producer and maintains friendly ties with Beijing. Russia offers another pathway, especially as Western sanctions push Moscow closer to Chinese partnerships. New Caledonia provides yet another alternative source.

But here's where it gets interesting: China is also betting big on nickel recycling technology. As electric vehicle adoption accelerates, the ability to recover nickel from used batteries could reshape the entire supply equation. Why depend solely on mining when you can create a circular economy?

The Technology Angle

China's response extends beyond just securing raw materials. The country is investing heavily in next-generation battery technologies that could reduce nickel dependency altogether. CATL and BYD, China's battery giants, are pushing lithium iron phosphate (LFP) batteries that use no nickel at all.

Meanwhile, Chinese companies are also exploring nickel-rich cathode technologies that maximize the metal's efficiency. It's a two-pronged strategy: reduce dependence while optimizing usage.

Global Implications

This nickel tug-of-war has implications far beyond US-China relations. European automakers, caught in the middle, face tough choices about their supply chains. Tesla, with its global manufacturing footprint, must navigate both American supply chain requirements and Chinese market access needs.

For consumers, the competition could drive innovation—but also higher prices. As supply chains fragment and competition intensifies, the cost of securing nickel is likely to rise. That translates to more expensive electric vehicle batteries, at least in the short term.

The Bigger Picture

The US-Indonesia nickel deal represents more than resource diplomacy—it's industrial policy in action. America is trying to rebuild critical supply chains that were largely ceded to China over the past two decades. But China isn't standing still, and its response could actually strengthen its position in the long run.

Consider this: while the US focuses on securing Indonesian nickel, China is building relationships across multiple continents and investing in technologies that could make today's supply chain battles irrelevant tomorrow.