The West, or China? Serbia is courting all sides with its lithium business

The U.S. and China are engaged in an escalating trade war over lithium supplies, which are essential to the booming worldwide business in electric vehicles. Serbia is playing one side against the other, seeking to benefit from both.

Serbia is home to the largest lithium deposits in Europe, which could turn out to be an annual $6.5 billion industry. Tesla, Google and Apple are all lining up. The trade war between the U.S. and China is fraught with geopolitical ramifications that have bearing on U.S.-China relations as well as European industries.

Chinese leader Xi Jinping lobbied Serbian President Aleksander Vucic for access to Serbia’s lithium supplies during his recent visit to Belgrade. Vucic is a willing suitor, reaping benefits from Chinese investment while cozying up to the U.S. and Euro-Atlantic institutions. He is playing the U.S. and China against each other, luring both, playing one against the other. This approach may serve Serbia’s interests for now, but soon Serbia must decide if its long-term interests lie with the West or in Eurasia.

According to the U.S. Geological Service, Serbia has 118 million tons of lithium oxide, an essential raw material that is coveted for electric batteries by Tesla and other devices. Vucic calls lithium “one of the greatest hopes for Serbia.” Europe’s largest supply of lithium is found in the Western Serbian region of Macva, with lithium deposits holding up to 2 percent of Europe’s deposits. Rio Tinto, the Australian mining behemoth, has a controlling interest in Macva.

The South China Morning Post reports that Vucic and Xi met in Belgrade on May 8 to discuss a broad range of industry cooperation. They discussed China’s investment in space science and technology, as well as weapons sales from China to Serbia. Lithium was front and center in their discussion about economic cooperation.

The Biden administration has taken note. This week, the U.S. announced new tariffs on Chinese-made electric cars, solar panels, steel and other goods citing China’s unfair trade policies. The tariffs, intended to protect U.S. jobs in an election year, include a 100 percent border tax on electric vehicles from China.

The initial tranche of proposed U.S. tariffs would affect $18 billion in Chinese goods. Trade regulations also are designed to limit backdoor trade of Chinese EVs through Mexico, which are driving up prices and affecting American consumers. According to U.S. officials, Chinese control of the EV market is a risk to U.S. national security.

The Commerce Department reports that China’s largest automaker, BYD, is gaining market share at a rapid rate. BYD produces a low-priced electric vehicle called the Seagull, which sells for about $12,000 and appeals to a mass market. Comparable U.S.-made vehicles cost three times as much. BYD uses cutting edge batteries made from lithium iron phosphate. While it currently produces 3 million vehicles annually, this volume will skyrocket when China captures additional lithium supplies.

In addition to economics, policy goals are a top priority for Xi. Vucic kowtows to Chinese demands that Serbia reject independence for Taiwan and oppose U.S. arms sales to the island nation. Returning the favor, Xi emphatically supports Serbia’s state sovereignty, rejecting Kosovo’s 2008 declaration of independence from Serbia, which is recognized by about 100 countries, including all members of the G7.

China’s views here are further colored by NATO’s mistaken bombing of its embassy in Belgrade in 1999, which killed three Chinese citizens. Xi’s visit recent visit to Belgrade was fraught with symbolism, coinciding with the 25th anniversary of the bombing of the Chinese embassy, an event that many in China and Serbia doubt was accidental.

China’s statecraft always includes an economic component. Last year in Beijing, Vucic signed 18 agreements with Xi, including a free trade deal that takes effect July 1. Other agreements promote legal, regulatory and economic cooperation. China owns mines and factories across Serbia and has lent billions for roads, bridges and new facilities through its Belt and Road initiative, which finances infrastructure development.

During his visit, Xi gushed over relations with Serbia, exclaiming, “China and Serbia are true friends and good partners. Political mutual trust between the two countries is rock-solid. Pragmatic cooperation, institutional upgrading and multilateral coordination are close and smooth, and hardcore friendship is everlasting.”

Anti-American sentiment is high in China, drawing China and Russia closer. Likewise, Serbia has refused to join Western sanctions against Russia for its invasion of Ukraine.

Xi views support for Russia as a geostrategic balance against U.S. influence. Both countries are allegedly involved in extensive disinformation campaigns designed to influence U.S. public opinion. Vucic is manipulating alliances in an effort to balance U.S. influence, while strengthening Serbia’s ties with autocratic sates such as China and Russia. As the protagonist of NATO’s intervention, Washington is a pivotal supporter of Kosovo’s independence and state-building.

Control of lithium access is already paying dividends for Serbia. The U.S. is showing a greater deference to Serbia in the EU-sponsored dialogue on normalization and diplomatic relations between Kosovo and Serbia. Vucic is reaping political gains through the Biden administration’s more even-handed approach.

There’s a Chinese proverb: “It takes a long line to catch a big fish.” China is playing a long game, investing in Serbia through the Belt and Road Initiative and exerting its economic influence.

Russia is steeling itself for a long war in Ukraine, biding its time to benefit from shifting alliances. Serbia is thus entertaining all suitors until its lithium mines become productive. Lithium is the linchpin of shifting power dynamics in Southeast Europe.

David L. Phillips is an adjunct professor at Georgetown University’s Security Studies Program and a visiting research scholar at Oxford University.