Restoring Leadership in Critical Minerals

Executive Summary

Of 63 minerals assessed by the United States Geological Survey, the U.S. is 100% reliant on imports for 15 and at least 80% reliant on imports for an additional 11. In some cases, the nation is almost wholly dependent on China to supply inputs critical to modern technologies.

In most cases, deposits of these minerals are accessible within the United States, but they have not been developed, and processing facilities have not been built, because of regulatory obstacles and unattractive economics. To re-establish secure domestic supplies, the United States should:

• Use Title III of the Defense Production Act to provide financing for new projects.
  • Funding can take the form of loans, loan guarantees, direct capital infusions, or purchase commitments and support for projects in Canada and Australia as well.
  • Firms can also receive support to deploy new technologies for exploration and processing.

• Use Title III, the Exchange Stabilization Fund, and Other Transactions Authority to establish price guarantees.
  • Price stability would prevent the market manipulation by dominant producers, especially China, that otherwise drive out private capital.
  • To foster price stability, the U.S. should also support the development of deeper and more sophisticated capital markets for risk-hedging instruments.

Environmental permitting reform, workforce development, and stronger alliances will also be necessary.

Introduction

The United States depends upon its principal geostrategic rival, China, for many of the materials necessary to our era’s defining technologies, as well as established technologies necessary for modern life, warfighting, and much else. In its latest assessment of the state of 63 critical minerals, the United States Geological Survey (USGS) concluded that the nation is 100% reliant on imports for 15 critical minerals and more than 80% reliant for an additional 11. The United States produces the majority of only 13 of the 63 critical minerals domestically. For “rare Earth elements,” a term used to describe elements that are in fact common but difficult to extract, China produces 95% of the U.S. supply.  

Without these minerals, semiconductors cannot function. Solar panels cannot produce energy and batteries cannot store it. Munitions cannot explode. Satellites cannot survive in space. Dreams of a nuclear renaissance in fission or fusion could never be realized. 

The challenge of critical minerals dependence has long been recognized by American policymakers across the political spectrum. In 2020, Senator Marco Rubio proposed creating a Rare Earth Refinery Cooperative to coordinate private sector development of domestic refining capacity, while Senator Ted Cruz introduced legislation offering tax incentives to help establish critical mineral supply chains. The Biden administration launched multiple initiatives through the Defense Production Act and infrastructure legislation, while Senate Intelligence Committee Chairman Mark Warner, alongside then–Ranking Member Rubio, highlighted the issue’s national security implications, convening industry and government stakeholders as recently as October 2023 to discuss financing solutions. Yet despite this sustained attention and various legislative proposals, too little action has been taken and the dangerous reliance on China has continued.

The Problem

The unfortunate reality of our dependence is that it resulted from deliberate policy choices made by American policymakers over decades, unintended consequences of other domestic policies, and industrial policies pursued by China and other countries. 

For a long time, some questioned whether this was a “problem” at all. The theory held that so long as demand was being met by supply somewhere, the United States and its allies could acquire the needed materials and perform the high value-add work in which our advanced economies specialize. But this thinking failed to anticipate China becoming the world’s primary supplier, a country that is adversarial not just in theory but in fact. China has already imposed export controls on some critical minerals in retaliation for U.S. export controls on high-end chips used for artificial intelligence and the semiconductor manufacturing equipment necessary to make those chips. 

Twenty years ago, policymakers were inclined to ignore the concentration of critical mineral supply chains in China; today, after witnessing decades of China’s aggressive industrial policy designed to dominate those supply chains, they no longer can. If tensions between the United States and China were to escalate, so too could China’s export controls. If a direct conflict were to erupt, supply chains essential to American defense could be immediately crippled. 

The United States has abundant natural resources, as do many of our allies. Canada is our largest source of imported critical minerals after China. But there are many obstacles to developing them, from environmental permitting and other regulations to existing market factors and investment hurdles. Chinese firms have so thoroughly cornered the market for mining and refining many of these metals that it is difficult or impossible to justify the capital investment necessary to start a new domestic operation. And even when it looks as though a new domestic venture may get off the ground, Chinese industrial policymakers have been known to thwart the effort by flooding the market with supply. This means market-based solutions will not solve our dependency problem on their own. 

The persistence of this challenge, despite years of bipartisan focus, underscores both its complexity and the inadequacy of existing policy frameworks. While past proposals have correctly diagnosed aspects of the problem, they have often focused narrowly on individual segments of the supply chain or relied too heavily on market mechanisms, such as tax incentives, that are ill-suited to counter China’s state-backed dominance. A more comprehensive approach is needed, one that embraces new models of industrial coordination and sustained government commitment across the entire mining-to-manufacturing process.

The Solution

Solving this problem quickly is a strategic imperative that the United States must pursue with aggressive tactics, accepting significant costs.

The solution is twofold. First, Congress should appropriate funds necessary for the Department of Defense (DOD) and other federal agencies to provide the startup capital necessary for new private mining and mineral refining ventures. Where possible, these ventures should offer technologically differentiated approaches, such as dramatically more efficient methods of refining critical minerals (often a laborious and dirty process), or using sensors to more rapidly separate ore from waste rocks during mining. Second, the federal government should establish a robust stockpile of critical minerals accompanied by price guarantees to mining ventures. Both of these goals can be accomplished within existing statutory authority. 

A. Title III Authority for Domestic Mining Ventures

The market price of many minerals is often too low and unpredictable to justify the large capital costs of new mining and refining facilities. If the investments are to occur, the capital costs will need to be offset with public investment. Fortunately, the United States already has a statute well-tailored to this task: Title III of the Defense Production Act (DPA). 

Unlike the more commonly invoked Title I, which focuses on direct interventions by the government in the allocation of existing industrial output, Title III is devoted to the expansion of industrial capacity. Title III generally requires agencies to demonstrate that commercial markets are unlikely to fulfill the need in question. The president can directly designate, or order agencies to designate, specific industrial gaps for Title III to fill. In the case of critical minerals, this designation has already occurred. 

When combined with the DOD’s “Other Transactions Authority” (OTA), which permits the DOD to bypass many of the traditional (and burdensome) procurement rules, Title III enables quick deployment of public funds to emerging industrial ventures. Originally created in 1958 to grant NASA more procurement flexibility during the Space Race, OTA permits federal agencies like the DOD to work outside of the restrictive rules of the Federal Acquisition Regulations (FAR), lowers the compliance burdens for contractors, and allows for more flexible intellectual property sharing arrangements. OTA has been expanded in recent years to allow more projects to be eligible, and it is among the primary ways that the DOD does business with startups. 

DPA Title III funding can take the form of loans, loan guarantees, direct capital infusions, or purchase commitments. Canada and Australia—two of America’s most important allied sources of critical minerals—are eligible for Title III support (Australia having been made eligible only recently in the Fiscal Year 2024 Defense Authorization). Strategic additions to the eligibility list, such as Greenland, would be wise near-term policy considerations for Congress. 

Finally, Title III funding comes with an important string attached: funded businesses can pursue non-defense customers, but Pentagon needs are given priority. This is a fair and reasonable tradeoff given the public source of Title III investments. With the exception of small tweaks, such as the addition of new countries to the eligibility list, Title III is already well-suited to the purpose of rebuilding America’s critical mineral mining and refining capacity. What is needed now is sufficient funding from Congress. 

Title III funds can also be used flexibly to address the many different parts of the mining and refining process. For example, at the exploration stage, artificial intelligence and machine learning methods are increasingly being used to hasten the discovery and validation of untapped deposits of critical minerals. At the refining stage, the American startup Ucore Rare Earths has developed a novel, modular approach that can increase efficiency by an order of magnitude in a facility one-third the size of older technologies. Companies at this stage of technology development, whose approaches have proven effective in the real world, could be directly funded using DPA Title III. While not intended to fund speculative technological approaches, nor to take technologies directly from scientific laboratories to production environments, Title III could be used to bolster new technologies that are proven at small scale and support startups pursuing innovative approaches to critical mineral refining and production. As with any DOD investment, such funding can and should be allocated alongside—and be matched with—private sector investment from venture capital, private equity, and other sources wherever possible. 

B. Price Guarantees and a Strategic Reserve

Support for capital expenditures alone may be enough for some new critical mineral ventures, but for many minerals, it will not be sufficient. A guarantee of government purchases at a fixed price (which may be higher than the current market price) is often necessary to justify the economics of a given investment. 

A wide range of policy mechanisms already exist for the executive branch to offer price guarantees to critical minerals producers. As thoroughly documented by Arnab Datta and Daleep Singh, these include DPA Title III itself, the Treasury Department’s Exchange Stabilization Fund, and “Other Transactions Authority” granted to the Departments of Commerce and Energy, among others. 

While the creation of a formal mineral reserve program that stockpiled physical materials would likely need to come from Congress, these existing policy levers could allow the government to establish price guarantees for producers. This would not only de-risk new mining and refining efforts, but also, if implemented successfully, secure American claims to output, strengthening our economic and geopolitical position. 

For example, once these mechanisms are employed, the government would have the responsibility to compensate mining and processing firms for their production when world prices are low, but would also have the right to ensure access for domestic manufacturers in times of scarcity when prices are high, potentially at a profit. A stronger market position in the critical minerals sector would also provide additional leverage in negotiations and conflicts with other countries. Western companies, who are often held hostage (sometimes literally) by foreign governments over mining deals, would be in a new position of strength if they were less reliant on those foreign sources for minerals or knew that better terms were available in a friendlier market. 

A key step in facilitating price stability, or an eventual physical reserve, would be to bolster the associated financial markets mechanisms. As Datta argues in another proposal, instruments for hedging risk in critical minerals are generally less sophisticated than they are in better-established commodities markets like oil. The federal government should provide funding to an existing American commodities exchange like the Chicago Mercantile Exchange to create standardized benchmark contracts for critical minerals, thereby enabling reliable prices and trading mechanisms.  

In addition to helping ensure liquidity and better risk-hedging in critical mineral markets, strengthening American critical mineral exchanges would also be to our geostrategic advantage. China is attempting to leverage its leadership in the production of these commodities into dominating their respective financial markets, with large commodities exchanges, like the Ganzhou Rare Metal Exchange, transacting in renminbi rather than the dollar. Creation of, and participation in, a robust free-market exchange would take advantage of U.S. financial sophistication and capital market depth to foster productive investment. 

C. Additional Considerations

Two notable caveats bear mention: First, any effort to rebuild critical mining and processing capabilities will be doomed to failure without substantial reform to environmental permitting regulations. Some of the necessary mining, smelting, and refining activities are dirty ones (though this varies considerably by mineral). But this is the price of civilization. The United States can no longer shirk the dirty work of a resilient industrial economy in the name of out-of-sight, out-of-mind environmentalism. The ideal federal permitting reform package would involve a wholesale repeal of the National Environmental Policy Act. Depending on the state, substantial reforms to state-based environmental laws may be required as well. 

Second, some critical minerals, like graphite (for lithium-ion battery anodes), gallium (for integrated circuits), and cobalt (also used in batteries), do not exist in abundance under U.S. soil. While future discoveries or breakthroughs in bioengineering may eventually help address this vulnerability, the United States will need to use diplomacy in the short-run to forge strong partnerships with third countries. 

Conclusion

Rescaling the U.S. critical mineral sector will not be easy. Yes, it is good for the long-term viability of American defense and industry. Yes, it will create many new jobs. Yes, cutting-edge technology can and will be productively applied. But the work itself will be difficult and often dirty. 

Much of the industrial activity discussed here has not taken place in the United States for half a century or longer. Training a ready and willing workforce will be no easy task. And because we allowed this civilizational muscle to atrophy, we will have to re-learn many of the basics of mineral extraction and refining, which will be especially difficult in the case of rare earth minerals. We may even have to emulate Chinese extraction methods and use Chinese equipment early on because the domestic industry for that, too, has withered. 

But the investment will be worthwhile. Addressing this urgent vulnerability will make our economy more resilient and demonstrate that policymakers are determined to put our nation back on a sustainable path.