In the run-up to World War II, the United States had become dangerously overdependent on foreign imports of critical minerals and metals—even though officials had warned about the supply chain’s vulnerabilities for a decade. Congress passed an act creating the National Defense Stockpile in 1939. But when the United States went to war a year later, the scale and urgency of its immediate defense needs still vastly exceeded its domestic mining and production facilities as well as its new stockpile.
President Franklin Roosevelt had to rush to shift control of the stockpile to a newly created agency—the Metals Reserve Company, run by civilian industrialists—that scoured the globe to buy or barter for whatever it could from wherever it could at whatever cost. To sustain the war economy, government agencies and private industry also expanded U.S. domestic mining and refining operations, engineered synthetic material substitutes, and funded technological advances to improve mines’ efficiency and productivity. Although the United States went on to decisively win the war, the country’s lack of preparedness led to excess emergency spending as it struggled to outbid the Axis powers for critical materials and costly delays in ramping up the production of tanks, aircraft, and munitions. Washington had to rely on risky and untested foreign sources for minerals and metals and use shipping routes vulnerable to attack.
Today, the United States finds itself in a similar position as it was in the late 1930s. Government officials and independent analysts have long understood that the United States is again dangerously overdependent on foreign adversaries, mainly China, for critical minerals, metals, and rare-earth elements. These resources—which are key inputs in advanced technologies, energy infrastructure, and defense systems—play a vital role in the United States’ peacetime economy and national security. Over the past decade, Washington has taken some meaningful steps to address the country’s supply chain vulnerabilities.
Yet these efforts remain too modest. Should a serious conflict between the United States and China escalate in, for example, the Taiwan Strait or the South China Sea, China could plausibly shut off all of its exports of critical materials to the United States and its allies alike. Unlike in 1940, the United States’ current key military adversary is the same country that produces the great majority of the minerals and rare-earth elements necessary to scale up the manufacturing of defense systems and advanced technology—and controls up to 90 percent of the world’s processing of these materials.
In the meantime, over the past 15 years, Beijing has shown that it is willing to use its near monopoly over the provision and refinement of strategic resources to punish its adversaries. In 2010, for instance, China cut off its exports of certain rare-earth elements to Japan because of a dispute over what it refers to as the Diaoyu Islands (known in Japan as the Senkaku Islands). China has restricted exports of key critical minerals, rare-earth elements, and proprietary refining technologies to the United States in retaliation against export controls and tariffs levied by the Biden and Trump administrations. Absent an urgent response today to “de-risk” its supply chains, the United States may have no way to adequately address China’s chokehold tomorrow.
OWN GOAL
After the Cold War ended, the U.S. Defense Department determined that 99 percent of its national defense stockpile of critical minerals and rare-earth elements—which, at its peak, was worth nearly $42 billion (inflation-adjusted)—was surplus. So the Defense Department sold it off, switching to just-in-time global sourcing. Over the next three decades, Washington’s complacency and Beijing’s strategic ambition to dominate the full supply chain for critical minerals and rare-earth elements gave China a global mining footprint and a near monopoly in the refinement and processing of those materials. Beijing invested in mines in Africa, Asia, and Latin America and built its own domestic mining, refining, production, and recycling facilities at a lower cost than American companies could manage, especially because they faced fewer environmental and labor-related barriers. China also developed proprietary technologies to improve efficiency and productivity, including cutting-edge end-use products such as batteries, turbines, and weapons.
China’s subsidized investments drove many market-based competitors into closure or bankruptcy. Today, China’s giant mining and refining companies operate without much pressure to remain commercially viable, unbound by many constraints on firms funded by private investors and lenders. As a result, Chinese mining companies can flood the market, depressing global commodity prices and further undermining commercial projects.
Recognizing the United States’ vulnerability to a rising and adversarial China, during his first term, President Donald Trump signed a series of executive orders to secure greater resilience across mining exploration, extraction, refining, production, and recycling. President Joe Biden subsequently launched a whole-of-government assessment of supply chain resilience during his first 100 days in office and invested yet more government funding into the critical mineral supply chain as new funds became available. Most of this investment utilized Department of Energy grant or loan programs and the 1950 Defense Production Act. That act allows the president to give domestic, Canadian, and (more recently) Australian companies grants, loans and loan guarantees, and purchase commitments to reopen old mines or develop new ones, build new refining and recycling facilities, and support the production of batteries.
Washington’s complacency helped hand China control over the critical minerals supply chain.
These moves by Washington funded the first U.S. producer of battery-grade manganese, the first fully integrated rare-earth magnet manufacturing facility, scale-ups in the mining and production of lithium, and the expansion of the graphite supply chain. The Biden administration used government funds to support R & D into extracting materials from nontraditional sources such as mining waste and engineering new substitute materials; it also supported the early-stage commercialization of these new technologies. And Biden launched the Minerals Security Partnership with trusted allies to further secure and co-finance diversified supply chains.
In his second term, Trump has already signed several executive orders creating a more centralized critical minerals strategy under the new National Energy Dominance Council, expediting the permitting of new mining and refining projects, opening federal land to new mining, and expanding industrial-policy investment tools. The first of these executive orders acknowledged that the United States’ “national and economic security are now acutely threatened” by its “reliance upon hostile foreign powers’ mineral production.” He has also sought to secure overseas deposits of critical materials, targeting the Democratic Republic of the Congo, Greenland, and Ukraine.
But the steps both Biden and Trump took will not be enough. Trump’s unilateral style is putting the future of Biden’s Minerals Security Partnership at risk, as partnerships require trust. But trade negotiations with resource-rich allies may secure more opportunities to co-finance mining, refining, and downstream production of magnets and batteries. At the end of the day, there are a limited number of countries with the geological assets to help secure contemporary critical-materials supply chains, and the Trump administration must determine how best to engage with them. Yet the United States must do more than mine and refine. Washington can catch up, but only if it also ramps up stockpiling for both defense and critical civilian needs; employs innovative new financial tools to protect U.S. commercial investments; introduces policies and funding to encourage development of a robust recycling industry for critical minerals and rare-earth elements; and more fully supports research and development.
FIRST PRINCIPLE
The most immediately achievable task is to strengthen the National Defense Stockpile. As of early 2023, the NDS held just $1.3 billion in assets, including $912 million worth of stockpiled minerals—barely enough to meet half of the Pentagon’s estimated requirements and only a tenth of what is needed for critical civilian infrastructure. The shortfall: $13.5 billion. In the short term, Congress should appropriate at least the full $13.5 billion to close this funding gap, addressing both defense and civilian industrial deficits and prioritizing storing the minerals most vulnerable to Chinese weaponization.
In practice, the stockpile should offer a fixed price floor for a fixed period each month to purchase domestically sourced materials, which would provide U.S. producers more price certainty. After that fixed period, to save U.S. taxpayers’ money, it should have flexibility to source and purchase at the lowest available price on the global market, taking advantage of Chinese dumping and global commodity price gluts. Washington’s medium-term aim should be to restore the NDS to its Cold War scale until its supply chains become less vulnerable.
Congress must close the National Defense Stockpile’s funding gap.
Expanding the functions of the NDS is a first step to protect against Chinese nonmarket practices. But large, state-subsidized Chinese companies not only dominate the supply of critical minerals and rare-earth elements. They control their pricing, and compared with other commodities such as crude oil, the prices for many critical minerals and most rare-earth elements are illiquid and opaque. Unless private exchanges begin to offer adequate price clarity and reasonable hedging tools, the United States must deploy new financial tools so that market-based mining and refining companies can hedge against Chinese dumping and price illiquidity. The U.S. government already uses the Department of Agriculture’s Commodity Credit Corporation to play a similar function in 22 agricultural commodity markets, protecting American farmers from the consequences of price volatility when prices fall below a guaranteed level.
In 2024, two Democratic and two Republican senators proposed the Critical Materials Future Act to support domestic critical material processing. If passed, the legislation would empower the Department of Energy to start pilot programs to provide price floors, advanced market commitments, or forward contracts to eligible projects that refine, process, or recycle raw critical materials into purified forms suitable for first-use applications. With that increased price certainty, companies could plan better and more easily secure debt and equity financing. The bill would also create a Critical Materials Revolving Fund at the Treasury Department that reinvests proceeds from recovered prices into new projects.
But if Congress cannot pass such legislation, it still has options. It could authorize the Strategic Materials Division at the Defense Department’s Defense Logistics Agency, which currently manages the NDS, to deploy these same tools under guidance from the Energy and Treasury Departments. Ramping up the financial capacities of the agency already responsible for the purchase, sale, storage, and management of critical minerals and rare-earth elements could better align the NDS’s management with a broader industrial policy. Other government institutions could also be afforded expanded mandates and new financial instruments. These should support the domestic development of critical materials supply chains and protect market-based businesses through equity purchases, loans or loan guarantees, or other credit instruments that counter Chinese competition. Trump’s first executive order on U.S. mineral production envisions expanding the U.S. International Development Finance Corporation’s authority to fund domestic critical mineral projects. Because the DFC is set for reauthorization later this year, Congress is already contemplating broadening its scope, size, and available financial tools.
TRASH TO TREASURE
Shoring up the United States’ access to raw materials is only one part of the puzzle. Regardless of their origin, most critical minerals and nearly all rare-earth elements are sent to China for refining and processing. This chokepoint is the Achilles’ heel of the entire supply chain. The Trump administration should prioritize expanding U.S. refining capacity over supporting new mining. But because refineries are water-intensive, can pose environmental hazards, and are often located near indigenous lands, permitting new refineries would remain difficult and time-consuming, even if contemplated reforms are implemented.
Recycling offers a partial but powerful solution that should feature more in Trump’s proposals. Unlike fossil fuels, many critical minerals and rare-earth elements can be recovered from used electronics, batteries, and even weapons systems. Although current recycling methods cannot generate enough strategic materials to replace those produced by new mines and processing facilities, recycling can create a key secondary source. In 2022, for instance, the Defense Logistics Agency launched a program to recover germanium—an element needed for high-tech, military, and energy-related applications—from retired weapons systems and night-vision equipment. Two years later, this effort helped fill a dangerous gap when China banned germanium exports to the United States. In the coming years, the DLA recycling program is expected to yield ten percent of the U.S. defense industry’s germanium needs.
But the United States’ capacity to recycle strategic resources continues to lag behind China’s. For example, Beijing mandates that battery producers take responsibility for the full life cycle of their products, including recycling. The European Union has also implemented a recycling mandate for battery producers. Washington should follow suit and more intentionally incorporate recycling into its resilience strategy. The Defense Department could be required to recycle more military waste products that could yield critical minerals, metals, and rare-earth elements. The Department of Energy has recommended that the government adopt end-of-life recycling requirements for batteries similar to those imposed by China and the EU, but for this to happen, Washington must better support the development of private-sector recycling infrastructure that can help reduce costs.
CRITICAL THINKING
Ultimately, the United States needs to invest more in the kind of technological innovation in which it has already excelled. U.S. companies have extracted lithium from brine deposits in Chile for decades, but more recently, government-funded innovation has supported extraction from geothermal brine in California. Newer technologies are enabling commercially viable lithium extraction from oil and gas fracking wastewater, unlocking an enormous and previously overlooked domestic resource. Companies are actively exploring methods to recover rare-earth elements from coal and coal byproducts, too, turning environmental liabilities into strategic opportunities. Government labs and universities are spinning out startups working on revolutionary processes for recovering and extracting critical materials.
In fact, advances in battery chemistry could eventually reduce the United States’ need for certain minerals altogether. Newer lithium iron phosphate batteries, for example, require less cobalt than older designs; sodium-ion batteries could further diminish the need for lithium and nickel. Materials engineering breakthroughs enabled by AI may identify new compounds or substitutes for traditional inputs that may upend today’s assumptions about what resources are critical at all.
But the innovations that could transform U.S. supply chains require much more capital and policy support, including more government funding for labs and universities studying materials engineering, grants for demonstration projects, support for startups on their way to commercial viability, and policy signals that Washington is ready to pursue a comprehensive resilience strategy. There is broad bipartisan agreement that the United States must secure its access to critical minerals and rare-earth elements. There is no time for incremental improvements. The United States’ intensifying rivalry with China, growing instability in the Indo-Pacific, and the trend toward economic decoupling all mean that Washington must take urgent action. As in 1940, the moment calls for both speed and ambition. A national critical minerals strategy that expands U.S. stockpiles, creates new financial tools to support domestic mining and refining, deploys rapid support for recycling, and supports new technologies can once again ensure that America’s industrial base is ready for any challenge.
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