US Industrial Policy: critical minerals
The materials that run a 21st century economy are all produced elsewhere
Key takeaways
US Dependence on Foreign Critical Minerals: The US is heavily reliant on imports for the majority of critical minerals, essential for modern technology and national security, underscoring a strategic vulnerability.
Decline in Domestic Production: Once a global leader in rare earth elements, the US saw its production decline due to stricter environmental regulations, increasing global competition, particularly from China, and underinvestment in mining and processing infrastructure.
Urgent Need for Investment: To mitigate the risks of dependency and secure its technological and defense capabilities, the US must revitalize its domestic critical minerals industry through legislative support, financial incentives, and investment in innovative technologies.
US Industrial Policy Series
1. Overview
2. Metals
3. Defense Base
5. Critical minerals
6. Execution
From smartphones to electric vehicles, night vision goggles to laser-guided bombs, modern technology relies on minerals that are mined from the earth and processed. Some of these minerals are abundant, but the US relies on foreign processing capacity. Some are geologically rare. All are critical to a modern economy. The Energy Act of 2020 defines a “critical mineral” as a non-fuel mineral or mineral material essential to the economic or national security of the US and which has a supply chain vulnerable to disruption. Critical minerals are also characterized as serving an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economy or national security[i]. Below is a list of 50 critical minerals, the US’ import reliance, and example uses:
In 2022, the US restricted some semiconductor exports to China in a bid to slow their economy and weapons programs. In response, China restricted exports of germanium and gallium, elements used in things like night vision goggles and semiconductors. China enjoys a near monopoly on the production of the two elements. Last year, it accounted for 98% of the global production of gallium and 68% of refined germanium production, according to the US Geological Survey (USGS)[ii]. The episode illustrates the danger – and futility – of escalating a high-tech trade war with China. Global supply chains will be able to adapt to the gallium and germanium curbs, which should be seen as a warning. There are other elements China could restrict with far more devastating results for the US.
This paper will explain what critical minerals are, why US production of these elements has declined, and how to bring back critical mineral production to the US.
Decline of US critical mineral production
The decline of the US rare earth metals industry, from its peak to the present, is a multifaceted story that intertwines economic, geopolitical, and technological factors.
The US was among the first countries to identify and utilize rare earth elements (REEs), with notable early mining activities at places like Mountain Pass in California. By the mid-20th century, the US was a global leader in the extraction, processing, and utilization of REEs, critical for various high-tech, defense, and industrial applications. The industry reached its peak in the late 20th century, particularly during the 1980s and 1990s, when the US was the world's dominant producer of rare earth metals. The Mountain Pass mine was at the forefront, supplying a majority of the world's REEs.
After the 1990s, US production of REEs declined. In the US, stricter environmental regulations made rare earth mining and processing more challenging and costly. Concerns over radiation and toxic waste management led to stringent oversight and, in some cases, operational halts. Increasing global competition also played a factor. China, with its significant rare earth reserves and less stringent environmental and labor regulations, began to dominate the market in the late 20th century. By offering lower prices, China became the preferred source for global REE needs, effectively outcompeting the US and other producers.
The rare earth market is known for its price volatility, which can discourage investment and expansion in regions with higher operational costs, like the US. This volatility, coupled with China's market manipulation tactics (e.g., export quotas), has made it challenging for US producers to maintain a competitive edge. As the industry became increasingly reliant on Chinese rare earths, investment and interest in domestic production waned. The US industry suffered from underinvestment in exploration, mining, processing infrastructure, and recycling technologies.
Dependent on Others
A 2019 Department of Commerce report illustrates the extent of US reliance on foreign sources for critical minerals:
The assured supply of critical minerals and the resiliency of their supply chains are essential to the economic prosperity and national defense of the United States. The United States is heavily dependent on foreign sources of critical minerals and on foreign supply chains resulting in the potential for strategic vulnerabilities to both our economy and military.
The United States imports most critical mineral commodities. Specifically, the United States is import-reliant (imports are greater than 50 percent of annual consumption) for 31 of the 35 minerals designated as critical by the Department of the Interior. The United States does not have any domestic production and relies completely on imports to supply its demand for 14 critical minerals.[iii]
Reshoring critical minerals production
The US must regain the domestic capacity to produce these critical minerals. The Executive branch should use the Defense Production Act in conjunction with Congress passing legislation to create tax credits and other incentives to rebuild a critical minerals ecosystem in the US.
The decline of the US rare earth and critical mineral production highlights a pressing vulnerability in the nation's economic and national security infrastructure. The transition from a position of dominance to one of dependency underscores the need for a strategic reevaluation and realignment of US industrial policy regarding critical minerals. The importance of these materials cannot be overstated—they are the linchpins of modern technology, essential for the defense sector, and crucial for the emerging clean energy economy. As such, the US faces a critical juncture: to continue down the path of dependency, or to assertively invest in and revitalize its domestic critical minerals industry. By leveraging legislative tools, financial incentives, and technological innovation, the US can reestablish a robust, resilient, and self-reliant critical minerals supply chain. The recent geopolitical tensions and trade disputes underscore the urgency of this task, serving as a clarion call for a comprehensive, forward-looking industrial policy that ensures the US remains competitive, secure, and innovative in the face of evolving global challenges.
[i] USGS
[ii] https://www.cnn.com/2023/10/11/tech/china-chips-gallium-germanium-intl-hnk/index.html
[iii] https://www.commerce.gov/data-and-reports/reports/2019/06/federal-strategy-ensure-secure-and-reliable-supplies-critical-minerals