America's Industrial Policy Is Older Than Most Americans Realize

Highlights

• U.S. industrial policy has deep roots, from the New Deal's RFC to Cold War defense spending and Reagan's military buildup, long shaping critical industries.
• China controls 85–90% of global rare earth magnet production, making supply chain dominance the defining geopolitical contest of the Great Powers Era 2.0.
• The Trump administration has committed billions to rare earth projects via DOD equity stakes, EXIM loans, and CHIPS Act funding, marking an openly interventionist shift.
• Rebuilding domestic rare earth processing infrastructure could take five to ten years, while political timelines, fiscal constraints, and oversight risks threaten execution.
• Key gaps remain: no durable tax incentives, insufficient downstream demand mechanisms, underdeveloped workforce pipelines, and limited allied coordination.

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American industrial policy is the oldest when it pretends to be the newest. At least since the 20th century, much of the economy has been influenced by various federal interventions. During the Great Depression, Washington DC created the Reconstruction Finance Corporation (opens in a new tab) (RFC), a federal lending institution that ultimately became one of the largest government investment vehicles in American history. The RFC provided capital not only to banks but also to railroads, agriculture, housing, infrastructure, and industrial enterprises. Combined with President Franklin D. Roosevelt's (opens in a new tab) (FDR) New Deal programs, it demonstrated that federal intervention in markets has long been part of the American economic toolkit.

During World War II, the War Production Board (opens in a new tab) (WPB) and related mobilization agencies moved beyond finance into direct economic coordination. The federal government prioritized raw materials, directed procurement, coordinated industrial output, and transformed civilian manufacturing into what FDR cited as an "Arsenal of Democracy." What later generations often described as free enterprise was, during periods of national crisis, repeatedly supported by federal balance sheets, procurement power, and emergency authority.

President Franklin D. Roosevelt

The Cold War did not end that tradition—it merely changed the wardrobe.

The Defense Production Act (DPA) (opens in a new tab) of 1950 granted presidents enduring authority to shape domestic industry in the name of national defense. The Advanced Research Projects Agency (opens in a new tab) (ARPA), founded in 1958 following the Soviet Union's Sputnik launch, became a state-backed engine for strategic technology development. Importantly, President Dwight D. Eisenhower (opens in a new tab) warned (opens in a new tab) in his 1961 farewell address of some potential adverse forces associated with early Cold War industrial policy—the Military-Industrial Complex.

President Dwight D. Eisenhower

Later, SEMATECH (opens in a new tab) (Semiconductor Manufacturing Technology), established in 1987 as a government-industry consortium, demonstrated that when U.S. competitiveness in semiconductors began to erode, Washington remained willing to coordinate research funding, industrial collaboration, and strategic investment to rebuild a critical sector.

Frankly, President Ronald Reagan's military buildup during the 1980s also functioned as a form of industrial policy, even if it was rarely described that way at the time. Through substantial increases in defense spending, major investments in aerospace, microelectronics, computing, missile systems, and the Strategic Defense Initiative (SDI), (opens in a new tab) Washington accelerated innovation across critical industries while placing economic and technological pressure on the Soviet Union. The strategy leveraged America's larger and more dynamic economy to outspend and out-innovate its rival, helping drive advances that strengthened both military capabilities and civilian technology sectors. In practice, in addition to dual-use commercialization dynamics, Reagan's defense buildup demonstrated that national security spending can serve as a powerful catalyst for industrial development, technological leadership, and geopolitical advantage.

President Ronald Reagan

An Ongoing Reality

COVID-19 stripped away the remaining illusion that America does not practice industrial policy.

By June 2020, Congress had enacted four major relief packages appropriating approximately $2.6 trillion (opens in a new tab). Operation Warp Speed (opens in a new tab) fused the U.S. Department of Health and Human Services (HHS) and the Department of Defense into an accelerated medical-countermeasures enterprise. The U.S. Government Accountability Office (GAO) later reported that more than $10 billion had been committed to six vaccine candidates alone. The lesson was unmistakable: when a threat becomes visible enough, Washington can move money, contracts, logistics, talent, and regulatory authority with breathtaking speed.

Today, however, the threat is not a virus. It is a supply-chain chokepoint.

Rare Earth Exchanges® coined the term Great Powers Era 2.0 as a thesis to describe the period we have entered: a world in which supply chains become instruments of statecraft and industrial capacity becomes a source of geopolitical power. In such an environment, end-to-end industrial control matters more than ideological debates about markets.

That framing is not mere rhetoric. China currently accounts for roughly 85% to 90% of global refined rare-earth magnet material production and approximately 90% of permanent magnet manufacturing capacity. The strategic contest is no longer primarily about who possesses mineral deposits. It is about who controls the industrial middle of the supply chain: separation, refining, alloying, magnet manufacturing, and ultimately the ability to scale production during a crisis.

Washington's New Interventionist Playbook

Under President Donald Trump's second administration, the United States has responded with a more openly interventionist strategy including tariffs, emergency orders, and unprecedented loans and equity allocated to the critical mineral and rare earth element supply chain sector.

The White House ordered immediate measures to increase domestic mineral production in March 2025, launched Section 232 investigations involving processed critical minerals in April 2025, and in January 2026 directed negotiations concerning imports of processed critical minerals, including potential price-support mechanisms with allied partners.

At the same time, Washington has increasingly relied upon existing financial and strategic tools. The Export-Import Bank of the United States (opens in a new tab) (EXIM) approved up to $10 billion for Project Vault, a proposed strategic critical-minerals reserve. The administration also authorized critical-position pay authorities to accelerate hiring into national-security investment roles. Meanwhile, federal agencies have begun deploying capital directly into key nodes of the rare-earth supply chain.

Those nodes matter. In July 2025, the Department of Defense (War) announced a landmark public-private partnership with MP Materials that included a $400 million equity investment and later a $150 million Office of Strategic Capital (opens in a new tab) (OSC) loan supporting heavy rare-earth separation capabilities. In June 2026, OSC conditionally committed $500 million to Phoenix Tailings for its proposed domestic midstream "Freedom Facility" and $725 million to Energy Fuels to expand rare-earth separation and metallization capacity.

And the Commerce Department finalized support worth up to $1.6 billion (opens in a new tab) under the CHIPS and Science Act for USA Rare Earth's mine-to-magnet manufacturing initiative. Combined with federal support for MP Materials, these actions amount to industrial policy executed through loans, equity stakes, strategic procurement, and industrial reserves rather than traditional command-and-control mechanisms.

This is clearly not laissez-faire capitalism. It is strategic statecraft.

Trump 2.0: Industrial Policy Intensifies

The Harder Question: Is It Enough?

The more difficult question is whether these efforts are sufficient. Rare Earth Exchanges has consistently argued that the United States is unlikely to establish resilient domestic rare-earth mining, separation, refining, alloying, and magnet manufacturing capacity within the next five years. That warning is difficult to dismiss. Unfortunately, political timelines can markedly differ from industrial ones.

Rare Earth Exchanges estimates a rebuilding timeline of five to ten years for critical processing infrastructure at scale. The International Energy Agency (IEA) has on multiple occasions reported that major mineral projects have historically required more than sixteen years from discovery to first production. Even many of the most strategically important U.S. projects currently receiving federal backing are targeting commercial operations in 2028 or later.

Yes, America is finally waking up. But it is simply waking up late.

Serious questions surrounding capital allocation, project selection, execution risk, and long-term accountability, not to mention the vision, strategy, and comprehensive planning across the entire portfolio, will likely intensify after the 2026 midterm elections, particularly if congressional control shifts. Rare Earth Exchanges has picked up from Beltway network rumblings of inquiry and even investigation at the highest levels. Industrial policy enjoys broad support when framed as national security. It receives far greater scrutiny when taxpayers begin asking where the money went. And in this politically charged and divisive period in our history, disruption could be around the corner.

Policy Gaps Remain and that Planning Thing

The missing pieces may prove as important as the capital already committed.

The United States still lacks durable tax incentives for rare earth and critical-mineral investment, stronger mechanisms to stimulate downstream demand across key sectors, sufficiently developed workforce pipelines, and deeper coordination with allied nations pursuing similar supply-chain objectives.

The U.S. Department of Energy (DOE) has recognized this challenge, elevating market development and workforce development as strategic priorities while launching initiatives such as the Critical Materials Career Map. Multiple reports suggest that at least upstream (which is only one segment of the value chain) many mining executives prefer predictable, rules-based incentives over ad hoc interventions and government-directed price management.

Fiscal realities in America in 2026 further complicate the picture. The Congressional Budget Office (CBO) projects federal debt (opens in a new tab) held by the public at approximately 101% of Gross Domestic Product (GDP) in 2026, rising above the historic post-World War II record within the coming decade. America in 2026 operates under increasingly severe fiscal constraints that did not exist in 1986, 2006, or even 2020. Every policy mistake is becoming more expensive. The opportunity costs linked to any misallocation of capital become exponentially more costly.

The Challenge of Great Powers Era 2.0

This is the central challenge of Great Powers Era 2.0, an era that Rare Earth Exchanges now predicts will be disruptive to both the United States and China. The United States must relearn how to direct capital strategically without allowing industrial policy to devolve into subsidy theater, political favoritism, insider enrichment, or fiscal self-harm. That’s because we have not even begun to spend what is necessary in America, and this capital must be deployed for maximum national return.

America has entered a new phase of strategic competition. The question is no longer whether the federal government will practice industrial policy—it already is. The real question is whether Washington can execute it with enough vision and discipline, speed, and strategic coherence to rebuild critical supply chains before geopolitical events force the issue.

Regardless of ideological bias, the reality is that industrial policy helped build America's Arsenal of Democracy in the twentieth century. The challenge now is whether it can help rebuild an arsenal of strategic materials powering optimized industrial supply chains for the twenty-first.

Did you know Rare Earth Exchanges® is developing REEx Connect? Meaning the world’s rare earth and critical mineral deal makers are going into a global database. Register today: REEx Marketplace™ (opens in a new tab)