Highlights

• The Trump administration plans to set a price floor for rare earth minerals to boost domestic production and reduce dependence on China.
• Government intervention aims to secure strategic resources for critical technologies like electric vehicles, wind turbines, and defense systems.
• The policy represents a pragmatic approach to balancing free market principles with national security considerations.

---

The rare earths market has rarely stayed outside the reach of politics, but the Trump administration’s latest move has brought an unusually direct intervention into what is normally left to supply and demand. As reported (opens in a new tab) by GlobalData on August 4, Washington plans to set a price floor for key rare earth minerals like neodymium and praseodymium, in a bid to shore up domestic production and reduce U.S. reliance on China, which dominates global supply. The initiative, shaped into meetings with White House advisors and industry executives, echoes the urgency of Operation Warp Speed: secure resources at almost any cost, even if that means overriding market signals.

Australia is now watching closely. In comments reported (opens in a new tab) August 19 by The West Australian, Iluka Resources (opens in a new tab) chief Tom O’Leary noted that his company’s planned $1.7 billion Eneabba refinery would “thrive” under a similar pricing regime. The U.S. has already committed to buying MP Materials’ output at a guaranteed $110 per kilogram for a decade, and O’Leary pointed out that this figure lines up neatly with long-term price forecasts from industry analysts. That credibility has fueled speculation that Canberra could establish its own floor price, backed by offtake agreements linked to a strategic reserve announced earlier this year.

The impact is already rippling through markets. According to (opens in a new tab) the Financial Review from August 20, spot prices for neodymium and praseodymium have risen from $63 to $89 per kilogram since the Pentagon’s deal with MP Materials, with heavy rare earths like terbium and dysprosium climbing as well. O’Leary told investors that a “non-China” market price is beginning to emerge, effectively bifurcating the global system into two zones: one shaped by Beijing’s control and another guided by Western policy interventions. He argued that this will ultimately provide more predictable returns, derisk new projects, and draw private investment into a sector notorious for volatility and opaque pricing.

For governments, the rationale is clear. Rare earths are indispensable for electric vehicles, wind turbines, and advanced defense technologies.  China has already shown a willingness to weaponize its dominance, cutting off exports earlier this year. From a national security perspective, ensuring a domestic supply—even if it requires subsidies or guaranteed prices—is a hedge against vulnerability.

Blocking the Invisible Hand?

But economically, a price floor is a curious beast. It means the government promises not to let prices fall below a set level, regardless of what buyers are willing to pay in an open market.

Adam Smith, who championed the “invisible hand” of self-interest coordinating supply and demand, would likely bristle at such an arrangement. To him, interference in price signals distorts the efficiency of markets and risks rewarding inefficiency. In a purely Smithian framework, marginal producers that cannot survive at prevailing market prices should exit, freeing resources for more productive uses.

Yet Smith was not blind to the state’s role in defense and public goods. He famously argued that governments should sometimes protect industries vital to national security, even if that meant tariffs or restrictions. The question, then, is whether rare earths belong in that category. Advocates of the U.S. floor price argue that letting China dictate global supply is far more dangerous than the inefficiencies introduced by price supports. In this light, the floor price looks less like market distortion and more like an insurance premium paid against geopolitical risk.

Possible Scenarios

The economic effects may also be subtler than they appear. Because the U.S. floor is close to independent forecasts of long-term equilibrium pricing, it may simply stabilize revenues rather than inflate them artificially. In Australia, policymakers are openly considering a similar move, with Resources Minister Madeleine King saying that pricing certainty would reduce investor exposure to manipulation and opacity. If these mechanisms merely smooth out volatility rather than set prices far above market levels, they could be seen as market “nudges” rather than heavy-handed distortions.

Even Adam Smith Would Call for Industrial Policy

Ultimately, Adam Smith might disapprove of governments dabbling in commodity pricing, but he may also have acknowledged that national survival sometimes trumps economic purity.  The floor price for rare earths is less about rejecting free markets than about admitting that free markets, on their own, cannot price the cost of strategic dependency. In this sense, it represents a collision between classical economics and modern geopolitics—where the invisible hand meets the iron fist of statecraft.

Rare Earth Exchanges (REEx) has called for more industrial policy not only in America, but aligned across democracies and market societies.  Why?  Because of the strategic dependence challenge.  These rare earth elements are instrumental for national security of  defense, of supply chains for commerce; and just depending on market forces alone likely becomes a loser strategy against China, at least in the short to intermediate run.