Rare Earth Exchanges

U.S GAO Director Calls Out Real Concern About American Dependence on China’s Rare Earth Supply Chain

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Highlights

  • China dominates 70% of global rare earth element mining, creating significant national security vulnerabilities for the U.S.
  • The Department of Defense is working to mitigate supply chain risks through:
    • Stockpiling
    • Legislative mandates
    • Procurement restrictions
  • A holistic approach is crucial to reduce critical materials dependency, involving:
    • International partnerships
    • Domestic innovation
    • Strategic planning

William Russell (opens in a new tab), Director of Contracting and National Security Acquisitions, raised important points just a few months ago via the United States Government Accountability Office (GAO) in “Critical Materials Are In High Demand. (opens in a new tab) What is DOD Doing to Secure the Supply Chain and Stockpile These Resources (opens in a new tab)?”

An influential role, Russell presents a critical premise: the United States’ heavy dependence on China and other adversarial nations for critical materials, particularly rare earth elements (REEs), poses a significant threat to national security.

He highlights the Department of Defense’s (opens in a new tab) (DOD) efforts to mitigate this dependence and secure supply chains through stockpiling, policy changes, and legislative mandates.

China Dominance

Russell’s central hypothesis is that the U.S. must urgently address vulnerabilities in its critical materials supply chain to ensure national defense readiness. To support this, he cites, first and foremost, the reality that China mines 70% of the global supply of rare earth elements and processes even more. This monopolistic position enables potential economic leverage against the U.S., evidenced by the fact that 95% of U.S. rare earth imports between 2019 and 2022 originated from China.

Furthermore, the Director at GAO notes that the U.S.’s stricter environmental regulations have limited its domestic mining capabilities, contributing to reliance on cheaper Chinese suppliers.  We would note that environmental concerns are also applied to other activities in the value chain, such as refining.

The lack of substitutes is of great concern. According to the U.S. Geological Survey, there are few, if any, substitutes for these critical materials that match their performance, further exacerbating dependence.

While the DoD has the heavy responsibility of providing the military forces needed to deter war and protect the security of the United States, how can it do so with such critical dependency on China, a potential adversary?

Russell points to the fact that DoD has limited market influence.  The global commercial market dwarfs DOD’s demand, limiting its ability to affect the critical materials market directly.

DOD does not sit still. The federal executive department’s Initiatives include expanding congressional restrictions on procurement from adversary nations and maintaining a National Defense Stockpile of critical materials. However, these efforts are hampered by gaps in data, forecasting, and finalized management criteria.  Rare Earth Exchanges suggests far more money and centralized orchestration, at least in the catch-up phase, may be necessary. 

While Russell presents a compelling case, his analysis has some limitations that need some attention.  For example, a broader supply chain strategy is necessary than Russell contemplates. His article focuses on stockpiling and legislative mandates but neglects other possible avenues, such as public-private partnerships, incentives for domestic mining, or fostering innovation in alternative materials. The processing and production areas are key deficiencies in the West. 

Partnering will be key. The U.S. will not replicate China’s rare earth complex but would likely use hybrid market and government policies across a network of allies (partner countries).  This international collaboration, of paramount importance, lacks attention.  Say, for example, Russell does not explore how alliances, like partnerships with Australia or Canada, could diversify supply chains and reduce reliance on adversaries. We think the potential economic trade-offs of expanding domestic mining or stockpiling—such as higher costs and environmental challenges—are understated.

Plus, the focus on adversarial dynamics may overshadow commercial opportunities or cooperative strategies that could benefit both the defense sector and broader industries.

Final Thoughts

Russell’s article effectively highlights the strategic risks posed by U.S. reliance on China for critical materials. However, his focus on DOD efforts and stockpiling offers only a partial view of the broader value chain landscape. A more holistic approach, addressing economic, technological, and international dimensions, could provide a fuller picture of how the U.S. might navigate these challenges. While the analysis is rooted in national security concerns, it would benefit from a discussion of collaborative strategies and economic innovation to ensure resilience in critical material supply chains.

Yes, it’s a daunting prospect to even look at the steep slope America must climb when considering resiliency in this important sphere—but we suspect likely forthcoming crises portend a strategic step back. More holistic visions, solid strategy, and planning and execution with accountability. If we could convey anything to the incoming POTUS, it would be that. A strategic step back to start.

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