America's Rare Earth Gambit: A Strategic Imperative or Government Overreach?

In a move that signals both the urgency of America's supply chain vulnerabilities and the government's willingness to intervene in private markets, the Department of Defense is reportedly taking a controlling stake in MP Materials, the operator of the nation's only rare earth mining operation. This unprecedented partnership, complete with price guarantees designed to shield the company from potential Chinese market manipulation, represents a fundamental shift in how America approaches critical mineral security. The decision forces us to confront a challenging question: In an era of great power competition, how far should the government go to secure strategic resources?

Rare earth elements, despite their name, not particularly rare but difficult and environmentally costly to extract and process, are the invisible backbone of modern technology. From the magnets in wind turbines and electric vehicle motors to the components in smartphones, military guidance systems, and advanced weaponry, these seventeen metallic elements are irreplaceable in countless applications that define 21st-century life and warfare. Currently, China dominates the supply chain, accounting for 70% of global rare earth ore extraction and 90% of rare earth ore processing, a dominance that stems not from geological advantage but from decades of strategic investment, environmental trade-offs, and aggressive pricing that drove Western competitors out of the market.

The Mountain Pass mine in California, operated by MP Materials, represents America's sole domestic rare earth production facility. While the mine extracts ore domestically, the company has historically shipped concentrates to China for processing—a dependency that undermines the very supply chain security the facility was meant to provide. In July 2025, the Defense Department announced a transformational public-private partnership that would make it the largest shareholder in MP Materials, with a $400 million investment plus an additional $150 million loan to expand capabilities at Mountain Pass. This intervention aims to change the dependency dynamic, supporting domestic processing capabilities while ensuring stable production through guaranteed pricing mechanisms.

Pro: The Case for Government Intervention

Proponents of this unprecedented partnership argue that rare earth minerals represent a textbook example of market failure requiring government intervention. The private market, they contend, cannot adequately address the national security implications of critical mineral dependence, particularly when facing a strategic competitor willing to weaponize economic interdependence.

China's rare earth dominance didn't emerge naturally through competitive advantage—it resulted from deliberate state policy that prioritized market control over short-term profitability. Beijing subsidized production, tolerated environmental degradation Western companies couldn't accept, and strategically underpriced competitors until they exited the market. When Japan faced a territorial dispute with China in 2010, Beijing reportedly restricted rare earth exports, demonstrating how quickly resource dependence can become a strategic vulnerability. More recently, China has threatened similar restrictions in response to U.S. technology sanctions, making clear that rare earth access remains subject to geopolitical calculations.

The Defense Department's investment addresses multiple market failures simultaneously. First, it solves the "first mover disadvantage" problem, private investors hesitate to enter a market where an incumbent can crash prices at will to eliminate competition. Price guarantees remove this uncertainty, providing the stable revenue streams necessary to justify massive capital investments in processing facilities. Second, it recognizes that national security benefits extend far beyond company profits. A secure rare earth supply chain strengthens not just military readiness but economic resilience across industries from renewable energy to consumer electronics.

Historical precedent supports such intervention. The government's role in developing GPS, the internet, and semiconductor manufacturing demonstrates how strategic public investment can create entire industries while generating enormous private sector returns. The Defense Production Act has been used repeatedly, from World War II manufacturing to recent pandemic supply chain issues, when markets alone cannot meet national needs. The Pentagon's recognition that rare earths are integral to advanced military systems, from F-35 fighter jets to missile guidance systems, underscores the national security imperative driving this investment. Climate change adds another dimension: achieving clean energy goals requires massive rare earth imports for wind turbines, solar panels, and electric vehicles. Dependence on China for materials needed to reduce carbon emissions creates an untenable strategic contradiction.

Furthermore, market-driven solutions have had decades to emerge and have consistently failed to materialize. The complexity of rare earth processing, combined with China's market manipulation, creates barriers too high for private capital to overcome alone. Government partnership provides the patient capital and strategic coordination necessary to rebuild American capabilities that market forces alone cannot generate. China's dominance didn't emerge naturally but through deliberate state policy that prioritized market control over short-term profitability, making government intervention necessary to level the playing field.

Con: The Case Against Government Intervention

Critics of the Defense Department's rare earth partnership raise fundamental concerns about government overreach, market distortion, and the long-term consequences of industrial policy. They argue that this intervention, however well-intentioned, represents a dangerous precedent that undermines free market principles while potentially creating more problems than it solves.

The most immediate concern centers on picking winners and losers. By selecting MP Materials for partnership, the government effectively crowds out potential competitors and alternative solutions. This approach risks creating the very monopoly dynamics domestically that critics decry in China's market dominance. Other companies developing innovative extraction or processing technologies, alternative materials, or recycling solutions may find themselves unable to compete against a government-backed incumbent. Such intervention can stifle the innovation and efficiency that typically emerge from competitive markets.

Price guarantees, while providing stability for MP Materials, represent a form of corporate welfare that socializes risks while privatizing profits. Taxpayers bear the cost of protecting a private company from market forces, creating moral hazard where the company may become complacent about efficiency or innovation. If Chinese competitors decide to flood the market with cheap rare earths, American taxpayers will effectively subsidize above-market prices indefinitely. This mechanism could easily become permanent corporate welfare, as witnessed in agricultural price supports and other "temporary" government interventions that become entrenched.

The intervention also raises questions about government competence in industrial policy. Federal agencies lack the technical expertise and market knowledge to make optimal investment decisions across complex supply chains. The track record of government industrial policy includes notable failures—from Solyndra's bankruptcy after receiving substantial federal support to the complications surrounding government investment in various manufacturing initiatives. Markets, despite their imperfections, process information more efficiently than bureaucratic decision-making and typically allocate resources more effectively than political processes.

Moreover, this approach may actually increase long-term strategic vulnerability. By creating domestic rare earth production through artificial means, the policy may reduce incentives to develop alternative materials or recycling technologies that could eliminate rare earth dependence entirely. Japanese companies, facing similar supply concerns, have invested heavily in rare earth recycling and alternative materials research—approaches that could prove more resilient than simply replicating China's extraction-based model. Additionally, the Defense Department's concurrent $120 million contract with Australian company Lynas to build rare earth processing facilities in Texas suggests that diversification strategies beyond domestic mining may offer more sustainable solutions.

The precedent implications extend beyond rare earths. If the government justifies controlling stakes in private companies for any industry deemed "strategically important," where does such intervention end? Semiconductors, pharmaceuticals, telecommunications equipment, and countless other sectors could claim similar national security relevance. Each intervention makes subsequent ones easier to justify, potentially leading to a significantly more state-directed economy.

Finally, critics argue that diplomatic and trade solutions remain underexplored. Rather than accepting Chinese dominance as permanent, America could work with allies to develop alternative supply chains, negotiate international agreements on critical mineral access, or use trade policy to address China's anti-competitive practices. The World Trade Organization provides mechanisms for challenging unfair trade practices, while cooperation with countries like Australia, Canada, and others with rare earth deposits could provide alternatives to both Chinese dependence and domestic government intervention.

Conclusion

The rare earth dilemma illustrates the complex challenges facing American policymakers as economic competition increasingly intertwines with national security concerns. The Defense Department's partnership with MP Materials represents either a necessary response to strategic vulnerability or a concerning departure from market-based solutions, and perhaps both simultaneously.

What remains clear is that the status quo of near-total dependence on a strategic competitor for critical materials carries unacceptable risks. Whether government intervention represents the optimal solution will likely depend on implementation details, sunset provisions, and the ability to maintain competitive dynamics while achieving security objectives. As this partnership moves forward, careful oversight will be essential to ensure that necessary strategic investment doesn't become permanent market distortion, and that solving one set of problems doesn't create equally serious new ones.