As China uses rare earths as a trade war card, the U.S. Ministry of National Defense has mobilized even Wall Street financiers to restructure the supply chain.
According to Bloomberg on the 15th, the U.S. Ministry of National Defense is pushing a project to build a rare earth and permanent magnet supply chain centered on a group called "Deal Team Six." The name was taken from the U.S. Navy special forces "SEAL Team Six."
Deal Team Six is under the Ministry of National Defense's Economic Defense Unit (EDU), and is said to include a large number of former Wall Street investment bankers and private equity personnel. According to Bloomberg, the Ministry of National Defense has secured the capacity to mobilize up to $200 billion over the next three years, and plans to use it for investments in corporations engaged in rare earth mining, refining, and magnet production, as well as long-term purchase contracts.
Rare earths are key minerals used in electric vehicles, smartphones, wind turbines, and missiles. In particular, rare earths such as neodymium and praseodymium are essential for making permanent magnets that go into electric vehicle motors and precision military weapons.
◇ Rare earths become China's "bargaining chip"… U.S. moves to secure supply chain through corporate investment and executive orders
Deal Team Six's goal is to build an independent rare earth supply chain outside China. China currently dominates the global rare earth supply chain. According to the U.S. Geological Survey (USGS), about 70% of global rare earth mining last year was produced in China. China's rare earth reserves are about 44 million tons, more than double those of second-place Brazil. Bloomberg Economics projected that China will maintain its edge in the global rare earth refining market at least into the early 2030s.
Rare earths themselves are not found only in China. However, advanced economies have been reluctant to nurture the related industry due to the environmental pollution caused by mining. The United States also maintained the No. 1 position in the rare earth market until the 1980s, but its production base weakened due to environmental pollution and labor costs. China, by contrast, rose to the top of the global rare earth market on the back of looser regulations and price competitiveness.
China has recently been using rare earths as a strategic card amid U.S.-China trade tensions. When U.S. President Donald Trump expanded high tariffs on Chinese products in April last year, China moved to restrict rare earth exports. Some production lines at U.S. automakers, including Ford, were temporarily halted afterward.
As the Chinese government politicized rare earths, the United States since last year has been mobilizing public and private funds to build an alternative supply chain. U.S. metals-focused investment firm Orion Resource Partners formed an $1.8 billion (269.83 billion won) investment consortium in Oct. last year to secure critical minerals for the government and allied countries. At the time, funds from the U.S. government and Abu Dhabi's sovereign wealth funds were also partly injected. President Trump in Mar. last year also signed an executive order supporting the mining of critical minerals, including rare earths, under the Defense Production Act (DPA), which is used in wartime.
Still, some analysts say that, with the latest U.S.-China summit, China could partially ease its export controls on the United States. Jamieson Greer, the U.S. Trade Representative (USTR), told Bloomberg TV that China's move to normalize rare earth exports "deserves a passing grade," adding, "We have seen supplies recover to a better level than before."
◇ Critics say, "Beware conflicts of interest and indiscriminate investment"
Some warn that as the government aggressively pushes projects, it is even supporting unvetted corporations. In particular, because private equity firm Cerberus Capital, co-founded by Deputy Minister of National Defense Stephen Feinberg, has been a major investor in rare earths and defense industries, the potential for conflicts of interest has been raised. Deputy Minister Feinberg said he disposed of his equity after taking public office.
Bloomberg also reported that Vulcan Elements, a corporation invested in by President Trump's eldest son, Donald Trump Jr., has signed a conditional loan agreement with the government worth $620 million (929.69 billion won), fueling controversy. The Ministry of National Defense, however, denied the allegations, saying, "All investment targets undergo a strict vetting process."
Even so, the White House views the restructuring of the rare earth supply chain as directly tied to national security. Rush Doshi, former National Security Council (NSC) China director, told Bloomberg, "This is a 'five-alarm fire' level crisis," adding, "There is a widespread recognition within the U.S. government that there is no time to wait for market logic."