US Races to Build Rare Earth Chain Free of China

The US Department of Defense has formed a dedicated unit to build an independent rare earth and magnet supply chain, deploying up to US$200 billion in financing capacity over three years to prevent a repeat of last year's trade standoff in which China cut off critical mineral supplies and forced Washington to retreat on tariffs.

The unit, officially called the Economic Defense Unit and known internally as "Deal Team Six," reports to Deputy Secretary of Defense Stephen Feinberg and works alongside the Commerce Department and the US International Development Finance Corp. It deploys equity stakes, long-term price floors, purchase commitments and loans targeting rare earth elements and permanent magnets used across defense and commercial manufacturing.

"We are at a five-alarm fire stage," said Rush Doshi, who served as China director at the National Security Council during the Biden administration. "There is a sense that we do not have time to ask if it would have been better if we did this with a pure market-mechanism method instead."

The Strategic Stakes

Rare earths are critical to as much as US$1.2 trillion in value-added production globally, according to Bloomberg Economics. China produced 94% of rare earth magnets in 2024, per the International Energy Agency. The administration's goal is to produce enough magnets to cover half of global demand by 2030.

When China restricted rare earth supplies last year in retaliation for Trump's tariffs, automakers and other industrial users warned they would be forced to halt production. Beijing only eased restrictions after Washington pulled back on tariffs and technology export controls, the episode now driving the Pentagon's urgency. The EDU also plans to extend its investment model to other vulnerabilities, including undersea data cables and pharmaceutical chemicals.

The EDU's largest transaction is a July agreement with MP Materials Corp., the only rare earth producer currently operating in the United States. The deal includes a US$400 million equity investment, positioning the government to become the company's largest shareholder. The Pentagon also set a price floor for some of MP's products and committed to purchase all magnets produced at a new facility for 10 years. Additional deals include agreements with a US magnet producer and a Brazilian rare earth miner subsequently acquired by a US company in a US$2.8 billion transaction. Administration officials have also pressed major automakers to commit to purchasing deals for magnets not yet produced at scale.

Scrutiny Over Conflicts and Process

The EDU's pace has drawn criticism from industry officials and lawmakers. Critics have pointed to Cerberus Capital Management, the private equity firm co-founded by Feinberg, as a major player in sectors where the Pentagon is investing, and to Donald Trump Jr., a partner at a firm that invested in Vulcan Elements, which holds a US$620 million conditional loan deal with the EDU.

Pentagon spokesman Sean Parnell said the department "maintains strict impartiality" and employs "a rigorous vetting process for all prospective partners." A spokesman for Trump Jr. said he is a passive investor through a fund and "does not ever interface with the federal government on behalf of any company he invests in or advises."

Senator Roger Wicker, Chairman, Senate Armed Services Committee, said at a February hearing that "little law currently exists" to govern the equity deals and called for greater coordination with Congress. Even the EDU's most optimistic projections acknowledge that US rare earth production will not reach meaningful scale before the end of the decade.