In the United States, the federal government is increasing its investment in these targeted industries. It’s doing that by taking major equity stakes in companies like Intel, MP Materials, Lithium Americas, and Trilogy Metals. Specifically, this move is a pointed reaction to the current trade war with China. Secondly, it seeks to shore up supply chains for critical materials central to our national security and economic prosperity.
On October 1, the Department of Energy announced plans to acquire a 5% equity stake in Lithium Americas. This decision comes on the heels of the Department of Defense’s earlier investment of $400 million into MP Materials stock to secure a 15% stake in the company for the government. This investment by the federal government means that the Department of Defense is now the largest single shareholder of MP Materials. The government’s efforts are part of the larger CHIPS and Science Act strategy to promote greater self-sufficiency, especially in vital industries where China leads.
Strengthening Supply Chains
China controls a staggering 90 percent of the global rare-earth elements market. It’s responsible for 70% of the $4 billion in mining revenue and an amazing 90% of all $298 billion in refining revenue. In fact, greater than 90% of rare-earth magnet production comes from China. Understandably, the U.S. government is alarmed at its over-dependence on Chinese supply. This has prompted government leaders to look more critically at how they pursue domestic production and investment.
James Litinsky, MP Materials’ CEO, said that what was at stake was self-sufficiency in these critical sectors.
“Self-sufficiency, allied resilience and national industrial champions are no longer optional,” – James Litinsky
The US government is spending billions to reduce dependence on foreign suppliers. Not only do these investments boost domestic companies that are necessary for producing these foundational materials (like microchips and rare-earth elements), they create well-paying jobs here at home. With the recent spike in share prices, MP Materials shares have soared by 276%, while Lithium Americas and Trilogy Metals have seen increases of 50% and 204%, respectively. There is a clear indication that market confidence in these investments is growing.
A Shift in Government Attitude
The current administration’s approach marks a significant departure from previous Republican attitudes toward government ownership and intervention in the market. Alan Auerbach, an economist, noted this shift.
“It is a real break from past attitudes toward government ownership, particularly for Republicans,” – Alan Auerbach
That’s why this new strategy seems a deeply-integrated piece of a whole-of-government effort to safeguard both national interests and economic security. Kush Desai, a spokesperson for the administration, said that while the government can’t do it all themselves, they are committed to using every resource at their disposal.
“The Trump administration is committed to using every tool at our disposal to safeguard America’s national and economic security,” – Kush Desai
While most industry observers welcomed the ambitious investments, some are calling attention to the risks associated with them. Market strategist Sam Stovall once said, “All the business the world over is not producing profitable business models.”
“There is the risk of failure. Not all investments work out,” – Sam Stovall
Furthermore, he recognized the natural skepticism about using taxpayer money to fund such business ventures.
“You’re going to find people who are questioning, ‘Why are we doing this? We don’t need to risk our tax dollars,’” – Sam Stovall
The Future Landscape
And perhaps more importantly, the U.S. government is increasing its investments in these key industries. This striking move will have momentous impact towards shifting America’s trajectory in manufacturing and technology. Prioritizing rare-earth elements and other critical supply chains will be crucial in bringing home new jobs. This focus will spur technological innovations at home.
CFO James Litinsky underscored the importance of these investments to national security.
“They are the front lines of security.” – James Litinsky