The most important duty of government is to provide for the security of its citizens. Providing that security is a complex enterprise. Its most obvious feature is military power: providing the surface, naval, air, and space forces necessary to protect national interests. Of course, military power depends on economic power. In today’s security environment, that means maintaining the capability to provide for both the prosperity of American citizens as well the high tech weaponry necessary for modern warfare.
While the world’s attention is focused on Russia’s invasion of Ukraine, we need to keep in mind that the People’s Republic of China is America’s foremost adversary. While the United States dominated the “third industrial revolution” based on computation and communications, China seeks to lead the “fourth industrial revolution” based on metadata and artificial intelligence. China’s grand strategy is focused on achieving that goal. For example, Beijing has employed its Belt and Road Initiative in combination with digital technology in order to integrate billions of people into China’s economic sphere.
As I observed last fall in a piece for American Greatness, an important but seemingly mundane aspect of our competition with China is access to the strategic materials necessary for many of the advanced technologies that will shape the future, including clean energy high-end U.S. defense platforms. But for both domestic and international reasons, the United States is at a disadvantage in this critical area of geopolitical competition.
To its credit, the Department of Defense recognizes the problem, recently issuing a report on the state of competitiveness within the U.S. defense industrial base. This report offers five broad policy recommendations to spur competition within that base, one of which is intended to ensure resilience in the supply chain for five priority sectors, including strategic and critical materials.
The report notes that U.S. competition in the critical materials sector is distorted by political intervention and unfair trade practices in adversary nations such as China, which raise significant challenges for the survival of domestic and allied manufacturers in price-driven commercial markets. These practices include weak environmental and labor regulations, forced labor, and lax enforcement of risk, all of which provide unfair cost advantages to companies operating in adversary nations.
By artificially decreasing the fair market price for strategic and critical materials, adversary nations undermine the competitiveness of U.S. and allied producers. As domestic and allied manufacturers exit the business, single-source suppliers in adversary nations are left to produce specialty metal alloys, rare earth elements, and critical chemicals.
The mining, processing, and manufacturing of critical materials are capital- and time-intensive. Domestic companies lack an economic incentive to spend money on a project without the expectation of profit in the long run. Changing the structure of the supply chain for these materials would require government incentives and partnerships with the private sector.
Ensuring the domestic supply of the critical materials essential to both U.S. dominance of the fourth industrial revolution and national defense will require policy interventions that address market failures associated with the production of strategic and critical materials. Such policies should emphasize public-private partnerships, accelerate the development of diversified and reliable sources of supply, promote high-risk research for advanced production processes and equipment, and seek trade remedies.
These actions require that we recognize the inability of “market fundamentalism”—the belief that adherence to free markets is always the best policy—to address strategic issues. In the case of strategic materials, markets and free trade often fail to account for changing geopolitical circumstances.