The Defense Production Act won’t bring us supply-chain security

Emphasizing the importance of rare earth metals and minerals to America’s national security and economic well-being, two prominent members of Congress — Sen. Joe Manchin (D-W.Va.), head of the Senate Energy and Natural Resources Committee, and Sen. Lisa Murkowski (R-Alaska), the committee’s ranking Republican — have urged President Biden to ramp up domestic mining operations immediately by invoking the Defense Production Act (DPA). 

Title III of that 1950 law was dusted off by President Trump to jumpstart the production of ventilators for hospitalized COVID-19 patients. President Biden issued executive orders in February 2021 authorizing the act’s taxpayer-financed incentives — loans, loan guarantees, direct purchases and purchase commitments — to ensure that the U.S. economy has sufficient capacity to produce “critical items” like vaccines and personal protective equipment.  

More than two years into the federal government’s demonstrably ineffective and costly response to the now-endemic SARS-CoV-2 virus, Washington seems to have awoken at long last to another policy-manufactured “crisis” that has been in the making for two decades: overreliance on imports from China and other hostile trading partners for supplies of essential inputs such as nickel, lithium, and manganese. 

A year ago Murkowski called U.S. dependence on mineral imports our Achilles’ heel. Russia’s invasion of Ukraine and the ensuing chaos in global commodity markets seem to make it even more urgent to address the problem head-on.

It is true that U.S. manufacturers rely fully on mining operations located overseas for supplies of 17 essential minerals, including most of the metals required for electric-vehicle batteries. China is home to about 16 percent of the world’s capacity for mining and processing raw lithium. It also dominates global cobalt supplies from the mines it controls in the Democratic Republic of Congo, where much of that blue metal is found and is a major player in nickel. All told, China controls about 80 percent of the materials necessary for making batteries, and is the chief source of rare earth minerals, along with almost all manganese and graphite-refining capacity on the planet.

Russia and two former Soviet states, Kazakhstan and Uzbekistan, account for just under half of the fuel consumed by U.S. nuclear power plants, nuclear medicine facilities, and other industrial uses. As one response to the Ukraine invasion, the Senate is considering a ban on uranium imports from Russia, from which the United States obtains 16 percent of its total uranium supplies.

Depending on China and Russia for imports of critical materials would not be worrisome in a peaceful world of unfettered international commerce. But that is not the world now dancing to the tunes of Vladimir Putin and Xi Jinping.

The irony is that neither globalization nor supply-chain interruptions explain why the United States relies heavily on foreign suppliers of production-critical minerals. Such resources — worth an estimated $6.2 trillion — are available in the ground here. They remain unexploited, though, because of environmental and other regulations that hamstring domestic mining operations. A decade or more is required nowadays just to obtain the permits needed to open a new mine, assuming that the permits eventually are granted. Minerals production can be “re-shored” by lightening the regulatory burden on U.S. mining operations and speeding the permitting process. 

Invoking the Korean War-era Defense Production Act is an ill-considered response to a supply-chain crisis for which Washington itself largely is responsible. It represents crony capitalism at its worst, empowering politicians and bureaucrats to shower financial incentives on some U.S. mining companies but not others.  

President Biden is notorious for trying to shift blame to “Big Oil” and “Big Food” for inflation and other adverse consequences of his own policies. He has warned that the United States faces serious materials shortages that could derail efforts to deploy advanced clean-energy technologies and even to produce weapons essential for national defense.

While it may seem counterintuitive, the digital age and the brave new world of fossil-free energy will require more mining than ever. The demand for lithium, for example, is predicted to explode 42 times its current level by 2040. Getting Washington out of the way and allowing market price and profit signals to guide resources into the mining of “critical” minerals is a surer path to supply-chain security than channeling taxpayer-financed largesse to a few favored recipients.

Mobilizing one policy tool (the Defense Production Act) to offset the counterproductive effects of another (keeping minerals “in the ground”) is a fool’s errand, but it’s business as usual in our nation’s capital.

William F. Shughart II, research director of the Independent Institute in Oakland, Calif., is J. Fish Smith Professor in Public Choice at Utah State University’s Huntsman School of Business.