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The writer is vice chair and chief global economist at PGIM and former US deputy national security adviser for international economics
The supply of rare earths has featured prominently in President Donald Trump’s complex trade negotiations with China. The centrality of the issue underscores an uncomfortable reality: on critical minerals, China holds the cards.
The problem isn’t just the country’s production dominance — it is also Beijing’s control over the market infrastructure that sets global prices, leaving America and its allies unable to compete.
The temptation to intervene in these markets with government guarantees is growing. Proposals now range from building stockpiles of seabed minerals to guaranteed purchases for domestic producers. These tools can be useful, but they risk entrenching inefficiency, distorting incentives, and replacing market dynamism with central planning.
Governments can help — not by picking winners, but by making markets more viable. We must rebuild the infrastructure that underpins markets and thus supply chains: the benchmark contracts that establish price transparency; physical exchanges that support production, transportation, and the storage of metals and minerals; and market liquidity needed to reduce investment risk.
Consider the case of Albemarle, America’s largest lithium company. Its chief executive recently dismissed the possibility of building the country’s largest lithium refinery. The maths simply doesn’t work, he explained — prices are too low, and the market is too volatile.
China’s grip on critical mineral market infrastructure didn’t happen by chance. After the global financial crisis, well-intentioned regulatory reforms pushed capital out of Western commodity markets. This vacuum was exactly the opportunity Beijing needed to insert itself as the world’s new market-maker.
China moved swiftly. It launched domestic exchanges explicitly designed to boost the country’s pricing power or new metals contracts on existing exchanges. Within just a year of its launch, Shanghai’s nickel contract began to overtake the London Metal Exchange in trading volume. Now, with state-backed traders, vertically integrated supply chains, and long-term purchase agreements, China sets the terms for many global mineral markets.
Beijing’s playbook is simple: accept short-term losses to drive rivals out of business, and then dominate high-value downstream exports like batteries. With prices distorted by deliberate overproduction, US firms struggle to attract capital or sustain operations.
Take, for example, a US lithium producer supplying a US automaker. Though it’s a domestic deal, the contract value is tied to a reference price published in Asia and shaped entirely by the Chinese market. If China floods the market with supply, the benchmark price drops — and so does the producer’s revenue. Even without being involved directly, China controls the economics of the transaction and wipes out the competition.
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Buyers and sellers are hungry for more transparent, rules-based markets. To accomplish this, Representative Rob Wittman, co-chair of the House Select Committee on China, has suggested a strategic reserve that lends to intermediaries that purchase, store, and sell minerals. That leverage would bring liquidity to the market to stabilise prices and give investors the confidence to build supply chains without dependence on China.
Such a Strategic Resilience Reserve, which I and Arnab Datta of Employ America have previously advocated for, should also have other tools: the capacity to extend credit or insurance to liquidity providers and invest in storage infrastructure. It should also be able to act as a buyer of last resort when markets break down as the Strategic Petroleum Reserve did when oil prices fell to levels that threatened investment in 2023-24.
That’s the approach we need for critical minerals. Restore price signals. Crowd in capital. Let private investors drive supply, not the government. But for that to work, policy must be conducted by credible institutions with insulation from political cycle. A Strategic Resilience Reserve should be structured like the Federal Reserve — technocratic and independent.
Without functioning markets for critical minerals, American manufacturers will face higher input costs, supply disruptions, and rising dependence on foreign state-backed firms. China’s model isn’t just undesirable — it’s unworkable in a liberal economy. You don’t beat China’s state capitalism by copying it. You beat it by rebuilding the markets they’ve tried to dismantle.
Arnab Datta contributed to this piece
