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The author is PGIM’s Vice-Chair and Chief Global Economist and former US Deputy National Security Advisor, International Economic Advisor
Rare earth supply is prominently featured in President Donald Trump’s complicated trade negotiations with China. The centrality of this issue highlights an unpleasant reality. For important minerals, China holds the card.
This issue is not just about the production advantage of the country. It is also control over Beijing’s market infrastructure that sets global prices, and the US and its allies cannot compete.
The temptation to intervene in these markets with government guarantees is increasing. Currently, the proposal ranges from building stockpiles of seabed minerals to guarantee purchases for domestic producers. These tools are useful, but they risk establishing inefficiencies, distorting incentives, and replacing market dynamism with central planning.
The government can help – not by choosing winners, but by making the market more viable. The infrastructure that supports the market must be restructured and the supply chain restructured. Benchmark contracts that establish price transparency. Physical exchanges that support the production, transportation and storage of metals and minerals. Market liquidity required to reduce investment risk.
Consider the case of Albemarle, America’s largest lithium company. Its CEO recently rejected the possibility of building the nation’s largest lithium refinery. Mathematics simply doesn’t work, he explained – the prices are too low and the market is too volatile.
China’s grip on the infrastructure of key mineral markets did not happen by chance. After the global financial crisis, well-intentioned regulatory reforms have driven capital out of the western commodity market. This vacuum was the opportunity that Beijing needed to insert as the world’s new market maker.
China moved quickly. We have launched domestic exchanges that are explicitly designed to raise national pricing power or new metal contracts on existing exchanges. Within just a year of launch, Shanghai’s nickel contracts began overtaking London’s metal exchanges with trading volume. Now, with state-backed traders, vertically integrated supply chains and long-term purchase agreements, China has set the terms of many global mineral markets.
Beijing playbook is easy. Accepting short-term losses, leaving rivals out of business and controlling high-value downstream exports like batteries. With intentional overproduction skewed prices, US companies have struggled to attract capital or maintain operations.
For example, consider US lithium producers supplying US automakers. It is a domestic transaction, but the contract value is tied to a reference price published in Asia and is fully shaped by the Chinese market. If China is flooded with supply, benchmark prices will drop and producer revenues will also fall. Even if they are not directly involved, China manages the economy of trading and wipes out competition.
Buyers and sellers are hungry for a more transparent rule-based market. To achieve this, Representative Rob Whitman, co-chair of China’s House Selection Committee, proposed a strategic reserve that would be useful for intermediaries purchasing, storing and selling minerals. This leverage brings liquidity to the market to stabilize prices, giving investors the confidence to build supply chains without relying on China.
Me and Employment These strategic resilience reserves, which were previously advocated by Arnab Datta in America, should have other tools too. This is the ability to extend credit or insurance to liquidity providers and invest in storage infrastructure. They should also be able to act as a last resort buyer when markets collapse, as did the Strategic Oil Reserve when oil prices fell to levels that threatened investment in 2023-24.
That is the necessary approach for important minerals. Restore the price signal. Crowds in the capital. Let the supply be promoted to private investors, not government. But for it to work, the policy must be implemented by insulated and reliable institutions from the political cycle. Strategic resilience reserves should be structured like the Federal Reserve. I’m independent with technocratics.
Without a market that functions for critical minerals, American manufacturers will face higher input costs, supply disruptions, and increase reliance on foreign state-supported companies. Not only is the Chinese model undesirable, it cannot be implemented in a liberal economy. You will not beat the capitalism of the Chinese state by copying it. By rebuilding the market they were trying to demolish, you beat it.
Arnab Datta contributed to this work
