The U.S. Government Should Stockpile More Critical Minerals
The 2022 National Defense Strategy describes China as America’s “most consequential strategic competitor for the coming decades.” Yet the United States is unprepared to fight a major war against the Chinese military — or even to arm Ukraine against the Russian military, as evidenced by the defense industrial base’s struggle to replenish munitions like artillery shells and Javelin missiles. A longer, more intense U.S.-Chinese conflict over Taiwan would expose even deeper cracks in the defense industrial base and undermine the U.S. military’s ability to defeat the Chinese military: The United States lacks sufficient stocks of critical minerals to support the defense industrial base, from nickel in superalloys for jet engines to rare earth elements in magnets for guided munitions.
As a principal at Dei Gratia Minerals and as an independent critical minerals analyst, we, the authors, have an interest in increased U.S. government focus on critical minerals. But our combined years of experience in the sector and our desire to safeguard America’s national security and economic prosperity have led us to the conclusion that the U.S. government does not have enough critical minerals to effectively fight — and win — a war against China. To ensure the defense industrial base indeed has sufficient supplies of critical minerals, we believe that the U.S. government should increase critical mineral stocks in the National Defense Stockpile.
The statutory purpose of the National Defense Stockpile is to stockpile strategic and critical materials in order “to decrease and to preclude, when possible, a dangerous and costly dependence by the United States upon foreign sources or a single point of failure for supplies of such materials in times of national emergency.” In other words, the National Defense Stockpile should contain enough materials to support the U.S. military and essential civilian needs in a hypothetical war scenario. While classified, this war scenario is likely a U.S.-Chinese conflict over Taiwan, including a homeland defense situation. The Department of Defense says the Defense Logistics Agency — the agency responsible for managing the National Defense Stockpile — uses “a robust, data-driven modeling process” to determine the appropriate levels of minerals in the National Defense Stockpile, meeting these levels by acquiring more minerals when necessary and selling some minerals when possible.
To best ensure the defense industrial base has adequate minerals for a high-intensity, long-duration U.S.-Chinese conflict, the National Defense Stockpile should contain enough critical minerals to satisfy three years of U.S. domestic demand. The U.S. government should prioritize stockpiling critical minerals in platforms and munitions likely to attrit in a U.S.-Chinese conflict and sourcing these minerals primarily from the United States and secondarily from U.S. allies.
A Stockpile Inadequate for War
In a hypothetical conflict, the U.S. military would use platforms and munitions that contain substantial critical minerals. For example, in a 2013 report, the Department of Defense said that one Virginia-class submarine requires 9,200 pounds of rare earth elements and that one Aegis destroyer requires 5,200 pounds of rare earth elements. The attrition of these platforms, munitions, and the critical minerals that constitute them would require replenishment during a conflict. The duration and intensity of the hypothetical conflict should determine whether to prioritize replenishing platforms or munitions and thus which critical minerals to stockpile and to what extent. To illustrate, in a short, intense war, replenishing munitions will take priority as new platforms will not be built and fielded in time for combat; consequently, replenishing antimony in artillery and cruise missiles would be more important than replenishing rare earth elements in submarines and destroyers. The U.S. military would also have to replenish other technologies enabled by critical minerals, like gallium in semiconductors and lanthanum in night vision goggles.
Despite the high attrition of platforms, munitions, and critical minerals in a potential U.S.-Chinese conflict, the value of materials in the National Defense Stockpile has fallen 98 percent from $42 billion in 1952 to $888 million in 2021. While the 1952 National Defense Stockpile likely prepared for a global nuclear conflict with the Soviet Union and the 2021 National Defense Stockpile likely prepares for a limited localized conflict with the Chinese military, the National Defense Stockpile today only requires 2 percent of the Cold War–era stockpile seems low, especially given limited non-Chinese mineral suppliers and high American mineral demand in a potential conflict. Furthermore, mineral stocks in the U.S. stockpile are far less than minerals in China’s strategic reserves. China has an estimated 7,000 metric tons of cobalt in its strategic reserves, while the U.S. National Defense Stockpile contains just over 300 metric tons — down from over 24,000 metric tons in 1990. Given its low mineral stocks, the National Defense Stockpile model may underestimate the duration and intensity of a U.S.-Chinese conflict, underestimating U.S. mineral demand, and it may also overestimate U.S. access to domestic and foreign minerals, overestimating U.S. mineral supply.
The National Defense Stockpile model may underestimate the duration of a U.S.-Chinese conflict, thus underestimating the critical mineral stocks needed in the stockpile. Hal Brands and Michael Beckley of the American Enterprise Institute write, “The Pentagon and many defense planners appear to be focused on winning a short, localized conflict in the Taiwan Strait.” They warn, “If Washington doesn’t start preparing to wage, and then end, a protracted conflict now, it could face catastrophe once the shooting starts.” Similarly, a RAND report on a potential conflict cautions, “Underestimating the duration of conflict was a significant factor in most major strategic blunders of modern times.” John Culver, senior fellow at the Atlantic Council, believes a possible conflict could last from years to decades, which would require immense volumes of critical minerals.
The National Defense Stockpile model may also underestimate the rapid attrition of minerals in the war effort. As the Russo-Ukrainian War has shown, high-intensity conflict reduces stockpiles more quickly than they can be replenished. This mismatch is even more stark with minerals: downstream factories might be retrofitted in months or built in two years to accommodate demand, but upstream mines can take at least five years to produce, while metal refineries can take at least two years to build and at least one year to ramp up to capacity. If the National Defense Stockpile model assumes the hypothetical U.S.-Chinese conflict will be moderately intense or that mineral production can quickly come online, the National Defense Stockpile risks having too few minerals to support a high-intensity war effort.
Lastly, the National Defense Stockpile model may overestimate U.S. supply access. For example, if the model assumes that the U.S. government can rely on U.S. partners quickly ramping up metal production, it will overestimate supply access. This overestimation is because technical challenges often plague refinery commissioning and ramp-ups, delaying production and causing production to be under capacity. To illustrate, the Goro high-pressure acid leach plant in New Caledonia started production two years behind schedule and has never exceeded 70 percent of capacity in over 10 years of production. Moreover, shipping minerals from countries like the Democratic Republic of the Congo is already lengthy and precarious, and contested sea lines of communication would further endanger overseas mineral access. Thus, the National Defense Stockpile model likely overestimates U.S. access to domestic and foreign minerals and, in turn, calls for stockpiling too few critical minerals.
How to Rebuild and Replenish the Stockpile
To compensate for a high-intensity, long-duration conflict, as well as unknown market variables like ramp-up difficulties for domestic refining projects, the National Defense Stockpile should contain enough critical minerals to satisfy three years of U.S. domestic demand. Currently, the U.S. government classifies 50 minerals as “critical minerals,” and based on the existing statute, the National Defense Stockpile must have sufficient materials for a likely war scenario and “to replenish or replace, within three years of the end of the military conflict scenario … all munitions, combat support items, and weapons systems that would be required after such a military conflict.” Considering unknown variables like mineral attrition in a high-intensity conflict, one way to comply with the statute and estimate the mineral volumes needed to replenish military goods within three years after the conflict is to stockpile enough minerals to satisfy at least three years of U.S. domestic demand. Stockpiling such large volumes for 50 critical minerals, including those with high consumption volumes like aluminum, will prove challenging with only six storage depots for the National Defense Stockpile. However, the U.S. government can build, purchase, and lease more storage depots for the National Defense Stockpile, as it did during the Cold War when it stored 92 critical and strategic materials at 102 storage depots. Importantly, the Defense Logistics Agency should prioritize stockpiling critical minerals in platforms and munitions likely to attrit in a U.S.-Chinese conflict. In short, estimating the appropriate critical mineral stocks in the National Defense Stockpile is a challenge with unknown variables, but to ensure compliance with the statute’s requirement to stockpile enough materials to replenish military goods within three years, the stockpile should contain enough minerals to satisfy three years of domestic demand.
Given the immediate risks of limited U.S. mineral production and limited mineral stocks in the National Defense Stockpile, the U.S. government should begin immediately and aggressively stockpiling critical minerals — wherever it can get them. Currently, the United States totally lacks mining and refining capacity for some critical minerals; therefore, in the short term, the U.S. government should source minerals for the stockpile by the following preference levels: (1) domestic, (2) allies like Canada, (3) partners like India, (4) others like Indonesia, and (5) foreign entities of concern like China. The stockpile should contain critical minerals in their most versatile refined form, enabling their use in the widest range of military applications as well as minimizing storage space. For instance, nickel should be stored as nickel powder in the stockpile, as the powder can be pressed into nickel briquettes for alloying or dissolved into nickel sulfate for plating.
Given supply risks from China, the U.S. government must quickly increase critical minerals in the National Defense Stockpile. The United States relies heavily on China for critical minerals, and China can, at its choosing, “turn on the faucet and turn off the faucet” of critical minerals, as U.S. Trade Representative Kathrine Tai said. China demonstrated this ability in August 2021 when it targeted U.S. semiconductor manufacturing by imposing export controls on gallium and germanium. Chinese exporters must now obtain a license to export gallium and germanium products with dual-use applications. Currently, China supplies 53 percent of all U.S. gallium consumption, and the National Defense Stockpile has no gallium. Similarly, China supplies 54 percent of all U.S. germanium imports, and of the 14,000 metric tons of germanium metal in the National Defense Stockpile, the U.S. government may potentially sell 10,000 metric tons cumulatively in 2022 and 2023.
To increase critical mineral stocks in the National Defense Stockpile most quickly, the U.S. government will have to consider sourcing minerals from China. The U.S. government should do these purchases covertly over several years to avoid spiking global prices and spooking China, which can impose export controls at will. While China will undoubtedly become aware of U.S. mineral stockpiling through espionage and market signals, the Department of Defense should try to dupe China into underestimating the scale of the stockpiling. For example, the Department of Defense could hide behind the guise of the energy transition’s increased mineral consumption by secretly purchasing critical minerals through third parties, like using electric vehicle automakers to purchase nickel, cobalt, and manganese. Some people might criticize purchasing minerals from Chinese companies, but the importance of critical minerals and America’s current mineral vulnerability necessitate stockpiling lots of minerals as quickly as possible. China is likely the only source that can provide the scope and volume of minerals necessary to quickly expand the National Defense Stockpile. Already, the Department of Defense purchases some minerals like rare earth elements from China, and for the short term, minerals bought from China in the National Defense Stockpile are better than too few minerals in the National Defense Stockpile. Moreover, purchasing these minerals now makes economic sense as many mineral prices are weakened, given China’s economic struggles.
For the long term, however, the U.S. government must grow the National Defense Stockpile by sourcing domestically produced critical minerals. Onshored mineral supply chains — from mine to market — are the most secure, especially during a conflict. While U.S. allies have significant mineral reserves, a U.S.-Chinese conflict would disrupt global supply lines, endangering U.S. access to overseas critical minerals. By purchasing domestically sourced and produced minerals, the U.S. government would incentivize domestic mineral production, which would help ensure supply access during a conflict. Notably, the Strategic and Critical Materials Stock Piling Act of 1939 — the original governing National Defense Stockpile statute — stated that the stockpile has a dual purpose of both supporting the industrial base and growing domestic mineral production. It says the stockpile would “provide for the acquisition of stocks of certain strategic and critical materials of which the natural resources of the United States were deficient or insufficiently developed to supply the industrial, military, and naval needs of the country for the common defense and to encourage the development of mines and deposits of these materials within the United States.” And for those minerals that it cannot sufficiently source domestically, the U.S. government should prioritize sourcing minerals from its allies: primarily Canada, which is closest to the United States and has large mineral reserves; secondly Australia, which also has large mineral reserves but whose sea lines of communication would be vulnerable to disruption in a U.S.-Chinese conflict; and then other allies.
Before and after a potential conflict, the National Defense Stockpile should act as a market buffer, similar to the Strategic Petroleum Reserve, by offering lower mineral prices to the defense industrial base when high mineral prices disrupt their production. As the top producer and buyer of many critical minerals, China — as the Organization of the Petroleum Exporting Countries does with oil — can influence global prices through production quotas and government subsidies. To mitigate severe market disruptions, the U.S. government should sell critical minerals to defense contractors during costly price spikes. While the governing statute of the National Defense Stockpile states that the stockpile can only be used for national defense, not economic, purposes, it also states that the stockpile should seek “to decrease and to preclude, when possible, a dangerous and costly dependence.” Accordingly, in October 2021, U.S. President Joe Biden noted in an executive order that the stockpile is a key tool for “ensuring that both the Federal Government and the private sector maintain adequate quantities of supplies, equipment, or raw materials on hand to create a buffer against potential shortages and import dependencies.”
Critical minerals form the bedrock of the defense industrial base, but the United States relies heavily on China for many critical minerals despite significant military and economic risks from this dependence. Given the possibility of a high-intensity, long-duration U.S.-Chinese conflict that will attrite platforms and munitions containing critical minerals, the National Defense Stockpile has insufficient critical mineral stocks, which should be increased quickly. Ultimately, securing U.S. critical mineral supply chains will require other policies like subsidies for U.S. critical mineral projects, tariffs on critical mineral imports, and purchase commitments by the U.S. government for American mined and refined critical minerals. But increasing critical minerals in the National Defense Stockpile is the quickest and easiest step to increase mineral security for the defense industrial base — and prepare for a U.S.-Chinese conflict.
Gregory Wischer is principal at Dei Gratia Minerals, a critical minerals consultancy. He has written about critical mineral issues in Newsweek, RealClearMarkets, RealClearEnergy, National Defense Magazine, Washington Times, The National Interest, 19FortyFive, the Wilson Center’s New Security Beat, and the Australian Strategic Policy Institute’s The Strategist.
Jack Little is an independent critical minerals and rare earths analyst. He has been published in the Wall Street Journal and the Idaho State Journal.
Image: Defense Logistics Agency