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American auto manufacturers are preparing to shut down production lines. Defense manufacturers may not be far behind. The tit-for-tat tariff escalation between the United States and China dominated headlines throughout March and April, but the real escalation happened quietly. On April 4, Beijing restricted exports of seven rare earth elements and rare earth permanent magnets — key components in everything from automatic transmissions to missiles.
China dominates the rare earth refining and magnet production processes, so the export restrictions jeopardize America’s ability to manufacture almost anything with moving parts. Civilian vehicles alone rely on these materials for motors, sensors, seat belts, cameras, and more. Military platforms are just as vulnerable. Beijing banned exports of antimony, gallium, and germanium in December 2024, so rare earths are just the Chinese Communist Party’s latest move in a calculated escalation.
The rare earths export restriction became the focal point of negotiations between the American and Chinese delegations in both Geneva and London, yet Beijing continues to restrict these exports and has shown little interest in giving up its primary source of leverage.
The United States is now in a race against time. As China deploys a meticulously prepared arsenal of economic weapons, the U.S. government should urgently reform and empower the agencies capable of moving strategic capital, especially the International Development Finance Corporation. Otherwise, the country risks widespread industrial shutdowns just as its defense leaders are warning that an invasion of Taiwan may be imminent.
As the founder of an advisory firm focused on supply chain issues, I have a commercial interest in this topic and a rather unique view of the issues involved. Hopefully, this article will make clear that much of the world has a stake in this issue’s resolution.
The Strategic Context
The Chinese Communist Party is said to plan in decades while the U.S. government plans in four-year cycles. That framing gives Washington a rather convenient excuse for strategic surprise. However, Beijing began developing its critical minerals dominance strategy in the 1990s and ramped up its infrastructure campaign in the 2000s.
It worked. While American investors chased yield in low-risk, high-liquidity markets, the Chinese Communist Party gradually increased its influence over key aspects of the world’s mineral supply, telecommunications, and physical logistics. It used subsidies, concessionary lending, and market manipulation to establish de facto control over multiple industries. Now it’s using that control to squeeze the United States and its allies.
Take natural graphite. It’s essential for lithium-ion batteries, but China refines about 99 percent of the world’s supply. After years of delays, the Development Finance Corporation extended a loan to Syrah’s graphite mine in Mozambique in late 2024. Syrah declared force majeure and halted graphite production soon after. According to public reports, local protests in northern Mozambique escalated due to contested national elections. I’ve been to the region and that explanation is unconvincing. The mine had operated peacefully for years and the protests erupted just as China restricted natural graphite exports to the United States. The only other graphite mine in the region, which happens to be operated by a Chinese company, is just up the road.
Or consider vanadium, which is essential to aerospace-grade steel and titanium alloys. Without it, an F-35 becomes a $100 million paperweight. The same goes for rockets and hypersonic missiles. After a wave of bankruptcies and acquisitions, Chinese and Russian firms now control 75 percent of the world’s vanadium supply. Glencore’s Rhovan mine in South Africa and Largo are the only Western-aligned, vertically integrated producers of aerospace-grade vanadium pentoxide. Chinese firms have flooded the market to suppress prices and squeeze both operations. Issues plague Rhovan, and Largo is struggling. The Defense Logistics Agency hasn’t begun to stockpile it. Without intervention, the West may soon lose access.
Markets Can’t Fix This
Some argue the market will respond, but markets fail when a dominant player prioritizes geopolitical leverage over profit. Beijing has demonstrated its willingness to incur any level of debt to dominate strategic sectors. The Export-Import Bank of China isn’t chasing quarterly returns. It is executing long-term state strategy. American mining, construction, energy, logistics, telecommunications, and financial firms have little incentive to work together overseas, but the Chinese government regularly directs dozens of state-owned enterprises to execute sprawling projects.
Domestic mining will be essential to resolve America’s mineral supply chain vulnerabilities, but it will take years to develop adequate domestic human capital. Most new mines will reach production in the mid-2030s, even with fast-tracked permits. For near-term solutions, the country needs to invest abroad.
The United States and its close allies have some of the world’s largest and most liquid financial markets, but virtually none of that capital supports project finance in emerging and frontier markets. This is partly because Western investors are relatively unadventurous — American private equity associates do not travel to rural Zambia in search of good mining investments, but their Chinese counterparts do so regularly.
That said, investors are rightly hesitant since such projects rarely provide adequate risk-adjusted returns. A private equity manager in the United States typically targets 15 percent annualized returns in a jurisdiction with strong rule of law, stable regulations, and plentiful exit opportunities. Or they can deploy capital into a 20-year mining project in a developing country with questionable rule of law, significant reputational risk, high regulatory uncertainty, and minimal exit opportunities, knowing a hostile superpower will work to ensure the mine never turns a profit — for roughly the same projected returns if everything goes right.
Investors will only commit capital if they receive sufficient financial support from the U.S. government — and almost everyone agrees that governments ought to address market failures that jeopardize national security. But this is not happening.
The Missing Link: The Development Finance Corporation
I arrived in Washington a year ago thinking that, with critical minerals white papers surfacing every week, solutions were surely in the works. I was wrong. Aside from the Syrah Resources deal mentioned above, the U.S. government has committed virtually no capital toward overseas projects with a clear national security objective.
First, a quick tour of the institutions that could deploy strategic capital. The Department of Energy’s Loan Programs Office was only authorized to support domestic projects. The Department of Defense can support defense-related projects under Title III of the Defense Production Act, yet those authorities only apply to the United States, Canada, the United Kingdom, and Australia — places where Western investors are already comfortable.
The Export-Import Bank can deploy capital worldwide, but it is too constrained, risk-averse, and under-resourced to be effective. It primarily underwrites and insures U.S. goods and services exports, such as the American labor and U.S.-made machinery to build an overseas mine. The “U.S. content” in such projects is typically minimal, so the bank buys down almost no risk in practice — even with mildly helpful programs like the China and Transformational Exports Program and the forthcoming Supply Chain Resiliency Initiative. The bank also faces an immediate lending cap freeze if its default rate reaches 2 percent — an extreme level of risk aversion that effectively rules out any strategic competition role.
That leaves the Development Finance Corporation, created by the 2018 BUILD Act. The first Trump administration sought to use the agency as a counterweight to the Belt and Road Initiative, aiming to catalyze private investments and lending in emerging markets while advancing U.S. foreign policy. Yet most observers of the Development Finance Corporation agree that it is too small, heavily constrained, and excruciatingly slow. Its $60 billion portfolio cap limits new investments to a few billion dollars annually. Deals often languish in the pipeline for more than a year. Meanwhile, Chinese investors often make high-stakes decisions in a matter of weeks.
The agency suffers from severely constrained deal flow. Foreign governments and private sector investors were wary of working with a relatively new, small, unresponsive, and risk-averse institution even before the Biden administration diverted it from its strategic mandate. For years, projects have had to meet sweeping environmental, social, governance and diversity, equity, and inclusion criteria, which diluted national security outcomes. The “2024 Investment Activities” section of the agency’s 2024 Annual Report shows the rather unfortunate results. Meanwhile, Chinese investors offered far more money with no strings attached.
In summary, America’s top geopolitical adversary is executing a whole-of-government strategy to entrench global dominance over the supply chains that underpin Western economies and warfighting capacity. It’s already cutting off access to critical materials. The U.S. government has just one agency authorized to respond with capital. And it’s not functioning.
How to Fix It
This issue is solvable if the Trump administration makes it a priority, and there are hopeful signs. Trump has nominated Ben Black to lead the Development Finance Corporation. He co-authored a widely shared article with Joe Lonsdale in January calling for more purposeful capital deployment abroad. However, the agency remains under a hiring freeze, after having lost much of its key staff, and it will need comprehensive reforms.
First, clarify the mission. The Development Finance Corporation exists to advance U.S. interests in contested markets via strategic capital deployment. The agency is uniquely situated to do this, and development may form part of the strategy. It seems likely that Congress will address the agency’s mission and a range of other administrative issues during the reauthorization process later this year.
Second, wire the agency into the national security architecture. The National Security Council as well as the Departments of Defense, State, Commerce, and Treasury view the world through different lenses. The Development Finance Corporation can become the financial engine for their collective priorities. That requires intelligence inputs, interagency coordination, and a real-time common operating picture. Then use interagency resources to ensure investments succeed.
Third, redesign for speed. No deal should take more than 90 days to approve or reject. Priority projects should close within 30 days. That means building a mission-oriented staff with private sector experience and security clearances. It means leveraging on-premises AI to speed up rote tasks. And it means adopting a crisis posture — focused, streamlined, and urgent. None of this is possible while the agency remains under a hiring freeze.
Fourth, build a high-quality deal pipeline. Inbound deals must meet clear screening criteria — built and maintained with interagency input — so the agency can focus its limited resources. The agency will never match China’s scale dollar-for-dollar so it must punch above its weight by focusing on projects that are clearly critical to national security. Its personnel must begin to aggressively source relevant deals from industry, investors, U.S. embassies, other agencies, and foreign governments.
Finally, embrace risk. The agency’s risk aversion slows it down and constrains its deal flow. Congress should change the current equity scoring system, which effectively counts the agency’s equity investments as grants — in other words, as a total loss. A more sensible accounting system will free up many billions of dollars for equity investment. This is important since investing at the bottom of the capital stack means the U.S. government will take first loss if a project underperforms. That provides a financial buffer for private investors, who also feel more comfortable when they co-invest with the world’s most powerful government. The agency can also learn from its Chinese competitors and adopt a venture capital approach to early-stage mining investments with strategic potential.
The False Choice of “Domestic Versus Overseas”
Critics argue that taxpayer dollars shouldn’t fund risky projects in foreign countries. That argument misses the point. The U.S. economy — and its defense industrial base — depends on inputs from abroad. No level of protectionism can change that overnight. The United States either secures those inputs or leaves them vulnerable to adversaries.
Targeted investments can safeguard entire industries for a fraction of what the U.S. government spends on defense each year. Some will lose money. Many won’t. But even if they do, they will protect far greater value here at home. That’s not aid. It’s strategic insurance.
The United States is in a contest for control over the systems that make modern life possible — energy, transportation, semiconductors, and communications. China is acting accordingly. If the U.S. government wants to win, it needs to bring its most potent investment tool back into the fight.
Ben Kallas is the founder of Searchlight, a firm that advises investors on strategic infrastructure and mineral supply chain projects. A former Marine Corps intelligence and reconnaissance officer, he deployed to Helmand, Afghanistan with Task Force Southwest in 2017. He then served in the Indo-Pacific for three years, where he led multidisciplinary teams to support strategic competition operations. He holds an MBA from Harvard Business School.
Image: UK Government via Wikimedia Commons
