The Secret Weapon in America’s Critical Minerals Strategy
The Development Finance Corporation can help America break China’s monopoly.
Earlier this summer, representatives from the United States and China sat down to negotiate an off-ramp to the ongoing trade war between the two great powers. And while the results of these talks remain uncertain, the factors that brought them to the table are clear. In the weeks leading up to the meeting, American industry leaders delivered a dire warning to the White House: China, which has a near-monopoly on rare-earth mining and processing, was restricting access to critical minerals and rare-earth magnets. If Beijing persisted, then manufacturing lines that produce smart phones, automobiles, and other essential products would grind to a halt.
This scenario thrust a decades-old concern into the modern era. Since 1980, leaders in Washington have stressed the need to secure rare earth supply chains to achieve strategic independence from America’s adversaries. The Trump administration made significant progress on this generational albatross in July when the Department of Defense announced a public-private partnership with MP Materials, the only domestic fully integrated rare earth producer. Alongside a $400 million equity and $150 million debt investment, the deal included an offtake arrangement with guaranteed price floors, aimed at insulating America’s rare earth and refinement industry from Chinese attempts to flood the market and destroy the already fragile economics of mining and production.
However, if the United States cannot guarantee a steady supply of critical minerals and their refined products, we will remain vulnerable to China turning off the spigot to these strategic resources. Fortunately, a solution is within reach. In the coming weeks, Congress will decide on legislation re-authorizing the International Development Finance Corporation (DFC), the little-known agency established during the first Trump administration as a counterweight to China’s predatory investment practices under its Belt & Road Initiative. The DFC maintains a dual mandate to advance U.S. foreign policy and economic development by mobilizing the private sector abroad, injecting capital and offering insurance to support projects that further U.S. strategic goals.
Given the great demand for rare earths and their refined products here at home, the DFC presents an opportunity to work with our foreign partners and American businesses to bolster our supply chains abroad. This is not a new idea; the creators of the BUILD Act, which authorized the DFC, envisioned the agency investing in key industries like mining, energy, and logistics. Unfortunately, results in the mineral sector have fallen short of these aspirations. Since operations began in December 2019, the DFC has made nearly 650 investments, fewer than a dozen of which are in mining-related projects.
Perhaps no example better illustrates why the agency has difficulty investing in this sector than Greenland, a strategically significant country rich in mineral resources. The United States has a clear interest in boxing out China and securing greater access to Greenland’s mineral wealth, yet it would be nearly impossible to do so using the DFC as currently constituted.
First, Greenland is designated a “High-Income Country,” or HIC, according to the World Bank’s country classification. The DFC uses this criterion as a guardrail and is largely prohibited from investing in HICs. Instead, it must prioritize lower-income and lower-middle income countries for investment. As a result, just five investments in HICs have received approval since the agency operationalized.
Adhering to the World Bank’s country classification criteria effectively sets a hierarchy on the agency’s investment approach and de facto prioritizes economic development over national security. Eliminating this requirement would be a prudent first step toward putting the agency on a footing where it can counter Chinese investment regardless of geography. Moreover, it would open the door to deeper partnerships with the United States’ strongest allies, many of whom are classified as HICs. Leveraging Australia’s expertise in extraction, Japan’s expertise in processing, South Korea’s expertise in battery manufacturing, and Germany’s expertise in magnet production, for example, would allow the United States to scale capabilities and create an ecosystem that is currently off limits due to DFC’s country restrictions.
If a hypothetical Greenland mining project did manage to move forward, then it would face an uphill battle during the underwriting process. Each greenfield extraction project undergoes rigorous scrutiny—internally and through the interagency process—, where it can be rejected by the likes of Commerce, Treasury, or State for reasons such as financial risk, developmental inadequacy, or political sensitivity. Additionally, these projects must complete Environmental and Social Impact Assessments (ESIAs), which detail potential in-country effects and macroeconomic impacts. ESIAs can add months and significant costs to an already lengthy process, which often takes more than a year to complete.
Although there is room for quick process wins—the agency could increase utilization of the relatively less comprehensive “skinny” ESIA to cut down on costs and shorten lead times—the race for strategic independence will not be won through bureaucratic fine tuning. The DFC deserves a clear, unmistakable mandate to invest in the critical mineral supply chain. Without supplemental legislation enacting this directive, these projects will always be vulnerable to “death by a thousand cuts” during approval. A mandate would shift the agency, and those involved in the interagency review process, from a risk-averse posture to a forward-leaning posture that seeks creative solutions to mitigate concerns in service of the larger national security goals.
And while the underwriting process is adept at identifying potential consequences of making an investment—such as reputational risk and return profiles—it can be more muted on the consequences of not investing. In this new Cold War with China, we need to be acutely aware of the reality of non-engagement. For every rare earth project Washington passes on, Beijing has the capital and capability to fill the void. Moreover, China has demonstrated it does not have the same concern for issues like workers’ rights or the environment that the West does. For instance, Sino-Metals Leach Zambia, a Chinese state-run mining subsidiary, has been accused of covering up the extent of a toxic spill from a dam breach at one of its Zambian copper mines earlier this year. Following the collapse, wastewater containing cyanide, arsenic, lead and other pollutants flowed into the nearby Kafue River, which provides drinking water and irrigation for half of Zambia’s 21 million people. On the eve of the release of an environmental assessment outlining the extent of the damage, Sino-Metals Leach Zambia terminated the contract of the company authoring the report in what appeared to be a last-ditch effort to silence the truth and avoid accountability.
Introducing a mandate centers these broader geopolitical concerns into the DFC’s investment thesis and contextualizes risk against the backdrop of national security. Moreover, a mandate demands results. If the agency demurs on a mining supply chain project, then it should outline the consequences of its non-engagement with a thoroughness resembling an ESIA. Prioritizing the mineral supply chain forces the DFC to explicitly weigh the risk of investment against the potentially devastating consequences of inaction.
Finally, if our hypothetical mining project were greenlit, then the DFC could not easily deliver what these projects so desperately need: equity. Mining projects are inherently long term and can easily take a decade between the initial exploration phase and when the extraction of ore begins. Equity, unlike debt, does not require repayment terms, which can severely impact cashflow during the quest to achieve breakeven. Further, equity allows for a seat at the owner’s table. Here, the government can lend its voice and act as a strategic partner to guard against China’s mercantilist assault on America’s extraction and processing industry.
Although the BUILD Act allows equity investments, the DFC has not been able to operationalize this tool in a meaningful way. Currently, equity investments by the agency are accounted as an initial loss by the Office of Management and Budget (OMB). This overlooks any likelihood of return on investment and runs counter to the intent of Congress when it granted equity authority through the BUILD Act. In a climate of heightened fiscal awareness, this has had a chilling effect. Since 2020, of the nearly $38 billion in active projects listed by the DFC, less than $2 billion has been allocated as equity. Congress providing further clarity on equity investments would be welcomed by both the DFC and OMB, who have operated in good faith on this issue, even though their goals have often been in tension.
To get the equity issue back on track, Congress should pursue a two-part approach. First, it should enact a scoring system that no longer treats equity investments as a total loss. Some have suggested a Net Present Value methodology that would reflect the initial outflow of capital against expected inflows such as fees, dividends, and financial exit. These figures can be periodically revisited, as they would be in the private sector, to reflect current market conditions. Congress should also clear the way for the DFC to utilize any profits from these investments for future use, instilling market incentives for successful capital deployment. This revised methodology would be a welcomed improvement over the current scoring system, which neither reflects the nature of equity nor the intent of the BUILD Act when it granted this authority.
Second, the DFC’s maximum contingent liability should be increased to $120 billion. Today, the DFC’s active portfolio is $56 billion and the agency has a clear pathway of projects in its pipeline to blow past the current $60 billion cap. When mining projects can run into the hundreds of millions of dollars, who can blame the agency for being gun shy about deploying its capital? This issue is exacerbated by the fact that equity counts against the agency’s budget and liability cap, making it prohibitively expensive to deploy at scale. Raising the contingent liability ceiling would provide the agency with the flexibility to pursue these investments, which require long-term reliable partners to withstand the fraught economic environment often worsened by Chinese market intrusion.
Acknowledging these challenges, the political leadership at the DFC has pledged to prioritize critical minerals as a central component of their national security strategy. To their credit, notable progress has been made in the early months of the second Trump administration. For instance, the DFC recently announced a $75 million investment in Ukraine’s critical minerals sector. While encouraging, this effort highlights a broader challenge: the agency is hamstrung from making these investments at the necessary scale and pace. Averaging only a few projects per year in these strategic areas, the DFC’s current capabilities fall far short of what is needed to secure supply chains and counter China’s growing influence. This underscores the urgent need for legislative action to enable the DFC to operate more strategically and effectively at scale.
Although our hypothetical Greenland project has served as a useful thought exercise, it is important to remember that we are in a competition, and the consequences of failure are quite real. China has had a mandate to invest in mining, and other key sectors, stretching back to its Belt & Road Initiative in 2013. Today, China extracts 70 percent of the world’s rare earth minerals and accounts for 90 percent of their chemical processing. We no longer have the luxury of ceding this field to China, an adversary that has weaponized its monopolistic advantage—and cut corners, often at great human cost—to maintain its position.
The BUILD Act’s authorization of the DFC is set to expire on October 6, 2025. Congress would be wise to embrace the agency as a key weapon in the U.S. government’s arsenal against China’s economic warfare. But it should move forward with the knowledge that reauthorization is only a half measure. To meet the moment against a mercantilist China requires supplemental legislation clearing the way for investment in any geography with pressing national security interest, establishing a critical mineral mandate, and fully unleashing the agency’s equity authority.
Failure to do so would only continue an unbroken chain of unmet expectations stretching back to the days of President Jimmy Carter. The only difference this time? We can no longer afford to lose.
Owen Dorney is Vice President of Strategic Partnerships at the Hudson Institute. He previously served as a political appointee at the Development Finance Corporation and its predecessor agency, the Overseas Private Investment Corporation, from 2017 to 2021.