DoD calls for whole-of-government effort to improve critical supply chains

The Defense Department said it will need at least $1 billion over the next five years to strengthen its stockpile of critical materials.

The recommendation comes from a report mandated by the White House that looked at supply chain issues at DoD, the Commerce Department, the Department of Health and Human Services and the Energy Department.

The Pentagon concluded that many of its supply chains for rare earth minerals and other strategic resources are at risk.

“These supply chains are at serious risk of disruption and are rife with political intervention and distortionary trade practices,” the authors of the report wrote. “Though the Department of Defense has requirements for strategic and critical materials, the civilian economy would bear the brunt of the harm from a supply disruption event.”

The report points out heavy reliance on countries like China, Russia and other adversarial powers.

“The unprecedented growth of the Chinese economy has fueled global growth in strategic and critical material markets, posing a strong incentive to reorient supply chains,” the authors wrote. “Since the end of the Cold War, China’s strategic and critical materials industry has expanded many times over to meet some of China’s domestic demand. Even in cases where other countries conduct the initial beneficiation of a strategic and critical material, China dominates the processing of strategic and critical materials, giving it de facto control over the flow of material through the supply chain.”

The United States is expecting an increase in the use of some rare earth minerals like cobalt as it starts to increase its use of green energy sources. Cobalt is an important fixture in batteries.

The report points out declines in U.S. production and processing operations for part of the decline in supply chain ownership.

The United States’ reliance on market principles is partly to blame for its loss of supply chain dominance.

“The Department of Commerce classifies China as a non-market economy, meaning China does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise,” the authors wrote. “This characterization reflects markedly different policy preferences in commercial markets, made particularly stark for strategic and critical materials. The dwindling U.S. production base for rare earth elements and rare earth-derived products illustrates these differences in policy choices and outcomes.”

Now the government may need to take a more hands-on approach to ensure it has the materials it needs for the future.

Along with strengthening the stockpile, DoD said the government needs to develop public-private partnerships to requalify materials from old products. The U.S. Geological Survey and other agencies also need to develop a national strategy to reclaim strategic materials from mine waste sites.

DoD said it will use the Defense Production Act to create incentives for sustainably-produced materials and scale research and development around them.

Finally, the Pentagon said it will work with global allies to strengthen the governance and transparency around critical material supply chains and provide financial incentives to increase sustainability in overseas mining practices.

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