The Commerce Department recently announced a $1.3 billion loan and $277 million in direct funding for USA Rare Earth, in return for an equity stake and warrants that are worth about 10% of the company.
... “This investment ensures our supply chains are resilient and no longer reliant on foreign nations,” Secretary Howard Lutnick said. If only. While the Texas and Oklahoma investments are promising, the government deal doesn’t solve America’s rare-earths challenge. It’s also fraught with political risk.
.... But government ownership of companies raises the risk that politics will influence business decisions. See how the French government has used its minority stake in automaker Renault to limit layoffs and dictate investments in the country.
Government ownership also increases the risk that officials will exercise favoritism to avoid losses and benefit cronies. ...
The Administration has also taken stakes in other mineral companies, including ... Trump officials don’t care about such apparent conflicts. But Republicans in Congress could put limits on state socialism in appropriations bills. Think of how a future Democratic President would imitate the Trump investment model—how about the government buying shares in electric-vehicle startups?
A better idea to counter China’s rare-earth dominance is to coordinate development of mines and processing facilities with allies, as the White House has sought to do with Australia. The Administration could also guarantee government purchases of rare earths and fast-track permitting, as Mr. Trump’s Operation Warp Speed did for Covid vaccines.
It’s a mistake to think that the only way to beat China is to emulate its statist model. (read it all)
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