Time for Resilient Critical Material Supply Chain Policies

The ongoing coronavirus disease 2019 pandemic and Russian invasion of Ukraine highlight the vulnerabilities of supply chains that lack diversity and are dependent on foreign inputs. This report presents a short, exploratory analysis summarizing the state of critical materials — materials essential to economic and national security — using two case studies and policies available to the U.S. Department of Defense (DoD) to increase the resilience of its supply chains in the face of disruption.

China is the largest producer and processor of rare earth oxides (REOs) worldwide and a key producer of lithium-ion battery (LIB) materials and components. China's market share of REO extraction has decreased, but it still has large influence over the downstream supply chain–processing and magnet manufacturing. Chinese market share of the LIB supply chain mirrors REO supply bottlenecks. If it desired, China could effectively cut off 40 to 50 percent of global REO supply, affecting U.S. manufacturers and suppliers of DoD systems and platforms.

Although a deliberate disruption is unlikely, resilience against supply disruption and building domestic competitiveness are important. The authors discuss plausible REO disruption scenarios and their hazards and synthesize insights from a "Day After . . ." exercise and structured interviews with stakeholders to identify available policy options for DoD and the U.S. government to prevent or mitigate the effects of supply disruptions on the defense industrial base (DIB) and broader U.S. economy. They explore these policies' applicability to another critical material supply chain — LIB materials — and make recommendations for policy goals.