In April 2025, China imposed export restrictions on seven heavy rare earth elements. This change came alongside a new licensing regime, leading to a sharp decline in exports to the U.S. and other significant markets. Automakers found themselves scrambling to adapt, and the Pentagon raised concerns about potential risks to military readiness.
This move wasn’t entirely surprising. It signaled China’s strategic use of critical minerals, highlighting the vulnerabilities in U.S. dependence.
Experts are warning about the implications. Brigham McCown from the Hudson Institute urged that the U.S. needs to establish a “stable and forward-looking course” to protect national security and economic resilience.
Congress has an opportunity to respond. Nebraska Rep. Adrian Smith, a Republican, introduced a bipartisan policy called the Critical Mineral Investment Tax Modernization Act. It’s co-sponsored by California Democratic Rep. Jimmy Panetta and Pennsylvania Republican Sen. Guy Reschenthaler, with Ohio Republican Sen. Jon Husted also introducing a companion bill.
This legislative effort proposes amendments to existing tax laws, increasing the depletion allowance for domestically mined rare earth elements and scandium from 14% to 22%, bringing them more in line with other important minerals. In capital-intensive mining, after-tax returns are crucial for moving projects forward. This bill aims to enhance revenues, which could boost domestic production and decrease reliance on foreign supply chains.
The rationale for action seems quite strong. China is tightening export restrictions and improving its monitoring of processing technologies, maintaining a significant grip on the global scandium supply chain. Meanwhile, the U.S. hasn’t mined scandium commercially in decades and remains overly reliant on imports for essential rare earth inputs.
These vulnerabilities extend beyond commercial sectors and impact defense production as well. Rare earth magnets play a pivotal role in precision-guided weapons, advanced aircraft, and naval systems. Any disruptions in supply can slow down production and maintenance, which ultimately affects military readiness.
While the importance of scandium might not be immediately obvious, its alloys are increasingly vital, particularly in aerospace and future platforms, due to their strength-to-weight ratio. As demand rises, reliable access is crucial, but U.S. resources are limited and still heavily dependent on foreign sourcing. The burgeoning use of scandium in next-gen fighter jets and advanced defense technology has intensified the urgency.
Although these materials have long been integrated into foreign military platforms, the U.S., with the aid of the Department of Defense, is now aiming to establish a dependable domestic capability. There’s an initiative involving the Elk Creek project and a partnership with Lockheed Martin to enhance integration within the U.S. defense system.
The challenges here are economic rather than geological. Mining projects depend heavily on after-tax returns, and tax-related policies can significantly influence capital flow and project progression.
Some critics might view tax policies as secondary. Yet in the extractive sector, even minor adjustments can determine whether a project secures funding or faces delays.
The Trump administration has initiated steps to boost domestic mineral production, such as accelerating permitting processes and leveraging the Defense Production Act. These initiatives are headed in the right direction but require alignment of the economic conditions to be effective.
Congress is faced with a pivotal decision. China’s grip on critical minerals is becoming tighter, limiting the U.S.’s options. This proposed bill lays out tangible steps to reduce reliance on foreign sources and bolster both America’s industrial and military strength.
