Winning the Minerals Race Requires Building Demand, Not Just Supply

The United States has made real progress on the supply side of critical minerals security. New mines have been permitted, processing investments backed, and stockpiling authorities expanded. But supply-side progress alone is not enough. Markets for critical minerals are currently in disequilibrium: Supply is outpacing demand, prices are depressed, and private capital is slow to materialize. The reason is straightforward—investors will not finance expensive new mines and processing facilities unless they can see credible, long-term buyers on the other end.

That demand signal is largely absent. The United States is a relatively small direct consumer of many of the minerals at the center of its own supply chain policy. CSIS analysis shows that in 2024, the United States accounted for just 4.5 percent of global nickel consumption, 3.6 percent of cobalt, 1.7 percent of rare earths, and 3 percent of gallium. These low shares reflect the fact that the United States often imports finished goods rather than raw materials processed domestically. The result is a country that is deeply dependent on foreign mineral supply chains but represents only a marginal share of the demand that would justify building alternatives.

Defense procurement, often assumed to be the anchor buyer for critical minerals, cannot fill this gap on its own. The defense sector is a relatively small offtaker in volume terms—it accounts for just 10 percent of batteries produced, and often far smaller percentages of most other critical minerals. Projects sized to serve defense needs alone typically lack the scale to achieve cost competitiveness or attract private capital. Critical mineral supply chains cannot be built around the defense industrial base alone.

What Demand-Side Policy Actually Requires

1. Prioritize support for the electric vehicle (EV) industry. Increasing demand for EVs will be critical to strengthening demand for upstream critical minerals. While a traditional internal combustion engine vehicle requires roughly 32 kilograms of critical minerals, an EV requires closer to 210 kilograms—more than a sixfold increase. Scaling EV adoption, therefore, has a direct and material impact on mineral demand, helping absorb excess supply, stabilize prices, and improve the commercial viability of new mining and processing projects.

China’s dominance in critical minerals markets has been driven not only by upstream control, but by building demand through downstream manufacturing—most notably via BYD. China pursued an integrated, mine-to-manufactured-goods strategy: securing mineral supply through strategic overseas investments and offtake agreements, developing extensive domestic processing capacity, and scaling EV manufacturing to create sustained demand pull. This vertically integrated model has allowed China to shape both supply and demand dynamics across the value chain. China’s EV industry did not develop through free market economics. Between 2009 and 2023, BYD received at least $230.8 billion in government support. This helped it create an empire from Beijing to Rome to Mexico City.

The implications for the United States are significant. If companies like BYD continue to achieve dominant global market share, it will erode the competitiveness of U.S. automakers such as General Motors, Ford Motor Company, and Stellantis. In this context, EV adoption is not a climate objective; it is increasingly a strategic lever for sustaining industrial competitiveness and securing upstream resource supply.

EV-related production tax credits bolstered U.S. manufacturing. The expiration of the $7,500 federal tax credit drove a surge in EV sales in the third quarter of 2025, as consumers accelerated purchases ahead of the incentive’s phaseout. Tesla, Ford Motor Company, and General Motors each recorded their highest electric vehicle sales to date, with General Motors more than doubling its U.S. EV sales compared to the prior year.

The rollbacks of the tax credits have had significant impacts on U.S. jobs. According to the Bureau of Labor Statistics, vehicle and parts manufacturers eliminated approximately 21,000 jobs in the United States in 2025. Ford Motor Company, General Motors, and Stellantis, the transatlantic parent company of Chrysler, Fiat, Jeep, and Peugeot, reported multibillion-dollar losses at the end of 2025 as they scaled back, delayed, or canceled portions of their electric vehicle investment plans.

2. Establish an industry-agnostic minerals sourcing incentive. Current policy tools are fragmented across sectors and end uses. For example, the Section 30D tax credit in the Inflation Reduction Act (IRA) provided a $7,500 tax credit if the minerals used in EVs were sourced in the United States or countries with which it had a free trade agreement. This left defense primes, semiconductor producers, and other advanced industries without comparable mechanisms to diversify their mineral supply chains. It created an uneven landscape that rewards sourcing decisions in some sectors while offering limited support in others. China’s export controls on critical minerals do not differentiate by end use; U.S. policy should take a similarly comprehensive approach to strengthening supply chain resilience. Any product manufactured in the United States or an allied country that incorporates minerals sourced from these jurisdictions should be eligible for a tax credit. Such a framework would broaden demand, strengthen supply chain resilience, and better align industrial policy with the realities of global mineral markets.

3. Extend and refine the Section 45X production tax credit (PTC). Beyond a new universal framework, existing tools also need repair. Section 45Xof the IRA provides a 10 percent credit to taxpayers for the costs incurred during the production of critical minerals to specified levels of purity. The credit was intended to expand domestic production of critical mineral components for clean energy technologies. According to the rules published in November 2024, while the credit phases out for all other components, including solar, wind, and battery components by 2032, critical mineral projects were not subject to the phaseout, meaning the credit maintains its value in perpetuity. However, in 2025, Congress voted to phase out the Section 45X tax credit in 2032—undermining the economic viability of beneficiary projects.

Expanding the Section 45X PTC—both by extending its duration and broadening eligibility across industries—is critical. Automotive manufacturers, defense primes, and battery producers alike can benefit from the Section 45X Advanced Manufacturing Production Credit. It is one of the most effective tools currently available to support domestic mineral and materials production. Unlike project-based credits, 45X rewards production directly, lowering operating costs and helping Western firms compete against heavily subsidized foreign producers, particularly in China.

Additionally, increasing the Section 45X credit for critical minerals to 20 percent for the first five years it is claimed by a taxpayer, with the incentive stepping down to 10 percent thereafter, would strengthen early-stage project economics and help ensure companies can meet internal hurdle rates. The higher initial credit would improve cash flow during the most capital-intensive and highest-risk phase of development, when financing constraints are most acute. A predictable step-down structure would also preserve long-term fiscal discipline while providing sufficient near-term support to catalyze investment, accelerate project timelines, and crowd in private capital across mining, refining, and processing segments of the supply chain.

4. Use compliance standards, not environmental, social, and governance criteria, to create a differentiated market. There is broad interest in using environmental, social, and governance criteria to reward responsibly sourced minerals with premium pricing. In practice, ESG criteria are difficult to translate into enforceable price differentials. Compliance-based standards offer a more viable path. Requirements tied to existing law—particularly the Uyghur Forced Labor Prevention Act (UFLPA)—are clearly defined, enforceable, and already familiar to industry. Companies that are unwilling to disclose detailed supply chain data for intellectual property reasons are generally willing to certify compliance with established statutory standards.

Building differentiated markets around these compliance requirements—where certified producers command better pricing and preferred access—would reward responsible sourcing without creating new regulatory architecture. It converts an existing enforcement mechanism into a market signal.

5. Harmonize defense sourcing requirements. The current regulatory environment for defense mineral sourcing is a patchwork of overlapping and sometimes inconsistent authorities: Section 889 of the FY 2019 National Defense Authorization Act, the Defense Federal Acquisition Regulation Supplement (DFARS) sourcing restrictions, Buy American and Trade Agreements Act requirements, the UFLPA, International Emergency Economic Powers Act, and the Committee on Foreign Investment in the United States (CFIUS). Each framework was designed independently, and their interaction creates significant compliance friction for the industry. Companies face duplicative certification requirements, unclear guidance on allied alternatives, and slow procurement timelines as a result.

Harmonizing these authorities—providing clearer definitions of prohibited sources, covered materials, and acceptable allied substitutes—would reduce compliance costs and accelerate procurement. Establishing a single certification office with authority to issue unified compliance approvals across all sourcing requirements would be particularly valuable, giving defense contractors a single “stamp of approval” rather than requiring them to navigate each framework separately. It is important to note that DFARS requirements cannot realistically be extended across the broader commercial supply chain. Defense demand is simply too small a share of most manufacturers’ total customer base for defense-specific sourcing rules to drive commercial investment decisions. Harmonization should focus on reducing friction within the defense procurement system, not on expanding its reach.

6. Pool allied demand. The United States faces a structural disadvantage in supply chain calculus: It is a relatively small direct consumer of many of the minerals it seeks to secure. In 2024, the United States consumed less than 5 percent of the world’s nickel, rare earths, cobalt, and gallium. A country that represents less than 2 percent of global rare earth consumption cannot, on its own, generate the offtake commitments required to bring new mines, refineries, and processing facilities into production outside of China. Improving the economics of mineral production and processing requires demand aggregation.

The United States’ 343 million consumers represent only a modest share of global demand. But a coalition spanning Australia, the United Kingdom, India, the European Union, Canada, Japan, and South Korea would bring that total to roughly 2.6 billion people—a 7.5-fold expansion of the potential market for minerals-intensive goods. At that scale, processing and refining facilities that cannot be commercially justified on U.S. offtake alone become viable: a smelter or separation plant that would struggle to survive serving one country can thrive with guaranteed demand from many buyers.

In February 2026, the new multilateral Forum on Resource Geostrategic Engagement (FORGE) was announced. Establishing a joint offtake commitment framework among FORGE member nations, modeled on the NATO defense spending commitment, under which participating governments agree to source specified percentages of critical mineral procurement from allied producers, can help. Under this framework, participating governments would commit to sourcing a defined share of their critical mineral needs from allied producers. Such coordinated demand signals would provide the long-term revenue certainty needed to attract private capital into mining, refining, and processing projects.

Conclusion

The United States has treated critical minerals primarily as a supply problem, when it is equally a demand problem. Supply-side investments create the potential for resilient supply chains; demand-side policy determines whether that potential is realized. China built its dominance not only by controlling resources and processing capacity, but by controlling demand through state-directed purchasing, long-term offtake agreements, and industrial policy that integrates upstream and downstream in a single commercial logic. Competing with that model requires the United States and its allies to develop an equivalent demand architecture: creating incentives, broadening and extending 45X PTC, pooling allied purchasing power through FORGE, and building markets that reward compliant producers with genuine price advantages.

Gracelin Baskaran is director of the Critical Minerals Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

This Commentary was made possible through generous support from General Motors to the CSIS Critical Minerals Security Program.