The Shareholder State: Washington’s Improvised Bet on Critical Minerals

China’s leverage is not limited to export controls. It also derives from its ability to manipulate critical minerals prices. Chinese producers—supported by state subsidized financing, preferential access to cheap energy, industrial policy, and demand from an enormous state-directed domestic market—can, unlike market-based competitors, tolerate low or even negative returns. For the United States and its allies, price declines orchestrated by China can make prospective projects uneconomic, deter private investment, and bankrupt new producers before they reach scale. China can then tighten supply once competing capacity has disappeared.

China’s weaponization of its critical minerals has created a national emergency. The United States must de-risk its supply chains far faster than market forces would naturally permit. That requires industrial policy intervention, public-private partnerships, and public financing. The harder question is what form that financing should take.

The Trump administration has increasingly answered that question by taking equity and quasi-equity positions in strategically important companies and projects. CFR’s “U.S. Government Deal Tracker” records investments announced since January 2025 involving common and preferred shares, warrants, as well as other instruments through which the government participates in future value. Those investments span several sectors, but critical minerals have become one of the most important testing grounds for Washington’s emerging role as a shareholder.

Equity also gives taxpayers a claim on future gains. Federal support can transform a company’s prospects: an investment may be accompanied by government purchasing, preferential financing, price protection, or infrastructure support—all of which increase the value of the enterprise. If taxpayers assume the risk and public action creates that value, private shareholders should not capture all of the upside.

The principle is straightforward: when taxpayers assume equity-like risk, they should receive equity-like returns. This also means taxpayers (and Congress) must be prepared to take equity-like losses—although, from a U.S. budget-scoring perspective, unlike a grant—whose budgetary cost is generally close to the full amount disbursed because it requires no repayment—an equity investment gives taxpayers an asset and the possibility of recovering some or all of their investment, or earning a return. The precise budget treatment depends on the transaction’s structure and statutory authority, but equity can reduce the government’s ultimate net cost when investments generate dividends or sale proceeds.

Equity alone cannot make a critical minerals company viable. A well-capitalized producer can still fail if it has no committed customers or if Chinese oversupply drives prices below its cost of production. Government support must therefore address two additional problems: demand and price.

Long-term offtake agreements address the demand problem. A credible purchase commitment—specifying volume, duration, pricing, and enforceable obligations—converts prospective production into revenue that banks and investors can finance. The government can buy directly for defense requirements; aggregate demand among defense contractors; or help bring auto, technology, and energy companies into long-term contracts. The United States has used offtake agreements for years to lock in supply and enable private lenders to secure loan repayments.

Price support, meanwhile, addresses the risk that Chinese production or market intervention will destroy otherwise competitive capacity. A price floor can keep an essential producer operating through a severe downturn. But an unlimited floor places excessive risk on taxpayers and can weaken incentives to manage costs. A price collar is generally preferable: the government guarantees a minimum price sufficient to sustain production while establishing a ceiling above which the company shares additional returns with the government, repays earlier support, or contributes to a reserve. A collar protects producers against predatory pricing without allowing them to privatize windfall gains.

The Department of Defense’s 2025 agreement with MP Materials illustrates the value of combining instruments. The package included preferred equity, warrants (options to purchase additional shares at a fixed price), a long-term minimum-price arrangement, a commitment to purchase magnets from new domestic capacity, and a separate expansion loan. Equity strengthened the company and entitled the government to share in its appreciation. The offtake commitment created demand. The price mechanism protected production from market manipulation. The loan helped finance physical capacity. No single element would have accomplished the objective alone.

The correct approach, then, is not to choose equity over other instruments. It is to layer them—each one targeting a distinct risk.

The Trump administration is already experimenting with several ownership structures in the critical minerals space.

The MP Materials transaction represents direct investment in a publicly traded American company; other deals use warrants or interests in project-level entities. Korea Zinc’s 2025 partnership with the U.S. Defense and Commerce Departments, to build a large smelting and refining complex in Tennessee, represents something different: U.S. government-supported foreign direct investment in a subsidiary of Korea Zinc—Crucible Metals, LLC—to bring allied minerals processing onshore at scale.

Commerce described its Korea Zinc commitment as $210 million in incentives for a facility intended to process thirteen minerals, eleven of them critical minerals. The broader $7.4 billion investment involves Korea Zinc, private investors, and the Defense Department in the U.S.-based processing Crucible Metals joint venture. Rather than subsidizing imports from an ally, the U.S. government is helping transplant allied technology, management, expertise, and production into the United States.

Congressional critics have raised legitimate questions about federal ownership positions in MP Materials, Lithium Americas, Trilogy Metals, Vulcan Elements, ReElement Technologies, Korea Zinc, USA Rare Earth, Atlantic Alumina, and other companies. They ask what legal authority supports the transactions, why particular firms were selected, how interests were valued, and what safeguards prevent favoritism. They also question how the government will manage conflicts among its roles as shareholder, lender, customer, regulator, and permitting authority—and whether personal conflicts of interest involving the Trump family and associates have influenced which companies receive support.

These concerns are legitimate and should not be dismissed as hostility to industrial policy. Government equity presents risks that grants and tax credits do not.

Once Washington becomes a shareholder, it has a financial interest in a particular company’s success, which could distort procurement, permitting, regulation, or enforcement. It could also make the government reluctant to back a superior competitor, a recycler, an alternative processing technology, a materials substitute, or a producer of rare-earth-free magnets.

The legal authority is also uneven. DFC was established as an investment institution and has explicit authority and processes for equity investments. The Departments of Defense and Commerce were not designed to operate equity portfolios.

Commerce’s use of CHIPS funding is especially sensitive. Congress authorized CHIPS incentives for semiconductor manufacturing and related supply chains, and critical minerals such as gallium, germanium, and others are clearly relevant. But using that funding to support a critical minerals processing venture may exceed what Congress intended. Even when the underlying project is strategically compelling, an expansive reading of appropriated authority invites legal and political challenges.

DFC reports equity positions through its own financial statements and has an institutional structure for portfolio management. Elsewhere, shares, warrants, fund interests, and joint-venture stakes can remain on the books of individual departments or component entities and be valued under different methods. Federal accounting standards have not historically offered a complete, uniform framework for investments in nonfederal entities. Agencies have instead relied on federal budget scoring—analogous to loan-accounting rules—fair-value practices, and Office of Management and Budget guidance.

The DoE also invests in equity stakes—for example, in publicly traded Lithium Americas, where a previous DoE Loan Program Office loan was restructured to take a 5 percent equity stake in the company through warrants to purchase common shares of the company at an exercise price of $0.01 per share, along with a 5 percent economic stake in Lithium Americas’ joint venture with General Motors at Nevada’s Thacker Pass lithium mine. According to the DoE, the revised agreement includes “robust loan amendments as well as more than $100 million of new equity.” 

Given the Trump administration’s new penchant to invest in equity, it is remarkable, then, that In-Q-Tel’s Compass Fund—the key U.S. government venture capital (VC) investor in early-stage frontier mining technology companies, from seed capital through Series B equity—disbanded in early 2026. That is unfortunate. As Silverado Policy Accelerator’s Mahnaz Khan and I argued in the CFR Special Report Leapfrogging China’s Critical Minerals Dominance: How Innovation Can Secure U.S. Supply Chains—bridging the so-called valley of death for innovative technology companies that can leapfrog China’s chokehold on critical minerals and rare earths is the single best case for direct U.S. equity investment. Smaller amounts of U.S. taxpayer dollars can serve the national interest most when invested in frontier technology, solving for market failure and taking risks on companies, including those scaling up from U.S.-funded national labs and research universities. The United States needs a specialized frontier mining technology VC vehicle like the Compass Fund to fill that role.

China did not build its critical minerals dominance by relying on short-term market signals, and the United States cannot dismantle that chokehold by issuing grants and hoping private investors follow. It needs a sophisticated public-finance strategy that combines equity, loans, grants, bankable offtakes, stockpiling, and carefully structured price collars.

Equity should be part of that strategy. It gives strategically important companies capital they cannot otherwise obtain, gives the government leverage to secure public benefits, and gives taxpayers a share of the value their support creates. But it will succeed only if Washington treats its emerging portfolio as a national security instrument rather than a collection of improvised deals.