The REAL impact of the Metals Act on materials critical to national defense

Earlier this year Representative Duncan Hunter (CA) introduced the “Materials Essential To American Leadership and Security Act of 2017 (METALS Act)”.

The bill seeks to counter the precarious situation the United States finds itself in—completely reliant on foreign sources of strategic and critical materials, including rare earth elements. With the People’s Republic of China accounting for more than 90 percent of the world’s production of rare earth elements, and given the criticality of these materials in numerous defense weapons systems and applications essential for ensuring our national security, the METALS Act would provide a mechanism to re-establish a domestic industrial base for these materials and create access to safe and secure supply chains.

Over the past two decades we have witnessed China assert its dominance in the marketplace for strategic and critical materials, manipulating prices and driving foreign competition from the market. This manipulation had a devastating effect on U.S. companies, with all major domestic producers of rare earth elements ceasing operations by 2015. Destructive mining practices in China, often ignored or condoned by the government, have allowed the country to continue to consolidate the industry in China and maintain a monopoly on the market.

The METALS Act would create a Strategic Materials Investment Fund within the Department of Defense that would make funding available to domestic companies seeking to commercialize separation and processing technologies and provide an alternative to foreign sources or material. The Fund would provide 5-year, interest-free loans to those companies who succeed in developing new and innovative manufacturing techniques for strategic and critical materials. This fund would leverage just 1 percent of the overhead costs of the major defense weapons systems most reliant on strategic and critical materials. In the spirit of a revolving fund, any loan issued to a company would have to be paid back in full at the end of the loan period, and the funds would be reinvested to address additional strategic and critical materials challenges. In an effort to mitigate any increased costs faced by prime contractors for procuring domestically-produced strategic and critical materials, the fund sets aside a portion of its funding for reimbursement.

The Strategic Materials Investment Fund is designed to aid domestic companies in securing low-cost access to the funding needed to commercialize new technologies. The Fund is not meant to permanently subsidize an entire industry or bail out unprofitable firms. In fact, as written, the Fund would sunset at the end of the 2023 fiscal year with any remaining funds returned to the Treasury.

The objective of this bill is to support and strengthen our domestic industrial base by providing necessary capital to companies attempting to bridge the “Valley of Death” without reducing the quantities or capabilities of major defense acquisition programs. Funding for the Strategic Materials Investment Fund is specifically derived from the Department of Defense’s internal programmatic administration funds, not out of procurement quantities or research activities. This bill is a means to encourage American innovation and independence from non-allied foreign powers and provide a safe and secure supply chain for the Department of Defense.
​
This piece was originally published in InvestorIntel.