The Chinese government in April implemented end-use license requirements on heavy rare earth elements and rare earth magnets…Why haven’t consumers heard of this issue or been affected? The main reason is that rare earth elements and magnets are generally procured by manufacturers months or years before the delivery of an end-item. What China restricts now will result in future product shortages for U.S. consumers. In other words, the supply chains for automobiles, consumer electronics, aircraft, industrial products, heating, ventilation and air conditioning, weapon systems, and many everyday items might currently be switched to the “off position.”…This is not the first time this has happened to us. Industry and government can reference previously implemented Chinese export restrictions as a test case…For years, the U.S. and partner nations enjoyed the benefits of Chinese-subsidized gallium and germanium supply chains. The adoption of gallium microelectronic technologies — some originally developed with Defense Department grants — grew in both the military and civilian sectors, with plentiful access to low-cost Chinese gallium lowering prices for microelectronics fabs and consumers. That changed when China implemented export licenses on raw, refined, and semiconductor-specific gallium and germanium products…From that point forward, exports of products from China would require an end-use certificate, and the export flows from China dropped quickly. After additional tit-for-tat U.S. and Chinese trade actions related to advanced technologies, China fully embargoed gallium, germanium, and antimony — another critical material — trade to the United States in December…It seems like the solution should be simple – national security supply chains should just procure non-Chinese materials. However, the reality is that this isn’t currently possible, and there are market failures that need to be overcome…First, China still has the capacity to produce these materials and flood the market, depressing prices. Due to our high health, safety, and environmental standards, it costs more to mine in the United States and allied nations than it does in China, so the ability to profitably produce is hampered if there is no market to bear that price premium…Additionally, the Chinese government’s export ban is purely a political decision. This makes any investment highly risky as the return on investment needs to be calculated assuming long-term Chinese prices for materials. Given the top-down, command-and-control nature of China’s economy, the baseline assumption must be that Beijing will be willing to subsidize the market and sell materials at prices well below the point where non-Chinese producers can make significant returns…This is not just theoretical. This happened before in the cobalt sector. Jervois Mining, an Australian company, was developing the only primary cobalt mine in Idaho. In 2023, as the project was advancing, China leveraged their position in the supply chain to flood the market with cheap cobalt, cratering the price. Jervois was forced to stop development, as the price they could sell cobalt for was now above the market price, controlled by China’s oversupply. The Defense Department stepped in and finalized $15 million of support to keep the project advancing. Absent this kind of intervention, that project would have died…Compounding the problem is that it takes years to ramp mining and processing capabilities, so even if awards are made today, the shortages will likely continue to persist for years until the new capacity comes online. Indecision has resulted in critically lost time…The National Defense Industrial Association is working on four actions to address this crisis…First is rapid investment by U.S. and partner nations in capacity outside of China…Rapid awards need to be made to a handful of suppliers now to get production going…Next, the U.S. government needs to commit to stockpiling significant quantities of heavy rare earth elements, gallium, germanium and other Chinese-centric materials from these emerging sources at prices that support the project’s development, not prices set by the Chinese. This will create a demand signal and protect industry in the long-term, if projects eventually stop producing…Third, there needs to be long-term commitment by the U.S. government to protect these investments from dumping by the Chinese. The market is in failure and needs a correction order to protect national and economic security. A strong intervention is required as non-defense focused manufacturers will likely go back to low-cost Chinese materials, if it is available, despite the security risks associated with this supply chain…And finally, establish a mechanism that would allow commercial and defense-focused manufacturers and consumers to specify non-Chinese gallium, germanium, heavy rare earth element and other critical materials.