Supply Chain Strain: Why Trump's Unpredictable Tariffs & Latest Tax Bill Undermine Our Clean Energy Economy
Hello friends,
Another week, another round of trade pivots (promises made, promises broken). International trade has always been complex, but the on-again off-again Trump tariffs raise questions for global supply chains and our domestic economy.
To try to make sense of the economic implications of this week’s tariff announcement, as well as the Republican budget bill, we’re zooming into the rare earth minerals market. These minerals (which are actually not in fact rare, but rarely clumped together in ways that are easy to mine without high costs or pollution) are essential to the manufacture of a variety of things important to consumers and to our national security, from smartphones to electric vehicle motors to fighter jets. We have historically imported over 90% percent of the rare earth minerals we use, and when you factor in the tariff uncertainty we are seeing under Trump, it makes the ability to manufacture these goods even more difficult and costly. So, what does this week’s news mean?
Strengthening domestic supply chains is crucial for both national and economic security, which is why making things in America has always been a top priority. But we also know that abrupt, overnight shifts away from global supply chains for materials we have never produced at scale makes it that much harder to build a clean energy economy – and see growth overall. Chaotic trade policy coupled with massive cuts to clean energy programs creates uncertainty for American businesses and consumers across the country. Let’s dig into the data.
Chart of the Week
United States Geological Survey data shows that in 2024, China produced 270,000 metric tons of rare earth elements, compared to the rest of the world’s 120,000 metric tons.
Diving into the news
On Wednesday morning, President Trump sent letters to 14 countries outlining tariffs they will face if trade deals are not made with the United States by August 1st. Taken together, last year these 14 countries exported $465 billion in goods to the United States, with Japan and South Korea contributing 60% of the total.
China did not receive a letter. In early June, they agreed to a revised framework, down from the triple-digit tariffs temporarily imposed on Chinese goods sold in the United States. However, this is only a partial deal: China has threatened the administration with the resumption of countermeasures, such as critical mineral restrictions, if Trump puts higher tariffs in place on August 1st.
And China has a Trump card: they control over 70% of production of rare earth minerals. China’s dominant position in the market has allowed them to deploy the advantage as a weapon in the trade war with President Trump.
Case in point: China produces the world's supply of samarium, a critical metal for military technology used in guided missiles, satellite guided “smart bombs,” and fighter jets. In April, China put in place export controls on seven rare earth minerals and began issuing licenses for dysprosium and terbium, which are used in brake and steering systems, to automakers in Europe and the United States. However, there are still no signs of license issuing for samarium.
At this time, the United States does not have a robust infrastructure for mining or processing rare earth minerals. The Biden Administration encouraged domestic production and supported stable demand. For example, the Inflation Reduction Act provided tax credits for manufacturers of “eligible components” and authorized DOE loan guarantees to projects that “increase the domestically produced supply of critical minerals.” However, the Republican budget bill eliminated credits for vehicles acquired after September 25, 2025, which will affect the incentives for car manufacturers to prioritize domestic supply chains.
Yesterday, the Department of Defense became the largest shareholder in California’s Mountain Pass Mine, which is currently the only operational rare earth minerals mine in the United States. At this time, the extraction firm MP Materials only has the capacity to supply 0.003% of China’s magnet capacity, but the DoD has pledged billions to boost output and has established a 10-year price floor for key rare earths.
What this looks like on the ground
Texas: The world’s largest producer of rare earths outside of China, Lynas Rare Earths Ltd., planned a refinery project in Texas to act as a crucial alternative supplier in the market. Cuts to DOE loan programs and ever-changing tariff policies will subject the project to surging input costs and potentially unworkable restrictions.
Massachusetts and Rhode Island: Power purchase agreements for 2025 have been delayed for a fourth time in a year due to the Trump administration’s pause in permitting and cuts to clean energy tax credits. South Coast Wind, one of the stalled projects, would produce 1,200+ MW for customers in Massachusetts and Rhode Island.
Michigan: President Trump's threat to impose a 50% tariff on copper could sharply raise input and production costs for Michigan manufacturers – particularly in automotive manufacturing – which makes up 83% of the state’s economy.
The Trump Administration’s industrial and economic policy frustrates me endlessly. We all agree that we want to make things in America, that economic and national security are important goals. The Biden Administration’s approach was a long-term strategy that married targeted trade policies with clear incentives for industries on both the supply and demand side, with serious analysis and action to build out the resilient supply chains we need. The Trump Administration has dismantled that strategy, replacing it with tariff threats (and then retreats), and rolled back incentives designed to create stable demand for domestically produced minerals to pay for massive tax cuts for the wealthiest Americans.
Have a terrific weekend and thanks for reading!
Best,
Heather