Trump's mineral megadeal is bypassing US laws

E&E News

4 hours ago

The Trump administration is quietly taking steps to circumvent federal laws in its quest to bolster U.S. mineral production.
When Trump officials forged a multibillion dollar deal to become the biggest stakeholder in a Las Vegas-based company operating the nation's only rare earths mine in California, the Department of Defense never held a press conference or doled out the details about its megadeal with MP Materials.
The deal, aimed at boosting the nation's output of rare earth magnets used in EVs, electronics and weapons, could act as a model for other projects in the pipeline.
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But tucked into the mining company's financial filings is language showing how the DOD relied on a rarely used part of the Cold War-era Defense Production Act to sidestep standard and routine procurement and contracting laws. That move troubles public-interest watchdogs, former agency officials and legal experts.
The megadeal is advancing unburdened by the Federal Acquisition Regulation, Cost Accounting Standards, the Competition in Contracting Act and the Truthful Cost or Pricing Data Statute, according to the company's financial filings.
It's an unprecedented, though legally defensible, strategy that invites both risk and reward, said Joel Dodge, director of Industrial Policy & Economic Security at the Vanderbilt Policy Accelerator.
The perils include making the process less competitive, picking 'winners and losers' within an industry, and weakening guardrails that are in place to protect taxpayers, said Dodge. And those vulnerabilities especially matter given that the DOD's arrangement with MP Materials could also be the first of many. Trump officials who huddled with other rare earth producers in recent weeks said similar deals are in the works.
'This certainly looks like it might be the new playbook for these types of deals,' said Dodge. 'If it's not going to be a one-off, I would probably expect that this would be the starting point for future partnerships along the order of MP Materials.'
MP Materials declined to comment, deferring questions to the DOD.
Tyson Slocum, director of Public Citizen's Energy Program, said past administrations have used the Cold War-era law in various ways, including to address supply chain issues during the pandemic, but not to circumvent existing laws. Slocum criticized DOD for not being more transparent.
'This appears to be an unprecedented abuse of DPA to exploit emergency authorities to circumvent federal standards,' said Tyson. 'It's outrageous that we're learning this from a company disclosure rather than the Department of Defense.'
But there are some guardrails in place for the deal, said Zoe Oysul, a senior policy analyst at SAFE's Center for Critical Minerals Strategy: Congress will have oversight of funds needed to sustain the deal, and the government will have direct oversight given the DOD is now MP Materials' largest stakeholder.
President Donald Trump declared a national energy emergency and inked an executive order in March to counter the threat of U.S. reliance on 'hostile foreign powers' mineral production.' At the same time, Beijing has throttled exports of rare earths and magnets, rattling supply chains.
Rare earths are a group of 17 metallic elements that are used to make EVs, consumer electronics, medical equipment, aircraft engines and military equipment such as missiles and radar systems, and it is used in oil refining. While they are not rare in terms of how abundant they are in the Earth's crust, rare earths are difficult to extract and refine because they are widely dispersed, found in complex mineral combinations, and each element has its own unique processing requirements.
The Defense Production Act has repeatedly emerged as a focus of the administration. The law, which President Harry Truman signed into law in 1950, gives the president broad authority over industrial and economic policy, primarily in response to the Korean War.
Title III of the law, in particular, allows the president to expand the capacity and supply of critical materials, such as minerals needed for defense and supply chains. Within that portion of the law is a provision that states the president can operate 'without regard to' certain limits of existing laws when using those authorities to expand industrial capacity.
Drew Horn, who worked on minerals policy in the first Trump administration and is now founder and CEO of advisory firm GreenMet, said the DOD's use of the provision is indeed unprecedented.
But Horn countered that the goal is not to avoid compliance with existing laws. Instead, Horn said the administration is finding ways to act more nimbly and cut through red tape in an emergency situation to combat China.
While Horn acknowledged public details about MP Materials deal are sparse, he said top Trump officials who finalized the agreement have deep experience, do not want to create the perception of a monopoly or unfair preferences, and feel their use of the Cold War-era law is legally defensible and necessary to counter a national security threat.
'It's definitely unprecedented,' said Horn. 'The intent was to send the market a strong signal that the U.S. government is going to try and provide price protection measures against PRC market disruption.'
'Truly frightening'
The lack of detail around the MP Materials' deal has some calling for more congressional scrutiny.
Matthew Zolnowski, president of the supply chain consulting firm Greyfriars LLC, who previously oversaw DPA investments in critical minerals and pandemic response at DOD, agreed the government's use of the provision appears to be unprecedented.
But Zolnowski said while the provision of the DPA authorizes DOD to circumvent existing laws, the agency still has to comply with the Anti-Deficiency Act, a federal law that bars agencies from spending or obligating more money than Congress has appropriated.
Zolnowski said congressional appropriators should scrutinize the deal, which appears to cost about $3.5 billion — an amount that he said exceeds current appropriations to the DPA fund even when considering the GOP megabill's addition of $1 billion.
'Using the 'without regard' clause by itself is not unlawful. Instead, it operates in a lawless space, constrained only by the availability of funds and a national security need, however a president defines it,' said Zolnowski. 'For the sake of separation of powers, that's truly frightening.'
DOD entered into the July 9 MP Materials deal to accelerate the build-out of a U.S. rare earth magnet supply chain to reduce foreign dependency for rare earth magnets, said a DOD spokesperson when asked about the government's unusual use of the DPA.
The department selected 'a unique approach to this agreement to account for the difficulties in establishing and sustaining production of critical rare earth magnets in a market environment in which China controls much of the supply chain,' the spokesperson said.
The agency leveraged preferred equity, loans, price floors and other approaches to ensure access to critical defense capabilities while also sharing the risk inherent in a commercially dominated market space, the DOD official said.
'Rebuilding the critical minerals and rare earth magnet sectors of the U.S. industrial base won't happen overnight, but DOD is taking immediate action to streamline processes and identify opportunities to strengthen critical minerals production,' they added.
James Litinsky, the founder, chair and CEO of MP Materials, called the deal 'transformational' in a July 10 press release. 'This initiative marks a decisive action by the Trump administration to accelerate American supply chain independence,' Litinsky said.
Tensions around China's control of rare earths and critical minerals have skyrocketed in recent years. Beijing has used its control over 90 percent of the world's rare earth magnets to cut off access to companies such as Ford and Tesla, leverage that's now bleeding into trade talks with the U.S.
The DOD official said U.S. capacity to produce rare earths in many cases 'no longer exists or is insufficient' to meet the nation's needs, especially when it comes to the processing of certain heavy rare earth elements.
'Also, unlike in China, the United States and its allies take the necessary time and precautions to produce critical minerals and associated products in a safe and responsible fashion,' the official said. 'DOD makes long term investments in mining, processing and refining critical minerals.'
The spokesperson said DOD has already invested almost $540 million to support the domestic and allied rare earth element and critical mineral supply chain. 'That is significant, and DOD will continue such efforts in accordance with congressional appropriations and statutory authorities,' they said.
'Very, very novel'
While Trump has focused on gaining access through deals with countries like the Democratic Republic of the Congo, Greenland and Ukraine, the MP deal is seen as a game-changer aimed at boosting domestic production.
As it stands, MP Materials operates the only rare earths mine in the U.S. and is pushing to boost domestic processing and the production of magnets. The DOD deal marked the first time the federal government has become a major shareholder in a critical minerals company.
DOD now has a 15 percent stake in MP Materials, making it the largest shareholder, and an option to invest up to $350 million in the same preferred stock.
The federal government is also providing a $150 million loan for MP Materials to add heavy rare earth separation capabilities to its existing processing facility in California. DOD is also guaranteed a floor price of $110 per kilogram for rare earths produced at the mine.
Also part of the agreement: MP Materials plans to triple capacity at its existing plant in Texas and build a second, larger facility to pump out rare earth magnets by 2028. The location of the second facility has not been announced, but the DOD has vowed to buy all magnets from the new facility for a decade.
In the weeks following the announcement of the DOD agreement, MP Materials inked a $500 billion deal to supply Apple with rare earth magnets made from recycled material. General Motors has also agreed to take deliveries of rare earth magnets from the Texas facility.
Jerry McGinn, a former DOD official who now directs the Center for Strategic and International Studies' Center for the Industrial Base, said the federal government needs creative solutions for its minerals needs.
'The challenge is, how do you get the domestic capacity back to a level that is sustainable, that helps the U.S. market return but not get crushed and is sustainable over time,' McGinn said. 'They're doing it in a very, very novel way by using this authority.'