Is the US Testing State Ownership of Key Sectors for Geopolitical Leverage?

Feb 05, 2026 - 11:02

Updated: 4 months ago

Is the US Testing State Ownership of Key Sectors for Geopolitical Leverage?

Commentary

On Jan. 26, it was reported that the U.S. Commerce Department will provide USA Rare Earth with a $1.3 billion loan and $277 million in federal funding in exchange for 16.1 million shares of common stock and 17.6 million warrants. Depending on whether the warrants are exercised, the U.S. government will hold an 8 percent to 16 percent stake in USA Rare Earth, an Oklahoma-based producer.

The goal is to accelerate domestic production of rare earths and permanent magnets—materials embedded in electric vehicles, data centers, power grids, and advanced weapons systems.

The federal investment follows earlier federal involvement in the sector. In July 2025, the Department of Defense became the largest shareholder of MP Materials, the largest rare-earth producer in the United States. In late 2025, the Department of Energy took a 5 percent stake in Lithium Americas and a separate 5 percent stake in its joint venture with General Motors, expanding federal ownership positions in the lithium supply chain.

Taken together, these cases indicate a clear escalation in U.S. industrial policy. For years, Washington relied on tax credits, grants, and permitting reform to rebuild critical supply chains. Direct ownership places the federal government inside corporate balance sheets, sharing both upside and execution risk. It also raises a larger question: whether state participation is becoming the default response to strategic competition with China.

China’s Dominance and the Constraint It Imposes

China’s dominance in critical minerals is often misunderstood. Rare earths are not geologically scarce. Lithium is also globally distributed. What makes them strategic is that processing requires capital-intensive investment and generates toxic waste and radioactive byproducts. While environmental hazards are subject to strict regulation in most Western economies, these costs have historically been borne by local communities and state entities in China.

China dominates these downstream stages. While it accounts for roughly 60 percent to 70 percent of global rare-earth mining, its share rises to nearly 90 percent in refining, separation, and permanent-magnet manufacturing, according to data cited by the International Energy Agency. Even when rare earths are mined in Australia, Africa, or the United States, much of the material still flows to China for refinement and processing before entering global supply chains.

With rare earths widely used in motors, wind turbines, electric vehicles, and defense systems, the International Energy Agency warned in 2025 that this level of concentration means export controls or licensing changes could disrupt production within months rather than years, underscoring the importance of supply-chain diversification as a policy priority.

The Turn Toward Ownership

To break China’s tight grip on processing and manufacturing, the push to reshore follows naturally. In recent critical-mineral deals, federal support has gone beyond nudging private investment and begun to include direct ownership or ownership-like exposure through equity stakes or warrants. This differs from more traditional industrial policy tools, such as tax credits, grants, or long-term purchase agreements.

The appeal is obvious. The United States wants supply chains it can rely on. Waiting for markets alone to rebuild them can be slow. Ownership is the most direct way to move a project forward.

But ownership also changes the nature of the relationship. In practical terms, it places the federal government within private companies’ capital structures, linking public funds directly to corporate performance and execution risk.

The government is no longer just setting conditions from the outside. Accountability becomes harder to define. Commercial setbacks become public losses. Exit becomes harder. Decisions that would normally be resolved by markets start to intersect with politics, especially in industries where timelines stretch over decades.

State ownership of productive assets is a defining characteristic of socialist and communist economic systems, including China’s. In those systems, the state often acts simultaneously as regulator, financier, and owner, allowing capital deployment to proceed without immediate return requirements. That structure also affects how losses are absorbed and how performance signals are transmitted.

Intel as a Test Case

The semiconductor sector offers a parallel example of the interaction between public support and execution.

Under the CHIPS and Science Act, Intel became the largest corporate recipient of federal semiconductor incentives, securing grants, loans, and government-backed financing tied to its plan to expand advanced manufacturing capacity in the United States. Its flagship investment is a multibillion-dollar fabrication complex in Ohio. In August 2025, the U.S. government acquired approximately a 10 percent stake in Intel.

However, progress has been slower than originally anticipated. Intel has delayed construction and production timelines, citing cost pressures, labor constraints, and the need to align capacity with confirmed customer demand. Full-scale operations are now expected at least four years later than initially planned. Financial results have added context. Intel’s most recent quarterly report fell short of expectations, with continued losses in its foundry business and heavy capital expenditures weighing on margin

TSMC: Execution With Incentives

Taiwan Semiconductor Manufacturing Company (TSMC) offers a useful counterpoint. TSMC began construction on its first U.S. fabrication plant in Arizona in mid-2021. By late 2024, the company confirmed that the facility had entered high-volume production, roughly three and a half years from groundbreaking to output.

TSMC’s expansion benefited from public incentives under the CHIPS framework, yet the structure differs materially from direct state participation. The company remains privately operated, customer-driven, and disciplined by return expectations. Capacity decisions and production ramps were guided by commercial demand rather than policy timelines.

The contrast with Intel is revealing. Both projects face similar labor shortages, regulatory hurdles, and capital intensity. Yet TSMC’s progress reflects the advantage of a proven manufacturing model executed by a firm whose incentives remain aligned with efficiency and yield. The lesson is not that incentives are unnecessary, but that ownership and control are not prerequisites for speed.

The Track Record of State Ownership

The United States already operates one of the largest state-owned enterprises in the world. The U.S. Postal Service is mandated to provide universal service while remaining financially self-sustaining. Over decades, those dual objectives have proven difficult to reconcile.

According to USPS filings and analyses by the Congressional Research Service, USPS has accumulated persistent operating losses, relied on legislative relief, and faced constraints on modernization. Pricing, labor structure, and service standards are shaped by political oversight rather than market discipline.

International experience provides additional context. In the United Kingdom, repeated cycles of nationalization and privatization across rail, energy, steel, and coal were associated with periods of stability as well as long-term underinvestment and weak productivity growth, according to the UK National Audit Office and the Institute for Fiscal Studies.

Britain’s experience suggests that when the state owns productive assets, economic discipline becomes secondary to political negotiation.

What Comes Next

China’s position in critical supply chains reflects a state-owned, state-directed economic system. Recent U.S. actions suggest a greater willingness to replicate China’s model alongside traditional policy tools.

The United States has historically limited such state-run arrangements outside of crisis contexts. Whether recent investments remain isolated or become more common will influence how far U.S. industrial policy moves along the ownership spectrum and will determine whether the United States can compete without permanently socializing industrial risk.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.