The Cost-Feedback Loop

On Wednesday, the Trump administration signed an executive order imposing 15% tariffs and price floors on polysilicon imports. The same document directed Commerce Secretary Howard Lutnick to create an incentive program for companies expanding U.S. factories — subsidies for the very industry the tariffs were designed to protect. Protection and subsidy, in a single stroke. ^[1] That document is not an outlier. It is the U.S. critical mineral strategy in miniature — a cost-feedback loop that has been tightening for eighteen months and has now reached the point where each link demands the next. The first link is straightforward. Tariffs on mineral imports raise input costs for the downstream manufacturers that use them. George Matouk, a U.S. manufacturer, put it plainly.

Because the materials are subject to tariffs just like everything else, the benefits are not there. — George Matouk

The macro data confirms what the factory floor already knows. The Kiel Institute quantified who actually pays.

The claim that foreign countries pay these tariffs is a myth. — Julian Hinz

The JPMorganChase Institute found that tariff payments for midsize U.S. businesses nearly tripled since early 2025, forcing firms to raise consumer prices or cut staff. ^[2] By March, tariff costs had helped push core inflation to 3.2%. By July, 47% of U.S. service firms and 44% of manufacturers had announced plans to raise prices to offset the tariffs. ^[3] The second link is the government's response. When tariffs make domestic industries uncompetitive by raising their input costs, the government steps in to keep them alive — as investor, lender, customer, and price guarantor simultaneously. The Department of Defense's arrangement with MP Materials, the sole U.S. rare earth miner, is the most vivid example: a five-layer package that includes $1 billion in financing, a $150 million loan, a $400 million stock investment, a 10-year price floor at $110 per kilogram for neodymium-praseodymium oxide, and a 10-year purchase agreement. ^[4] The pattern is spreading. USA Rare Earth, Lithium Americas, and Energy Fuels are each in discussions for similar government equity stakes. ^[5][6] The Pentagon has solicited proposals offering $100 million to $500 million for domestic mining projects across 13 critical minerals. ^[7] The Department of Energy announced up to $500 million to expand domestic processing. ^[8] Each tariff creates a new subsidy requirement; each subsidy creates a new dependency. The third link is where the loop breaks. In January 2026, the administration delivered the message to mining executives.

We’re not here to prop you guys up. — Audrey Robertson

The government withdrew plans for price floor guarantees, citing a lack of congressional funding. The subsidy side of the tariff-subsidy loop had hit its fiscal wall. The IEA projects that $750 billion in mining and refining investment is needed through 2040 to meet critical mineral demand — an order of magnitude beyond what Congress has appropriated. ^[9] At this point, the administration's argument shifts. The manufacturing surge, it says, vindicates the tariff strategy. And there is a surge: the ISM manufacturing index hit 55.6 in July, the fastest pace in four years. ^[10] But the surge's own architects attribute it to "AI technology buildouts, government defense spending, and resilient consumer demand" — not to tariff-protected industries becoming cost-competitive. ^[10] Defense procurement tells the story: a 42% increase in the defense budget request to $1.5 trillion has driven Northrop Grumman to add 20 U.S. manufacturing facilities and RTX to invest $900 million. ^[11] The manufacturing expansion the tariffs claim credit for is itself a form of the subsidy the loop requires — government spending, not market competitiveness, is the engine. The market, meanwhile, has already found its exit. GM President Mark Reuss asked the question that defines the next phase.

There's nothing like not having to use rare-earth things, whether it's magnets or batteries or whatever. — Mark Reuss

BMW has begun mass-producing electric motors that use no rare earth elements at all.

How do we engineer out that dependency? — Mark Reuss

The companies the strategy was designed to shield are voting with their engineering budgets to eliminate the minerals entirely. It is both the strategy's verdict and the market's workaround: if the minerals are too expensive to buy and too expensive to produce domestically, the rational response is to design products that do not need them.