Establishing a critical minerals club across North America

Working together, the three countries could develop mines and processing projects for a range of critical minerals including: nickel, copper, lithium, manganese, phosphate, antimony, zinc (and therefore germanium), bauxite (and therefore gallium), and more. However, the policy problems plaguing mining development are complex.

Minerals supply chains are hampered by price uncertainty. Western mining companies have been conservative because they fear being undercut by Chinese producers. Historically, long periods of high prices have been needed to induce investment. China’s state-owned enterprises are not sensitive to profit rates and indeed Chinese political economy enables profit-sharing across the whole supply chain. Lower environmental standards also keep costs low.

This uncertainty has slowed project development in the West. Promising North American nickel and copper projects, for example, have been slowed by low international prices driven by low-cost Chinese-owned production in Indonesia and Latin America.

There is recognition that strategic action is necessary in the sector. U.S. industrial policy through the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL) created multiple tools to build the North American supply chain: The IRA’s 30D critical minerals requirements, the IRA’s 45X production credit, expanded use of the Defense Production Act to advance mine development, Loans Program Office guarantees, and BIL grants have all been used to bolster mineral production. In Canada, a new 30% investment tax credit for critical minerals extraction and processing was introduced in 2024. In Mexico, a new national entity was created to drive investment into lithium mining.

These forward steps, while promising, have been insufficient to catalyze a revitalization of North American mining at the necessary scale. Chinese bans on gallium and germanium exports, as well as restrictions on graphite, have demonstrated the urgency of the need but have not catalyzed strong action.

A bold and ambitious initiative is needed to scale domestic industrial policy up to the international level. But this raises a series of difficult policy questions: What does international, collaborative industrial policy look like within North America? How can states cooperate to align trade, domestic industrial policy, and global market creation activities?

The USMCA review provides a platform where these ideas could be explored in a concrete case of real-world significance. Concrete action could be taken to build a North American approach to support mining and processing of critical minerals. The U.S., Mexico, and Canada should create a critical minerals club that would harmonize tariffs on imports of critical minerals from China, develop joint procurement to secure demand, and enable the three countries to create price certainty through co-investment or joint subsidies. High supply chain standards could also be used to backstop the North American market and protect it from metal made with low labor and environmental standards abroad.

The North American critical minerals policy landscape

In the last six years, each of the USMCA partners has begun the process of rebuilding the policy base needed to conduct strategic action in the minerals sector. These are essential first steps, but stronger domestic and international action will be needed to de-risk critical minerals supply chains.

In the U.S., the IRA established the section 30D electric vehicle credit and section 45X advanced manufacturing production tax credit to boost domestic mining and encourage mining in countries where the U.S. has a free trade agreement. Section 45X includes a permanent credit for 10% of production costs for domestic critical minerals. The initial guidance for the rule excluded material and extraction costs, which would have significantly reduced the value of the credit, but final rules allowed for these costs to be covered.

Section 30D gives consumers a $7500.00 tax credit if two sets of supply chain requirements are met, included a friendshoring requirement for critical minerals. Half the credit, $3750.00, is conditional upon sourcing critical minerals components from free trade agreement countries. Treasury interpreted this to include all metal in the battery, from mined materials to electrode active materials. To reach the friendshored content percentages in the schedule, Treasury estimates the value-added at each step of the production chain; if the step takes place in an FTA country, then the corresponding percentage counts toward the target. The friendshoring requirement rises 10% per year from 40% in 2023 to 100% in 2028 and beyond.

The Biden administration also made use of the Defense Production Act (DPA) to support early-stage mine development. In the 2023 National Defense Authorization Act, Australia and the U.K. were included alongside Canada as “domestic sources” for materials, allowing DPA funds to be spent in these jurisdictions. DPA funds have mostly been used for smaller development grants, such as $15.8 million to conduct feasibility studies for a tungsten mine in the Yukon or $8.3 million for a graphite mine feasibility study in Québec.¹ These funds have replaced early-stage investments from Chinese companies, which are now excluded from the Canadian market.

Finally, the Biden administration implemented a 25% tariff on Chinese critical minerals starting in 2025. A 25% tariff on permanent magnets and graphite was delayed until 2026. Tariffs could act as a demand-side support for non-Chinese metals and thus can be considered part of a broader industrial strategy for domestic metals. However, these tariffs are unlikely to have a big impact on critical minerals development in the U.S. The U.S. does not currently import critical minerals in volume from China. Graphite ($83.6m) and fluorspar ($42.5m) are the main imports² from China.

In Canada, the government has established a national critical minerals strategy supported by a critical minerals property investment tax credit for up to 30% of capital costs. It also created a $C3.8 billion fund, which has been used to support mining infrastructure and development. In some cases, it has co-invested alongside DPA funds.

In Mexico, President López Obrador created a state-owned company, LitioMx, to lead lithium extraction. This was a shift in policy from President Enrique Peña Nieto’s administration, which sought foreign investment in the sector. Mexico needs a plan to develop its broader critical minerals sector.

A club with coordinated tools

Such efforts are an essential first step. But to create a bulwark against Chinese dominance in the international mining industry, the U.S. will need to work closely with allies to build supply and secure demand through a minerals club.

This club could combine a number of key features:

• Harmonized tariffs
• Co-investment through price guarantees
• Harmonized subsidies
• Joint procurement
• Labor, public safety, and natural resource standards

Working out a critical minerals club alongside USMCA negotiations would follow the path laid out by the first USMCA negotiation, which included a broader discussion about supply chains and the manufacturing landscape. United States Trade Representative Robert Lighthizer and his deputies worked hard to level the playing field between the U.S. and its partners on labor and environmental grounds. It also laid the groundwork for restricting Chinese content in North American supply chains. The “new way of trade” now has broad bipartisan support in Washington, D.C.

The opportunity is to de-risk critical minerals while showing how to conduct robust joint industrial policy. Successful joint industrial policy must combine the tools laid out above into a coherent plan to increase supply through demand-side supports. In this schema, procurement, tariffs, and standards work together to create a secure North American market that cannot be undermined by dumping from abroad. Subsidies ensure that costs are under control and that displacing foreign metals does not create inflation.

Harmonized tariffs

Harmonized tariffs are when countries agree to adopt the same tariffs against one or more countries. For example, Canada recently agreed to match U.S. tariffs on Chinese EVs. The EU in contrast, also announced tariffs, but at much lower rates than the U.S.

A USMCA club could create a slate of harmonized critical minerals tariffs as the basis of a broader agreement. Trade within the club could be kept free. This would form the basis for more extensive cooperation on critical minerals and manufacturing more broadly.

Currently, U.S. tariffs are just on Chinese metals. But depending on how other tools in this club are calibrated, broader tariffs could be considered. After all, Chinese equity in mining firms is not captured in tariffs on metals originating in China.

Co-investment through contracts for difference

Investing in mining projects is challenging because of high uncertainties at all stages of development. Canada and the U.S. are already co-investing in early-stage mine development. But to have a catalytic effect on mining development in North America, investment in capital expenditure at a larger scale is needed.³ There have been a number of proposals for policy tools to address the investment problem: price insurance, stockpiling, and defense procurement.

Only price insurance has the capacity to create the long-term price certainty needed to catalyze investment. A price insurance instrument would guarantee a floor price for certain metals or projects. When market prices dip below the floor, a government entity covers the gap. This allows developers and investors to calculate a minimum internal rate of return, thereby making projects bankable. However, under a price insurance scheme, all the risk is taken on by the government, while the firms capture all the upside.

A contract for difference (CfD) is like price insurance, but it creates shared risk and shared benefits. A CfD sets a strike price and, just as in price insurance, the government covers the gap. However, when market prices are above the strike price, the government keeps the upside. This is a justifiable return for taking on the risk. Mining companies are likely to resist this, as capturing upside is a key part of their business model. A revenue sharing agreement above the strike price could likely ameliorate these concerns.

CfDs could be offered to entire metals classes, or to specific projects. Given the existing landscape of subsidies, CfDs could be effectively deployed for specific projects, taking into account existing subsidies. That is, the appropriate level for the strike price could be calibrated based on the level of subsidy available and the expected rate of return given existing subsidies. The key is to coherently integrate all of the existing tools into the policy framework underlying the club.

In Canada, the Canada Growth Fund already has the authority to write contracts for difference for metals projects. In the U.S., legislation would be needed to ensure that the Loans Program Office or some new finance authority could write such contracts. In Mexico, it is likely PEMEX or another state-owned enterprise could write such a contract.

Harmonized subsidies

Subsidies can help firms compete and lower costs for customers. States can harmonize subsidies by offering the same or similar levels of subsidy to projects within their borders. This provides reliable project support within a club without creating an expensive subsidy race-to-the-top. USMCA negotiations could provide a platform to discuss aligning subsidies in the mining sector, even if subsidies are best left out of the deal itself.⁴

Harmonized subsides are important to prevent competition in zero-sum markets: where a project in one jurisdiction competes with a project in another. The good news is that in North America, very few metals could be considered zero-sum. For example, all three countries have strong lithium deposits, so investment in one country could be considered as competing with investments in another. Here, aligned subsidies may be necessary to establish trust and cooperation. Copper, nickel, graphite, and other metals are not zero-sum in the same way because there is enough room in the market for a number of good North American projects in each of those metals.

Right now, Canada and the U.S. have distinct tools, while Mexico has no broad sectoral support. Canada’s 30% investment tax credit and the United States’ 10% production credit are difficult to harmonize because one targets capital expenditure while another targets full production costs. One effort to make these comparable suggests that the targets are broadly aligned for lithium, but that there is a gap for graphite and nickel. As it stands, this is not a problem in part because only lithium is truly a competitor metal between the U.S. and Canada. Analysis would be needed to assess whether Mexico’s lithium fundamentals were strong enough to compete with subsidized lithium from further North. If so, perhaps the situation would count as harmonized. The key is not to meet some arbitrary benchmark but to ensure that all countries feel their interests are fulfilled within a cooperative framework for metals.

Joint procurement

Procurement can make a big difference in smaller metals markets like tungsten and antimony, which have important defense applications. There are opportunities to use government procurement, especially via tier 2 defense contractors, to create secure offtakes for mines. Antimony, chromium, cobalt, copper, gallium, germanium, molybdenum, niobium, rare earths, titanium, and tungsten are all important to the defense industry in North America. In many cases, these are likely to be the secondary metals in a mining project. But secure offtakes for them from North American metals producers could significantly alter project economics.

Procurement could also take place through strategic reserves. Strategic reserves of smaller metals with high China shares, such as gallium, germanium, rare earths, and antimony would be a good short-term step to buffer the market and safeguard national security. The U.S. already stockpiles critical minerals through the National Food and Strategic Reserves Administration and the Defense Logistics Agency. Canada and Mexico could join suit, especially as both countries look to build up their defense industrial base.

Labor, public safety and natural resource standards

High labor, safety, and stewardship standards would provide another means to support North American supply. Mines pose risks to communities and wildlife. As we have seen in locations like Indonesia, inadequate protections threaten livelihoods and health. Strong protections in Canada and the U.S. do have a cost, but this need not create a disadvantage in the market.

The USMCA pioneered high labor and environmental standards. The “labor value content” provisions of the first USMCA were highly innovative. They set benchmarks for the percentage of value that needed to be made with high wages. Environmental and public safety benchmarks for mining could be built into the agreement on harmonized tariffs.

Conclusion

A critical minerals club provides an opportunity to advance a modern joint industrial policy between the U.S., Canada, and Mexico in a critical sector. To be successful, joint industrial policy must combine multiple tools into a comprehensive strategy that targets specific metals.

In the club proposed here, tariffs and subsidies work together to ensure that North American metals are competitive with other metals. Price guarantees through contracts for difference will make mines bankable investments, unlocking private capital. But the public, if it takes on the risk of paying during low price periods, should be compensated. That said, tariffs will help to keep internal prices higher, and reduce the overall burden of the contracts. To the extent that tariffs open price spreads, those price spreads reduce the burden on the government.

Politically, there are two important barriers. President Trump’s bellicosity toward both neighbors—whether posturing or signaling real imperial desires—undermines the goodwill necessary to do a deal of this scale and importance.

Second, Canada has indicated willingness to protect markets from China, but Mexico may decline to do so. It has been hedging by working with and soliciting investment from both the U.S. and China. However, most foreign direct investment into Mexico has come from Western, Japanese, and Korean partners. It has benefitted from trade and investment with China, but its political economy is oriented toward the U.S. and its partners.

There is, nonetheless, a shared interest in developing minerals production in North America for both economic and geopolitical reasons. To do it right, a strategic, collaborative approach with multiple tools is needed.