Rare Earths, Vulcan, and Government Equity Stakes
The Trump administration is normalizing the idea that the federal government should take partial ownership in private companies under the guise of strengthening vulnerable supply chains. An example of this is the administration’s plan to take an ownership stake in Vulcan Elements, a rare-earth magnet startup.
While the strategic concern is real, partial federal ownership of private companies is both unnecessary and undesirable. If Washington wants more domestic rare-earth magnet capacity, why not just buy the magnets? Clearly, regulatory obstacles exist, but letting firms compete rather than try to pick “champions” would be the preferable market approach.
Rare earths aren’t actually rare or difficult to find on Earth, except for certain heavy rare earth elements. The bigger challenge is the fragmented supply chain, which includes separation, refining, metallization, alloying, and converting these materials into usable end products such as high-performance permanent magnets. Those magnets, especially neodymium-iron-boron (NdFeB) magnets, are used in semiconductor manufacturing equipment, industrial motors, drones, satellites, and fighter jets.
The complex rare-earth supply chain has been a worry for policymakers. China dominates refining and the production of rare-earth magnets, and its advanced manufacturing capabilities are a formidable challenge. Yet, it can be argued that the administration’s true motivation for its ad hoc equity stake collection was to build a pseudo-investment fund for Trump, with the stated justifications serving as little more than window dressing.
Vulcan attracted $65 million in private capital last August, including an investment from 1789 Capital, the venture firm associated with Donald Trump Jr. A few months later, the Commerce Department announced a nonbinding letter of intent under the CHIPS Act that would provide $50 million in “proposed incentives” and give the government $50 million of equity in Vulcan. The Department of Defense’s Office of Strategic Capital later announced a $620 million conditional loan commitment to Vulcan and an $80 million conditional loan commitment to ReElement Technologies, Vulcan’s processing partner in the middle of the supply chain, while also taking warrants in both companies.
It’s worth noting that Vulcan had already won $5.7 million in Defense Department business dating back to 2024 before the Trump administration decided to make Uncle Sam a part-owner.
The fact that Trump Jr.‘s fund invested in Vulcan does not prove that the administration’s deal was awarded because of it. Bloomberg reports that the company, Trump Jr., and 1789 all deny any connection. Regardless, the optics are terrible, and it still doesn’t let the administration off the hook.
The federal government is now choosing favored firms that, in any other environment, wouldn’t receive such financial support without serious validation and technical achievements. Taking ownership positions blurs the lines between industrial policy, political power, and private profit—mirroring an approach similar to China’s and one the US should avoid emulating.
According to Bloomberg, Vulcan was valued at $200 million when 1789 invested and that investors were recently considering a valuation of nearly $2 billion in a new round. That’s what government favoritism can do: Once Washington blesses a firm, private markets can start treating political backing as a business asset. Competitors (and possibly would-be competitors) who are not selected face the perception that the administration has picked its horse.
Defenders say taxpayers should share the upside, not just the downside, as is the case with a grant. That sounds reasonable until one considers what the government is actually doing. The federal government is not a mutual fund. A future gain on a single stake will not meaningfully change the federal government’s abysmal fiscal position. And a loss will be absorbed by taxpayers, while officials have the incentive to keep politically favored firms on life support if things go badly.
None of this means the underlying magnet supply concern is imaginary—it’s legitimate. But Washington can use procurement contracts, stockpiles, and other financial tools without taking equity. It can expedite mine and processing permits, and it can work with allies rather than make supply chains more expensive through tariffs and political shakedowns. While the administration has taken steps on these fronts, Trump’s generally schizophrenic, transactional governing style creates nonstop confusion and uncertainty.
The administration and some analysts say a direct stake is needed to move quickly. But the government already has ways to buy magnets, support domestic capacity, and reduce bottlenecks without becoming a shareholder. The case for speed is not a case for ownership—and the case for national security is not a case for normalizing a model in which politically favored firms receive public capital and, perhaps eventually, a public rescue. So, the takeaway of the Vulcan deal is not that rare-earth magnets do not matter. The takeaway is that state corporatism is a bad way to secure them.