American manufacturing has a geopolitics problem.
In January 2026, the U.S. Department of Commerce paid $1.6 billion for a 10% stake in a Texas rare earth mining company.
Read that sentence again. The federal government — the same federal government that spent four decades preaching the gospel of "let the market decide" — bought equity in a mining startup. The Department of War has done the same thing, taking roughly 15% of MP Materials, the Las Vegas-based rare earth producer. The Pentagon also signed an offtake contract with the Australian miner Lynas guaranteeing a price of $110 per kilogram for neodymium-praseodymium, which is roughly double what the open market was paying at the time. (I’m gonna give you a minute to try to say “neodymium-praseodymium” three times.)
This is not normal. This is not how the United States has done industrial policy in living memory. And yet here we are, with the federal government effectively becoming a shareholder in a half-dozen mining and processing companies, because the alternative — continuing to let the market decide — was producing outcomes the market was not equipped to handle.
So how did we get here? And what does it actually mean for the average American manufacturer who isn't running an F-35 program out of their garage?
Glad you asked.
A short history of how we moseyed on into this
Somewhere between 1990 and 2015, American manufacturing made a series of decisions that all looked individually rational. Move basic chemical production to wherever it's cheapest. Source rare earth ore from China because, well, China processes it and the price is good. Concentrate semiconductor fabrication in Taiwan because TSMC is genuinely the best in the world and you'd be a fool to build a worse, more expensive version yourself. Run lean inventories because warehousing is a cost center and just-in-time is what the consultants want.
Each of these decisions, taken on its own, was the responsible answer to whatever question the CFO was asking that quarter.
The problem is that "individually rational" and "collectively a disaster" can describe the same set of choices. By the early 2020s, the U.S. industrial base had quietly accumulated dependencies on a small number of foreign suppliers, foreign processing facilities, and foreign shipping lanes — none of which the U.S. controlled, several of which were in countries with whom relations were trending in interesting directions. (And by "interesting" I mean "not great.")
When COVID hit in 2020, the supply chain wobble that followed was the first warning shot. It scared people. It produced a lot of breathless thinkpieces about "supply chain resilience." Then things mostly reopened, prices came back down, and a fair number of executives went back to optimizing for cost.
In hindsight, that was a mistake. The thinkpieces were right.
Why 2025 was the year reality showed up
Last year was when the bill came due, and several of the bills came due at once.
In April 2025, China imposed export controls on seven heavy rare earth elements in retaliation for new U.S. tariffs. By June, Ford had idled a production line. Suzuki halted a plant. Both because they couldn't get the permanent magnets they needed for electric motors. The U.S. import data showed Chinese rare earth magnet exports to America declining every single month from October 2025 onward, according to data from the Silverado Policy Accelerator. (As of the most recent reporting, they're still well below pre-restriction levels, even though China announced a one-year suspension of the broader rules.)
In late February 2026, the Strait of Hormuz — through which roughly a fifth of global oil and LNG normally passes — went effectively dark following the outbreak of war between the U.S., Israel, and Iran. Maersk, CMA CGM, and Hapag-Lloyd suspended transits. War-risk insurance premiums for the strait went from 0.25% of hull value to as much as 5%. Pentagon officials told Congress in April that mine-clearing operations alone, once the shooting stops, will take six months. (Six months. To clear mines. Before commercial shipping can return at scale. Try writing that into your Q3 forecast.)
The Red Sea has been a Houthi shooting gallery since late 2023, which means container traffic to and from Asia is still routing the long way around the Cape of Good Hope, adding 10–14 days and a meaningful fuel bill to every voyage. Industry analysts have stopped pretending it'll come back this year.
Meanwhile, all the rerouted traffic is funneling through the Panama Canal, which has its own problems — namely that it runs on freshwater from a man-made lake and depends entirely on rainfall, which in 2023 and 2024 was insufficient to keep the locks operating at capacity. Slot auction prices have ballooned. According to the Panama Canal Authority, at least one company recently paid $4 million to jump the queue. The canal's administrator says the current pace of 40 transits per day isn't sustainable. (Spoiler: it isn't.)
So if you're an American manufacturer who imports anything from anywhere, congratulations, three of your major arteries developed serious medical conditions in the same 12-month period. There is no version of "diversified routes" that fully insulates you from this. There are just versions of how badly it lands.
The cascade nobody talks about
Here's what makes chokepoint disruption particularly nasty for American manufacturing: the costs don't just add up. They compound. Hooray.
When the Strait of Hormuz closes, oil prices spike. When oil prices spike, every petrochemical input on your bill of materials gets more expensive. Plastic resins. Industrial lubricants. Synthetic fibers. Adhesives. The boring stuff that nobody pays attention to until the price doubles.
When the Red Sea closes, Asia-Europe container rates rise. But here's the part that surprises people — the same ships, the same carriers, and the same global rate structures mean Asia-to-U.S. rates rise too. You're not on the Asia-Europe lane and you still pay for it. Because the boats are the boats, and the carriers want to make their numbers.
When China restricts rare earths, magnet prices in the West rise to as much as six times Chinese domestic prices, per IEA data. So your motor manufacturer's costs go up. Your motor manufacturer raises prices. The OEM building the actual product raises prices. The retailer raises prices. By the time it reaches the consumer, the percentage increase looks small. But the margin compression along the way has eaten everyone alive.
And then there's the inventory problem. When you can't trust your 30-day lead time, you order 90 days. When you can't trust 90 days, you order six months. Working capital that used to fund automation upgrades and new equipment now sits in pallets in a warehouse, doing nothing except depreciating. (Hi, pallets. We see you. We resent you.)
For the largest manufacturers — your Fords, your GEs, your Boeings — this is painful but manageable. They have the balance sheets to absorb. They can hedge. They can pre-position inventory. They can pay $4 million to jump the Panama queue and write it off.
For the mid-sized American manufacturer — and that is, statistically, what most of American manufacturing actually is — this is much closer to existential.
The part of the story nobody quite wants to talk about
Most U.S. manufacturing isn't household-name OEMs. It's the 50–500 employee companies in places like Ohio, Indiana, Michigan, North Carolina, Wisconsin, and Tennessee that make the components that go into the OEMs' products. Industrial controls, fasteners, motor housings, gaskets, sub-assemblies, machined parts. The actual American manufacturing community.
These are companies that often can't afford to dual-source their critical inputs because the qualification process for a new supplier costs money and takes months. They can't afford to carry six months of inventory because their working capital is already deployed. They can't afford to vertically integrate upstream because they don't have $80 million sitting around to buy a foundry.
So when the rare earth supply hiccups, or the freight rate spikes, or the Asian supplier suddenly can't ship for a month — the mid-sized manufacturer eats it. Sometimes that means margin compression. Sometimes it means pulling forward orders and creating cash flow gaps. Sometimes it means furloughing workers because the line stopped and there's nothing to do this week. Sometimes it means closing.
And the people who lose those jobs are not, in the main, going to be retrained as software engineers. They're going to spend a long time looking for another job that pays comparably to what a skilled machinist made, and a lot of them aren't going to find one. This is the part of the conversation that sits, awkwardly, behind every chart of supply chain risk percentages. Real plants, real workers, real towns, real consequences.
What Washington is actually doing
To Washington's credit — a phrase you don't get to use often, so enjoy it — the response is finally adding up to something.
The CHIPS and Science Act has driven over $446 billion in announced private investment in U.S. semiconductor manufacturing. The Inflation Reduction Act and the Bipartisan Infrastructure Law have collectively unlocked nearly $800 billion in announced private manufacturing investment since 2021. Real fabs are under construction in Arizona, Ohio, and New York. Real battery plants are coming online in Georgia, Tennessee, and Kentucky.
The Pentagon is, as mentioned, taking equity stakes in mining and processing companies, and signing offtake contracts with price floors that effectively backstop new entrants against Chinese price-dumping. Lynas is building a heavy rare earth refinery in Texas with $258 million in Pentagon backing. The U.S. International Development Finance Corporation is funding critical mineral projects abroad to diversify supply away from Chinese chokepoints.
The 2026 USMCA review — currently being negotiated — has critical minerals and supply chain security as central agenda items, and Mexico has tripled the number of Chinese product categories it tariffs. Nearshoring is real, even if it's slower and messier than the LinkedIn posts suggest.
Mid-sized manufacturers are adapting too. According to a recent West Monroe report, 91% of mid-market manufacturers are now using generative AI in some capacity, much of it for supplier risk mapping and disruption modeling. (Yes, this means an AI agent is somewhere right now panicking about Hormuz on behalf of an Ohio gear manufacturer. We do live in interesting times.)
But — and this is the awkward part — none of this fixes the problem in 2026. Or 2027. The mines under permit today won't produce until 2030 at the earliest. The fabs under construction today will hit full output around 2028. The skilled workforce required to staff all of this doesn't exist in adequate numbers, and training a generation of new tradespeople takes, well, a generation.
So the policy is finally doing the right thing, more or less. And the policy isn't going to save the next four quarters.
Where this leaves you
If you make stuff in America, the operating reality for the foreseeable future is this:
Something somewhere is always going to be choked. The strait, the canal, the mine, the fab, the trade lane, the rare earth quota — at any given moment, at least one of them is going to be misbehaving. The question isn't whether a chokepoint will hit you this year. It's which one, and how much warning you'll have when it does.
Lean as a manufacturing philosophy assumed reliable supply. That assumption is now archaeological. The next era is going to be about resilient — which is going to feel, at first, an awful lot like wasteful. More inventory than you'd like. More qualified suppliers than you need on a normal day. More dual-sourced components even though one supplier would be cheaper. More money tied up in places that don't show up nicely on a quarterly report.
This is going to be expensive. It's going to compress margins. It's going to make some companies that should survive quietly fail, and some companies that shouldn't survive quietly succeed because they happened to have the right inventory at the right time. It is, on net, a less efficient economy than the one we had.
It's also a much harder economy to weaponize against. And given the last 12 months, that feels like a trade most American manufacturers — the ones still around to make the choice, anyway — are willing to take.
(Just don't ask their CFOs to be cheerful about it.)
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Reporting and data drawn from the Center for Strategic and International Studies, the International Energy Agency, the U.S. International Development Finance Corporation, the Silverado Policy Accelerator, the Panama Canal Authority, Supply Chain Dive, Container Management, PBS NewsHour, the European Parliamentary Research Service, the West Monroe mid-market manufacturer survey, and the 2021–2024 Quadrennial Supply Chain Review.