How Canada Can Block U.S. Investment in Its Critical Minerals

The global race for critical minerals is intensifying, and Canada finds itself in a position of both immense opportunity and strategic complexity. Recent political developments in the United States, particularly the potential for a second Trump administration, have cast a new light on how Canada manages foreign investment in this vital sector. While cross-border collaboration has been a cornerstone of North American economic policy, Canada holds significant legal and regulatory power to control, and if necessary, block U.S. investment to protect its national interests.

This isn’t about closing the door on our closest ally and trading partner. Instead, it’s about understanding the sophisticated toolkit the Canadian government can deploy to ensure that the development of its critical mineral wealth aligns with long-term national security, economic prosperity, and environmental goals.

The Geopolitical Shift: Why Blocking Investment is Now a Consideration

The landscape of critical minerals has been fundamentally reshaped by geopolitics. These minerals—such as lithium, cobalt, nickel, and rare earth elements—are the building blocks of the modern economy, essential for everything from electric vehicle batteries and wind turbines to defense systems. For years, the West has been concerned about China’s dominance over the supply chains for these materials.

In response, initiatives like the U.S.-led Minerals Security Partnership have emerged, aiming to create a secure, allied-driven supply chain. Canada, with its vast mineral reserves and stable governance, is a natural partner. However, the possibility of a shift in U.S. policy introduces uncertainty. A future administration might prioritize American corporate interests in a way that could undermine Canada’s strategic autonomy, potentially turning Canadian resources into mere extensions of a U.S.-centric supply chain without sufficient benefit to Canada itself.

This scenario forces Ottawa to think critically about how to maintain control over its own resource destiny.

Canada’s Primary Weapon: The Investment Canada Act

The cornerstone of Canada’s ability to screen and block foreign investments is the Investment Canada Act (ICA). This federal legislation gives the government the authority to review significant investments by non-Canadians to determine if they are of “net benefit” to Canada. More importantly, it provides a mechanism to block deals that could be “injurious to national security.”

When it comes to critical minerals, the ICA is a powerful tool for several reasons:

• Lower Review Thresholds: The Canadian government has officially categorized the critical minerals sector as being of heightened importance. This means the financial threshold for triggering a formal net benefit review is significantly lower for foreign investments in this sector, allowing the government to scrutinize a wider range of deals.
• Expanded National Security Scope: The definition of national security is broad and can be interpreted to include economic security, supply chain resilience, and the protection of strategic assets. A foreign investment that risks making Canada overly dependent or that could divert production away from Canadian priorities could be deemed a national security risk.
• Precedent of Action: The Canadian government has already demonstrated its willingness to use this power. In 2022, it ordered three Chinese companies to divest their investments in Canadian critical mineral companies, citing national security concerns. This established a clear precedent that the government will not hesitate to intervene.

In practice, this means any significant U.S. investment in a Canadian lithium mine or cobalt refinery would face intense scrutiny under the ICA. The government would assess factors like the level of Canadian participation in the business, the effect on productivity and innovation, and the compatibility with Canada’s industrial and economic policies.

Beyond the ICA: A Multi-Layered Defense Strategy

While the Investment Canada Act is the primary legal instrument, Canada’s defensive strategy is multi-faceted, involving other policy levers and strategic initiatives.

1. The Policy Statement on Foreign Investment

In tandem with strengthening the ICA, the government issued a clear policy statement. It announced that foreign investments in the Canadian critical minerals sector by state-owned enterprises—and importantly, by private investors assessed as being closely tied or subject to influential foreign governments—would face enhanced scrutiny and would only be approved on an exceptional basis. This policy can be flexibly applied to any foreign investor, including those from the U.S., if their operations are perceived to be unduly influenced by a foreign government’s strategic objectives that conflict with Canada’s.

2. Fostering Domestic and “Friendly” Alliances

A key part of Canada’s strategy is not just to block undesirable investment, but to actively encourage the right kind of investment. The federal and provincial governments are:

• Providing financial support for domestic critical mineral projects through various funding programs.
• Streamlining regulatory processes to get mines into production faster, making them less vulnerable to foreign takeover during the costly development phase.
• Building partnerships with other allied nations through agreements like the Canada-U.S. Joint Action Plan on Critical Minerals Collaboration and alliances with countries like Japan and South Korea. This diversifies the pool of “friendly” capital and technology, reducing reliance on any single source.

By creating a strong ecosystem of domestic and allied investment, Canada reduces the vacuum that might otherwise be filled by investments it deems counter to its interests.

3. Aligning with National Strategies

Canada’s critical mineral decisions are increasingly guided by overarching national strategies, including its Net-Zero Emissions by 2050 goal and its defense and security commitments with NATO allies. Any foreign investment that appears to compromise these goals—for instance, by prioritizing the export of raw ores over value-added processing in Canada, which creates jobs and reduces emissions from shipping—would face significant political and regulatory hurdles.

The Delicate Balancing Act: Partner vs. Protector

It is crucial to understand that Canada’s ability to block investment is not an expression of hostility towards the United States. The two economies are deeply integrated, and a secure North American critical mineral supply chain is in both nations’ interests. The goal for Canada is strategic sovereignty, not isolation.

Blocking a U.S. investment would be a last resort, a move taken only if a proposed deal failed to provide adequate net benefit or posed a genuine risk to national security. The preferred path is collaboration on equal footing. Canada wants to be a reliable supplier and a technology partner, not just a quarry.

This nuanced approach allows Canada to walk a tightrope: welcoming U.S. capital and expertise while ensuring that the development of its resources also builds Canadian industrial capacity, creates Canadian jobs, and advances Canada’s climate and geopolitical objectives.

Conclusion: Sovereignty in a Strategic Sector

The question is no longer if Canada can block U.S. investment in its critical minerals, but how it would do so. Through the robust application of the Investment Canada Act, clear policy directives, and a strategic focus on building allied partnerships, Canada has assembled a formidable defense system for its most valuable geological assets.

In an era of economic nationalism and supply chain anxiety, Canada is asserting its right to control its resource destiny. The message to all foreign investors, including those from the United States, is clear: investments are welcome, but they must align with Canada’s national interests and contribute meaningfully to the country’s long-term prosperity and security. The tools are in place, and the government has shown it is not afraid to use them.