(Adds industry, congressional reaction)
By Andrea Shalal and Valerie Volcovici
WASHINGTON, June 4 (Reuters) - The U.S. Commerce Department on Tuesday recommended urgent steps to boost domestic production of rare earths and other critical minerals, warning that a halt in Chinese or Russian exports could cause "significant shocks" in global supply chains.
The report includes 61 specific recommendations - including low-interest loans and "Buy American" requirements for defense companies - to boost domestic production of minerals essential for the manufacture of mobile phones and a host of other consumer goods, as well as fighter jets.
It also called for closer cooperation with allies such as Japan, Australia and the European Union, and directed reviews of government permitting processes to speed up domestic mining.
U.S. reliance on foreign minerals has worried U.S. officials since 2010, when China embargoed exports of so-called rare earth minerals to Japan during a diplomatic row. The issue took on new urgency in recent weeks after Chinese officials suggested rare earths and other critical minerals could be used as leverage in the trade war between the world's largest economic powers.
"The United States is heavily dependent on foreign sources of critical minerals and on foreign supply chains resulting in the potential for strategic vulnerabilities to both our economy and military," the Commerce Department said in a long-awaited report outlining a new federal strategy on critical minerals.
"If China or Russia were to stop exports to the United States and its allies for a prolonged period - similar to China's rare earths embargo in 2010 - an extended supply disruption could cause significant shocks throughout U.S. and foreign critical mineral supply chains," the report said.
Boosting trade with other countries could reduce U.S. reliance on sources of critical minerals that could be disrupted, and robust enforcement of U.S. trade laws and international agreements could also help address adverse impacts of market-distorting foreign trade measures, it said.
The report was cheered by U.S. miners, including MP Materials, which owns California's Mountain Pass mine, the only current rare earths facility in the United States.
For now, it must pay a 25 percent tariff to ship its rare earths to China for processing, collateral damage in the U.S.-China trade war.
"We welcome this report and hope that the Commerce Department's 'Call to Action' results in some real action from Washington," said James Litinsky, co-chairman of MP Materials.
The report called for a combination of short-term measures, such as stockpiling, and longer-term moves to catalyze exploration, design and construction of new mines, as well as re-establishing domestic downstream manufacturing supply chains.
It recommended several measures for the Interior Department and its subagencies, including the Bureau of Land Management and the Forest Service, to remove obstacles to critical mineral development and make it easier to get permits.
It said the BLM and Forest Service should review all areas that are currently "withdrawn" – or protected - from development and assess whether those restrictions should be lifted or reduced to allow for critical mineral development.
Commerce also proposed altering how the Interior Department and its agencies review mining projects under the bedrock National Environmental Policy Act, urging expedited environmental studies and identifying minerals which can be excluded from environmental reviews.
The report drew immediate fire from Democrats who said the new strategy would harm the environment and amounted to fresh concessions to multinational corporations.
"This administration has set shameful new records for industry giveaways, and this is one of the worst," said Raul Grijalva, Democratic chairman of the House of Representatives Natural Resources Committee.
The industry applauded the report, however.
"The steps outlined in this report will go a long way in unlocking the value of all our domestic mineral resources while continuing strict environmental protections," said Hal Quinn, president of the National Mining Association.
The Buy American recommendation, which would require defense weapons and related products be built with domestically-sourced rare earths, could make it easier to secure financing if investors knew there would be a guaranteed revenue source for new projects, prospective U.S. rare earth miners said.
"I would encourage the federal government to move as quickly as possible, and 'buy American' is one way to do that," said Anthony Marchese, chairman of Texas Mineral Resources Corp , which is seeking $300 million to develop the Round Top rare earth deposit in Texas. (Reporting by Valerie Volcovici, David Lawder, Andrea Shalal and Ernest Scheyder; editing by Leslie Adler, Cynthia Osterman and Sonya Hepinstall)