Rare chance to end China’s critical minerals monopoly

In the escalating trade war between the United States and China, one notable exception stood out – 31 critical minerals. They included rare earth elements that were strategically exempted from tariffs. This was not a gesture of goodwill.

It was a tacit acknowledgement of Washington’s deep dependence on Beijing for materials essential to its technological competitiveness, clean energy transition and national defense.

China’s response was swift and calculated. The Ministry of Commerce announced expanded export controls and a shift in pricing principles.

The move reflects Beijing’s long-standing effort to shift rare earth pricing from market supply and demand to pricing based on their strategic value. The impact was immediate.

Rare earth exports from China effectively ground to a halt, as exporters awaited approvals under a new, opaque licensing regime.

Unique position

The announcement prompted US President Donald Trump to issue a new executive order directing a review of national security risks, stemming from the United States’ reliance on imported, processed critical minerals.

As global supply chains reel from these disruptions, Australia finds itself in a unique strategic position. As a trusted US ally, it possesses the resources, partnerships and political capital to step into the breach.

But can Canberra seize this opportunity, or will it come with strings attached?

China’s latest restrictions target seven rare earths – such as dysprosium and terbium – crucial for electric vehicles, wind turbines, fighter jets and missile systems.

While stopping short of a full export ban, the policy functions as a chokepoint. It leverages Beijing’s near-total global control of rare earth refining of around 90% and its monopoly on heavy processing at around 98%.

Domestically, China’s rare earth sector is dominated by two state-owned giants which together control nearly 100% of national mining quotas. These measures have exposed the vulnerability of Western supply chains.

The US has only one operational rare earth mine – Mountain Pass in California – and minimal domestic refining capacity. A new processing facility in Texas owned by Australia’s Lynas is under development. But it will take years to establish a self-sufficient supply chain.

Europe faces similar challenges. While rare earths are vital to the EU’s green transition, domestic production remains limited.

Chinese technology

Efforts to diversify through partners like Australia and Canada show promise but are hindered by high production costs and continued reliance on Chinese technology.

Beijing is also working to redefine how rare earths are priced. One proposal would tie the value of key elements like dysprosium to the price of gold, elevating them from industrial inputs to geopolitical assets.

Another would settle rare earth transactions in yuan rather than US dollars, advancing China’s broader ambition to internationalize its currency.

For the ruling Comminist Party, this strategy goes beyond economics. It is a deliberate national resource policy comparable to OPEC’s management of oil, designed to link pricing to the strategic significance of critical minerals.

Investors are closely watching Australian producers. Strategic deposits such as Mt Weld in Western Australia have drawn renewed interest from Japan, Europe and the US.

Industry observers argue that Australia is better positioned than the United States to develop secure supply chains due to its rich geological endowment and transparent regulatory environment. To seize this opportunity, the government has begun to act.

Under its Future Made in Australia initiative, the federal government is considering measures such as strategic stockpiling, production tax credits and expanded support for processing.

Iluka Resources has secured A$1.65 billion or US$ 1.05 billion to build a rare earth refinery, due to be operational by 2026.

Dual role

Emerging projects like Browns Range and Lynas’s Malaysian refinery already serve as alternative operations in the global rare earth supply chain network.

Yet, structural barriers remain. The Western allies, including Australia, still lack key processing technologies and have potentially high environmental compliance costs.

Lynas’s Texas plant was intended to expand allied capacity but has faced delays due to environmental approvals.

Geopolitical tensions add another layer of complexity. Australia’s dual role – as a major upstream supplier to China and a strategic ally of the US – places it on a diplomatic tightrope.

Aligning too closely with Washington could invite retaliation from Beijing. Appearing overly aligned with China may provoke scrutiny from the United States.

Ownership concerns are also rising. The government has blocked or forced divestment of Chinese stakes in rare earth and lithium companies including Northern Minerals.

Market volatility compounds these challenges. Prices are being buoyed by geopolitical risk, but have been volatile. Moreover, China’s ability to undercut global prices could erode the competitiveness of Australian exports.

Canberra stands at the center of a rare strategic inflection point. It is both a beneficiary of China’s retreat and a potential casualty of intensifying great power competition.

Critical minerals

In a world where resources confer influence, the question for Australia is not simply whether it has the mineral deposits but whether it has the strategy to match.

If the government can capitalize on this moment – diversifying partnerships, investing in capabilities, and navigating allies and rivals with strategic care – it could emerge as a leader in a more diverse critical minerals landscape.

In the era of mineral geopolitics, possessing the resources is no longer enough. The real test is whether Canberra has the foresight and the will to lead.

Marina Yue Zhang is an associate professor of technology and innovation at the University of Technology Sydney.

This article is republished from The Conversation under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.