Rare Earth Showdown

Albanese must convince Trump that only allied cooperation can break China’s rare earth chokehold.

While much Western attention has focused on extraction, China’s true dominance – and leverage – lies in refining. For years, Beijing has controlled the global processing of rare earths, giving it a critical chokepoint in the supply chain.

Australia’s experience offers a model for how to respond.

The world’s largest non-Chinese REE supplier is the Australian company Lynas Rare Earths, which will soon celebrate its 15th anniversary as a producer. It almost never got off the ground. After China’s first wave of de facto REE restrictions in 2010, Japan stepped in to bankroll the Lynas Advanced Materials Plant in Malaysia, even though it made little commercial sense at the time. Since then, Beijing has repeatedly tried to shut it down, but Malaysia, for its part, has stood firm.

Here’s how that supply chain works: REE concentrate from Mount Weld in Western Australia is refined in Malaysia, metallised in Japan, and turned into finished products across East and Southeast Asia, with the largest end user being the United States.

The logic should extend beyond REEs, to encompass all the minerals deemed as “critical”. The Europeans consider tungsten the most critical of all strategic materials – and again, China dominates. Yet another Australian company, EQ Resources, is the world’s largest non-Chinese producer, and sends all its output to a Vietnamese partner, the next largest producer after Australia. That’s no coincidence – that’s how partnerships are built, and supply chains are hardened.

But China has a huge head start and is becoming ruthless in pressing its advantage. Governments, including Australia’s, are beginning to respond, from mandating strategic mineral reserves, to the US move to set a floor price for REE concentrates.

However, governments have rarely managed commodity markets well (OPEC notwithstanding). What has worked is using the levers of government – regulation, capital, and diplomacy – to support strong corporate champions. In 2010, when industrial policy was unfashionable, Japan “picked a winner” with Lynas. Without that, there would be virtually no non-Chinese REE supply chain today.

Lynas Rare Earths Ltd processing plant in Kalgoorlie, Australia (Lynas Rare Earths)

Two of the Albanese government’s trademark business initiatives – “Future Made in Australia” and “Invested: Australia’s economic strategy for Southeast Asia to 2040” – are relevant here. They are sometimes seen as pursuing conflicting objectives; in fact, they are two sides of the same coin.

Australia should absolutely encourage critical minerals production onshore where it makes sense. But the government must also back Australian investment and strategic partnerships offshore, particularly in this region, when that is the best way to expand and strengthen local industries.

The lesson from Indonesia’s nickel story is instructive. A decade ago, Jakarta sought Australian capital and technology to develop its downstream nickel industry. Canberra declined, seeing Indonesia as a competitor. Indonesia turned to China instead, and the result was a booming Indonesian-Chinese nickel supply chain that devastated Australia’s own industry. It was, in hindsight, the “Kodak strategy” of protecting the old model while ignoring the future.

Australia must trust its world-class mining and processing firms to pursue the best opportunities – and where they go, government should follow: sometimes as wingman, sometimes as partner. In this hyper-competitive era, industry and government will either work together, or fail together.

In this context, when Prime Minister Anthony Albanese visits Washington next week, he should remind US President Donald Trump that slapping tariffs on allies and regional partners will only slow, burden, and raise the cost of diversification. Many have already resigned themselves to Trump’s 10 per cent “universal tariff” as a baseline, but there is now a compelling case for carve-outs, particularly in supply chains critical to national security. If the US really tries to “go it alone” – digging mines, developing technology, and building refineries simultaneously – it would extend the period in which America’s economy and defence sector remain reliant on China’s goodwill. Trump, author of “The Art of the Deal”, should recognise what a terrible negotiating position that would be.

This wouldn’t just be a “gift” to Washington. Each Virginia-class submarine uses around 4,600 kilograms of REEs, and each future SSN-AUKUS will likely need even more. If the United States and its allies cannot secure REEs for defence purposes – and China has specifically flagged military usage as the reason for their export controls – Australia’s entire future defence strategy could be thrown into jeopardy, to say nothing of the wider economic and strategic consequences.

Trump’s tariffs could compound the problem for all allied countries, stifling rare earth supply chain diversification efforts before they truly begin. Albanese must impress upon Trump that only a team effort can overcome China’s export leverage.

Australia’s experience is a reminder that these are complex policy challenges for a single government to deal with, let alone multiple governments at once. That is where the coming discussion in Washington should focus: not on what favours Australia can do for the United States and vice versa, but on how the two countries can collectively build a resilient and open critical minerals economy, centred on the Indo-Pacific, for the benefit of all. Australia has the resources, the technology and the diplomatic standing to do that. All we need is a little bit of help from our friends.

Jersey Lee is an international affairs analyst, founder of the Indo-Pacific geopolitics dialogue platform Pacific Polarity, and Pacific Forum Young leader.

During a distinguished diplomatic career, Andrew Goledzinowski AM served as Australia’s Ambassador to Vietnam, High Commissioner to Malaysia, Ambassador for People Smuggling and Human Trafficking Issues and Ambassador/Deputy Permanent Representative to the United Nations.

This article appeared originally at Lowy Institute's the interpreter.