by Our Foreign Affairs Editor
Australia is quietly undergoing one of the most significant strategic shifts in its modern economic history. Traditionally a champion of open markets and trade liberalization, the country is now rethinking its role amid intensifying global competition over critical minerals. In a recent report published by the Hinrich Foundation, titled “Report – Australia’s rare earths lie between economic security and liberal markets”, author Naoise McDonagh captures this transition with clarity and urgency. The report outlines how rare earth elements (REEs)—vital to everything from electric vehicles and wind turbines to advanced defense systems—have emerged as a new frontline in the struggle between liberal economic principles and national security imperatives.
At the heart of this dilemma is China’s formidable grip on the global supply chain. With 60% of global REE mining and nearly 90% of processing under its control, China’s position is not just dominant—it is strategic. Beijing has built this advantage over decades through industrial policy foresight, targeted research and development, regulatory consolidation, and aggressive use of export controls. From restricting gallium and germanium in 2023 to seven rare earths in 2025, China’s willingness to leverage its mineral dominance as a geopolitical weapon has become increasingly clear. “Critical minerals have become a geostrategic weapon in Beijing’s economic statecraft arsenal,” writes McDonagh, noting that this control allows China to exert disproportionate influence over industries and governments worldwide.
Australia, with its rich mineral endowment and deep expertise in resource extraction, is uniquely positioned to help diversify global supply chains. But McDonagh argues that geological potential alone is not enough. “Key to its success will be the effective transition from a global mining powerhouse to a mining-to-refining powerhouse,” the report notes. Processing is where China’s real power lies. Unlike iron or gold, REEs require up to 1,000 stages of chemical transformation—an area where Chinese firms, supported by state resources, have accumulated world-leading technical expertise and trade secrets. This complexity makes the sector unattractive to private capital, which tends to avoid high-risk, low-visibility ventures without clear returns.
Faced with this reality, Australia is embracing a more strategic role for government in shaping the market. The 2024 Future Made in Australia Act marked a turning point, signalling a move away from decades of economic orthodoxy. “The role of government needs to evolve,” Prime Minister Anthony Albanese declared, arguing for a more interventionist stance to build sovereign capabilities in strategic sectors. This includes rare earth processing, where Canberra now sees potential not just for economic growth, but for geopolitical leverage. “In developing ore-to-metal processing of critical minerals, Canberra aims to achieve strategic indispensability,” McDonagh observes, highlighting how the shift is as much about power as it is about profit.
Two flagship projects—Iluka Resources and Arafura Rare Earths—illustrate this strategy in action. Iluka, backed by a A$1.25 billion non-recourse loan from Export Finance Australia and a further A$400 million in 2024, is constructing an integrated ore-to-oxide refinery in Western Australia. Arafura, meanwhile, has secured over A$1 billion in funding from Australian and allied international sources, including Germany and South Korea. It is pursuing a model that locks in customer offtake agreements before construction, reducing exposure to price volatility and undercutting Beijing’s ability to weaponize its market dominance. “One major risk for Australia is that multiple governments simultaneously back excessive new supply,” McDonagh cautions, stressing the importance of international coordination through mechanisms like the Minerals Security Partnership.
Yet even these ambitious efforts face serious challenges. The most pressing is end-user demand. While supply diversification is underway, much of the global demand for REEs still originates in China. Even if Australia and its partners succeed in producing refined REEs, they will need to secure markets outside China to remain viable. Arafura’s struggle to finalize sufficient offtake agreements—stalled at 66% as of mid-2025—underscores this difficulty. “Why are end-users not stepping up to secure non-Chinese supply?” McDonagh asks, suggesting that many firms still prioritize short-term cost savings over long-term security. This highlights a structural vulnerability: in a market shaped by commercial logic, strategic resilience is often undervalued.
Iluka has taken a different path, building first and trusting that customers will follow. But this “build it and they will come” strategy carries its own risks. Without binding offtake agreements, Iluka remains exposed to sudden market shifts, including Chinese price manipulation. In contrast, firms like VHM and Peak Rare Earths—unencumbered by state funding conditions—have struck deals with Chinese buyers like Shenghe Resources. These arrangements offer short-term financial stability but risk reinforcing the very dependencies that strategic policies are meant to break. “There is no market-led solution to the REE conundrum,” McDonagh concludes. “No path to ex-China supply without patient, state-backed capital.”
Australia’s ambitions are therefore not just economic—they are political, strategic, and deeply intertwined with the future of liberal democracy in an era of rising authoritarian influence. Canberra’s recent agreements with the United States and European Union are a step in the right direction, offering new pathways for trade, funding, and collaboration. The 2024 Australia-EU memorandum on critical minerals and the Inflation Reduction Act’s inclusion of Australian firms as domestic suppliers are two key examples of how international alignment is helping shape a more secure supply ecosystem. Together, the US and EU account for over a quarter of global advanced manufacturing, making them essential partners in building demand for Australian REE output.
But success will depend on more than bilateral or plurilateral agreements. It will require a reconceptualization of how market economies approach strategic industries. “Policymakers must conceptualize commercial ecosystems in whole rather than supply chains in parts,” McDonagh writes. This means integrating upstream mining, midstream refining, and downstream manufacturing into a cohesive strategy that reflects not only economic efficiency but geopolitical reality. Australia alone cannot shift global market dynamics, but by coordinating with like-minded partners, it can help build a resilient, transparent, and diversified supply network.
The Hinrich Foundation’s report is both a sobering assessment and a roadmap for action. It warns that economic security cannot be achieved without rethinking foundational assumptions about market behavior, state intervention, and national interest. It also shows that Australia, with the right mix of policy support, strategic partnerships, and long-term investment, can become more than just a resource supplier—it can be a pivotal player in the global contest over technology, sovereignty, and economic power. In this new world of geoeconomic rivalry, rare earths are not just metals—they are leverage, and Australia is learning how to wield it.
