22 Sep 2023
The Road to Critical Mineral Security Leads through Australia
It is commonplace to observe that Beijing enjoys control over much of the globe’s rare earth and critical mineral extraction and processing industries. China built this dominance over two decades and is unwilling to give it up. On the other hand, America’s critical minerals supply chains feature extensive vulnerabilities that private enterprise cannot resolve independently. The U.S. government faces a daunting challenge in establishing resilient, competitive, and alternative critical mineral supply chains immune to disruptions and economic coercion.
The United States must cooperate with its allies on critical minerals for two reasons. First, its industries have expansive demands that cannot be met by increased domestic production alone. Second, it does not possess enough mines and accessible deposits of all the critical minerals industry needs.
The U.S. economy’s already extensive critical minerals demand will grow almost exponentially in the coming decades. Demand for lithium, a crucial input in electric vehicle (EV) batteries, is projected to increase by 4,000 percent in the coming decades.
No single nation can meet the projected global demand for critical minerals on its own. The Organization for Economic Co-operation and Development (OECD) estimates that fifty new lithium mines, sixty new nickel mines, and seventeen new cobalt mines will be required to meet global demand. These are only three of fifty minerals that the United States now classifies as “critical minerals.”
No nation has enough proven resources to meet this demand, but a few are key. The concentration of minerals is spread worldwide, including in China, Russia, the Congo, South America, and Australia. Many countries with large mineral reserves are strategic competitors or politically unstable.
China currently controls the critical minerals and rare earth marketplace. It is the global lead producer of twenty-nine commodities, including twenty-two metals and seven industrial minerals. It refines up to ninety percent of the world’s rare earth ore.
Where China does not possess a near monopoly, it can control the market through “monopsony”—a market condition featuring one overbearingly and singularly important customer. While it does not produce the most essential battery materials—lithium, cobalt, and graphite—it buys, refines, and exports them to incomparable degrees.
Beijing is using this market power in increasingly coercive ways. It has increased restrictions on its critical minerals exports nine times between 2009 and 2020, more than any other supplier. It has cut off Japanese supply for geopolitical reasons and threatened U.S. defense contractors’ supply chains.
Removing China entirely from global critical mineral supply chains is not economically feasible. But competition is needed. America’s critical minerals supply chains cannot depend on a single nation, especially an unreliable one.
With its unparalleled natural wealth in critical minerals, rare earths, and other vital commodities, Australia has emerged as the key ally to bolster the United States’ security and resilience in this vital domain.
However, Australia needs more capital and foreign investment to transform potential into viable supply chains. To date, Chinese state-owned investors have been more than happy to meet this need.
As a global region, Oceania alone has outstripped Asia’s mineral production since 2000, and this growth has been driven almost exclusively by Australia. But China was also Australia’s largest buyer—fueling its growth with Australian raw materials.
The Australian government has already acted to inhibit Chinese ownership of critical minerals mining projects, creating space for capital from the United States and like-minded nations.
Australia’s vastness and lack of funding have left significant natural reserves untapped. It has also left Australia, in mining terms, underexplored. Vast reserves might remain hidden in the Land Down Under.
The United States is not alone in its demand for critical minerals. Global demand is increasing broadly across large economies, and there will be healthy competition from Japan, the EU, and India. The United States has already begun to deepen critical minerals cooperation with Australia, with President Joe Biden promising to designate Australia as a “domestic source” under the Defense Production Act (DPA), allowing Australia to benefit from the $369 billion Inflation Reduction Act clean energy incentives.
A solid economic incentive exists for mutual investment between Australia and the United States in critical mineral mining, refining, and manufacturing. U.S.-Australia ties are also significant and deepening in other areas, principally in defense through the trilateral AUKUS agreement.
At the 2023 Darwin Dialogue, a one-point-five track dialogue with representatives from the US, Japan, and Australia, a clear message emerged for the way forward. Australian, Japanese, and American governments and industry leaders must work together to develop viable, competitive alternative critical mineral markets that offer products through supply chains secure from domestic policy disruptions and economic coercion.