U.S.-Australia Cooperation to Counter China's Rare Earth Dominance

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U.S.-Australia Rare Earth Policy and China's Dominance in 2024

Current Geopolitical Landscape

China continues to hold a significant monopoly over the processing of critical heavy rare earths like Dysprosium (Dy) and Terbium (Tb), as well as light rare earths such as Neodymium (Nd). This dominance is a critical aspect of the global supply chain for these essential minerals, which are crucial for high-tech industries, including clean energy technologies.

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U.S.-Australia Cooperation

The U.S. and Australia have been actively working together to reduce their dependency on Chinese rare earths. This cooperation is part of a broader strategy to ensure a stable and diversified supply of critical minerals, which is vital for both national security and the green energy transition. The Quadrilateral Security Dialogue (QUAD) Critical Minerals Partnership Act, introduced in March 2022, aims to counter China's control over a significant portion of the global supply of critical minerals. This partnership includes the U.S., Australia, India, and Japan.

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In October 2022, the U.S. announced a $1 billion fund to invest in companies within QUAD countries to further counter China's dominance. Additionally, the Biden administration launched the Minerals Security Partnership (MSP), which includes Australia, Canada, Finland, France, Germany, Japan, South Korea, Sweden, the UK, the US, and the European Commission. This initiative aims to "friend-shore" critical mineral supply chains, excluding China and other countries of concern.

Australia's Role and Challenges

Australia is rich in critical minerals, particularly lithium, and has been a significant supplier of raw minerals to China. However, the U.S. strategy to de-risk its supply chains from China's dominance is putting pressure on Australia. The U.S. has extended its subsidies to "friendly" countries, including Australia, under the Defense Production Act, allowing Australian companies to benefit from the $369 billion IRA clean energy incentive. However, to access these funds, companies must ensure that no more than 25% of their ownership, voting rights, or board seats are held by "foreign entities of concern," which include Chinese investors. This measure effectively locks out Australian companies with significant Chinese ownership from accessing U.S. investments.

China's Response and Market Dynamics

China's control over the rare earth market, though still strong, has been gradually declining. Its share of global production decreased from 98% in 2010 to 78% in 2015. Despite this, China remains a dominant force, controlling about 70% of the world's critical rare earth minerals. The global demand for rare earth elements nearly doubled between 2015 and 2023, driven primarily by the rise in clean energy technologies.

The U.S. and its allies, including Australia, are investing in alternative processing facilities to reduce reliance on Chinese supply. For instance, Lynas Corp, a major rare earth mining and processing company outside China, has secured U.S. government funding to design a processing plant in Texas.

Conclusion

The geopolitical and economic dynamics surrounding rare earth elements are complex and involve significant strategic considerations for the U.S., Australia, and China. While the U.S. and Australia are making concerted efforts to diversify and secure their rare earth supply chains, China's long-standing dominance continues to pose substantial challenges. The ongoing efforts to reduce dependency on Chinese rare earths are crucial for ensuring stable supply chains and advancing green energy transitions globally.