Rare earths represent fertile ground for bilateral cooperation between Washington and Canberra. Both governments share an aversion to overreliance on Beijing for supply, and Australia is stepping up as an alternative producer. The country accounts for around 2.8% of global rare earth mineral supply and more than half of the world’s planned new facilities.

China is currently the world leader in rare earths mining and processing by a large margin, a position that leaves US producers susceptible to disruptions. Around 78% of all rare earth imports into the United States come from China. Beijing has brandished rare earths as a diplomatic weapon in the past against Japan, and there have been rumblings of it doing so again in the trade war.

Rare earth minerals refer to a collection of mineral inputs that are critical to a variety of high-tech products, ranging from wind turbines to electric car batteries to fighter jets.

BACKGROUND

US-Australia cooperation on rare earths and other key mineral inputs has been building since the advent of the trade war, and it has picked up further momentum in recent months.

In early September, Australia released a report outlining 15 rare earth and critical mineral projects to fill holes in the supply chain and alleviate overreliance on China. The report proposes some A$5.7 billion worth of new facilities, covering rare earth minerals, antimony, magnesium, and tungsten – all of which China currently controls the global supply of. The plan also calls for the construction of a new rare earths mine and processing plant in Western Australia.

Lynas Corp, the Australian miner building the new processing plant, also has plans for a new facility in Texas.

Days after the Australian announcement, the United States State Department revealed its own initiative to shore up an alternative global supply chain of rare earth minerals, joining together with Australia, Botswana, and Peru to promote ‘responsible mining’ of critical inputs. In the words of Secretary of State Mike Pompeo: “[The United States] wants to ensure that these important mineral commodities remain free from international coercion and control.”

IMPACT

A few key points to note about rare earth minerals:

First, they aren’t rare. In fact, they’re relatively abundant and can be found in Canada, Australia, Myanmar, Vietnam, Greenland, Malaysia, the United States, and other countries. But getting them out of the ground and preparing them for their industrial application can be an expensive and environmentally destructive proposition.

Second (consequently), China’s current monopoly is more the result of political will than geographic endowment. China built up its current position via public subsidies and ‘dirty’ industrialization from the 1990s onward, and Western producers were content to see their own dependency grow.

Third, the geopolitical context – and by extension political will in Western countries – is now shifting in fundamental ways. In the old post-Cold War assumptions of WTO-led global free trade, China’s dominance over global supply was not an issue because there was no perceived threat of disruption. China’s rise as a challenger to the West’s status quo, along with the disruptions inherent to the recent US-China trade war, have changed the security equation. We’ve already seen the lower levels of Western manufacturing chains shift from China to surrounding low-cost alternatives like Vietnam and Taiwan. In this we’re seeing the top-level shifts follow suit, the critical inputs. However, these are less tradable and credible alternatives will take more time to become established.

Fourth, rare earth minerals and other critical inputs are only becoming more important as time goes on and their associated products become fixtures of the contemporary global economy. Production of rare earth minerals was just 20,000 metric tons in 1980; by 2017, the number had reached 140,000. Demand is expected to grow exponentially over the decade ahead.

FORECAST

Looking ahead we can expect ongoing divergence between the China-centered supply chain of old, and a new West-centered supply chain centered around Australia and other ‘reliable’ partner countries. And like many of the geopolitical forces unleashed by the US-China trade war, this trend is likely to outlive any ostensible resolution to the present trade tensions between the world’s two largest economies.

Washington will have its work cut out for it in accomplishing its goal. Though Australia may make for a natural partner in culture and aversion to overreliance on China, other worldwide producers will be a different story. States like China and to a lesser degree Russia are earlier adopters of the mercantilist view of the global economy, and as such have been currying favor and influence in key producers. It won’t be possible, let alone easy, for the United States to walk in and usurp all of these relationships that have been nurtured over the course of decades. In the end it will be less about best practices, and more about ponying up the investments and financial assistance to make the projects happen, and this is one field where the United States has continued to lag behind the comparatively profligate authorities in Beijing.

**Originally published on October 3, 2019.