Rare-earth elements (REEs) and critical minerals are the world’s building blocks for emerging and future technologies and are essential to manufacturing, clean energy production, semiconductor production, and the defence and aerospace industries. Their supply and value chains are small relative to those of major commodities such as iron ore and coal, are highly concentrated around China, are easily distorted, and are vulnerable to price fluctuations.

Chinese-owned companies have dominated the world’s supply of REEs and many critical minerals for decades. The rise of President Xi Jinping has blurred the lines between private sector and government, giving Beijing control of those markets. Beijing has already used its near-monopolistic global supply-chain control for REEs to strategic advantage against the US and Japan. In response, both countries have independently enacted policies to develop alternative supplies of critical minerals and rare earths, with limited success.

To address these issues, ASPI, with support from the Northern Territory Government, hosted the inaugural Darwin Dialogue, a multi-day track 1.5 initiative. It involved 55 leaders and key players from Australia, Japan and the US, with senior representatives from the Netherlands and India attending as observers. The discussion focused on critical-minerals production and supply-chain security which brought non-government and government organisations together to build a shared understanding of the challenge of the REE and critical-minerals industry. Today, ASPI releases ‘Developing Australia’s Critical Mineral’s: Implementing the outcomes from the 2023 dialogue.’ ^[1] The report makes 24 recommendations for government and the private sector to support the development of viable, competitive alternative markets that offer products through supply chains secure from domestic policy disruptions and economic coercion.

There’s growing recognition in the US and like-minded countries (including Australia, South Korea, Japan and India) that additional REE and critical-mineral supply chains must be developed without dependency on China.

Beijing has realised that controlling the global market is a valuable economic lever and it’s used its dominant market position coercively. That adds a political risk compounding the issue of overreliance on a single market. Chinese companies routinely adjust their domestic production quotas and subsidise REE prices to strategically flood the market to drive out competitors and deter new market entrants.

But new supply chains won’t just happen.

The global supply is also inadequate, as demand for these resources is expected to grow rapidly in coming decades. Significant increases in global mining and refining capacity will be needed to meet that demand. The Organisation for Economic Co-operation and Development (OECD) estimates that 50 new lithium mines, 60 new nickel mines and 17 new cobalt mines will be required. Diversifying and expanding supply is a strategic, economic and environmental necessity, and Australia’s mineral reserves make it essential to the expansion of global supply.

Solutions will need to be driven by governments rather than left to market forces, and that will require significant resource contributions.

Australia’s Department of Industry, Science, and Resources (DISR) released a critical minerals strategy in 2015 and established the Critical Minerals Facilitation Office. In June 2023, the Albanese government released its Critical Minerals Strategy 2023–2030 ^[2]setting out its vision to grow the sector in Australia. These are steps in the right direction but need to be followed by close collaboration with the Department of Foreign Affairs and Trade and with Austrade to tap into their wealth of knowledge on promoting trade opportunities and act as facilitators. Their ability to connect buyers with sellers will be vital.

Recent tensions in the Australia–China relationship have made diversifying REE and critical-minerals production even more pressing. China produces 90% of the world’s REEs, so concerned countries can’t shift its sector dominance overnight. That dominance underscores the urgent need for Australia and its partners to mitigate overreliance risks.

The Darwin Dialogue brought together diverse stakeholders from across countries, sectors and businesses. Such a diverse range of participants meant an equally diverse range of perspectives and this report is an analysis of those perspectives, not a consensus. Some pervasive themes emerged. The key ones are that REEs and critical minerals are essential to the economic, national and commercial security of all involved. The second is that the current global market presents supply-chain vulnerabilities that market forces alone can’t fix.

The authors, drawing on the perspectives of Darwin Dialogue participants, argue that Australian governments and their international partners must take more decisive action in the face of the increasing supply-chain risk. In doing so, the Australian Government should continue approaching the challenge of REEs and critical minerals with a clear understanding that it can’t do everything. Instead, it should be concerned with what’s most important to national security and resilience.

Australia, like-minded governments and the private sector must collaborate to ensure competitive, secure, resilient REE and critical-minerals supply and value chains. But this is a complicated problem, requiring a nuanced and collaborative policy approach.

Government will need to adjust its approach to resolve these issues. For decades, successive Australian governments placed great confidence in economic liberalism: personal liberty, private property and limited government interference. Neoliberalism has been particularly influential, eliminating price controls, deregulating capital markets, lowering trade barriers and reducing, especially through privatisation, state influence in the economy. Three decades of economic prosperity have led to an almost religious belief in the ability of globalisation and market forces to solve economic problems. In this environment, business models have deliberately focused on offshoring, the centralisation of production, and just-in-time supply.

But the market can’t resolve the REE and critical minerals supply chain vulnerabilities alone, especially as the market incentives that offshoring presents have resulted in the concentration of supply in China and developing nations. Those decisions have created economic and supply-chain vulnerabilities, accentuated by the global Covid-19 pandemic, a return of war to Europe and great-power competition.

It’s neither advisable nor desirable to abandon globalisation or the associated commercial practices that have contributed to market concentration. Success isn’t about economic nationalism or protectionism but ensuring that nations have a choice of suppliers that increases resilience. Policymakers must now identify what premium governments will pay for market-level risk mitigation, and for what goods.