Australia has the chance to resolve the problems the AUKUS partners and their friends and allies have with critical minerals, particularly with rare earths, in the face of what is now effectively Chinese monopoly and dominance in processing—a product of skilful statecraft.

Australia will need to overcome that statecraft with some of our own. We have to do that with skilled help but we must lead, and have that leadership accepted by our partners. Though AUKUS Pillar 2 references supply chains, it is insufficiently prioritised. Being clear cut in designating critical mineral supply chains as an AUKUS ‘Pillar 3’ will give an appropriate level of focus for the job to be done.

We must not look for an American lead, we must do it ourselves.

The United States faces huge demands on its national security efforts. Its financial resources are massively stressed. Currently the US spends about 3.5 percent of its GDP on defence with a budget of around US$900 billion. However, if it was spending at Cold War levels, it would be closer to $2 trillion. China is a pacing power virtually non-existent during the Cold War. Russia, under pressure from its war on Ukraine, is returning to Cold War levels. The US cannot.

A sobering article in the Economist ^[1]recently pointed to US difficulties. In 1992, the US debt to GDP ratio was 46 percent. Now it is 96 percent. The Trump and Biden administrations have seen 9 percent added each year. In 30 years’ time, this will be at 166 percent. The Economist article pointed to an International Monetary Fund argument that US borrowing was so vast, it was endangering global financial stability. S&P and Fitch credit rating agencies have downgraded US debt and Moody’s is threatening to do so.

The next administration will face huge challenges. The Trump tax cuts reach their sunset next year. The trusts helping underpin US social security and Medicare will probably look at running out in the next four to six years. Burgeoning debt features nowhere in the current US political debate. President Joe Biden’s promise on the continued tax cuts limits them to incomes below $400,000, a saving of about one third. He also plans further taxes on high-wealth individuals and a raft of tax breaks, but he will spend most of that money.

Former President, and now candidate, Donald Trump is opaque on all of this, but he is proposing substantial tax cuts. All US debt is in US dollars so they can print money. However, that would be a decision fraught with dangers. Hence the IMF fears. They would envy Treasurer Jim Chalmers being able to announce in his budget a debt to GDP ratio of 35 percent. However, we play Lilliput to the US Gulliver.

It is one of life’s ironies that the critical minerals vital to the technologies essential for dealing with climate change are the same that are vital for the effectiveness of weapons systems. Some 3400 US weapons systems use rare earth products vital for permanent magnets, which determine accuracy and effectiveness. They are vital too for batteries. Other critical minerals are important for a range of strengthening metals in industrial and weapons systems. Lithium’s properties are well understood for its value in batteries production. That accounts for around 74 percent of its use. The other 26 percent is useful for strengthening materials in tanks, missiles and a number of other weapons systems.

Globally, a large number of nations identify the presence of critical minerals. Probably many of the claims are valid. Rare earths, for example, are not rare. Most will go nowhere but, if viable, they can count on Chinese miners eager to participate. In the end, virtually all of it goes to Chinese processing. Through massive stockpiles, China can manipulate pricing, if other countries choose to try to leave China out of the process.

We are party to 26 bilateral and multilateral agreements, including five with the US. These agreements offer collaboration on mining and processing work and commitments to engagement in supply chains. Almost nothing is built on any of them, but membership is fashionable. Australia, for example, produces 53 percent of the world supply of lithium, but it goes to China for processing.

We have, however, certain advantages. Firstly, we know what to do. As befits a mining giant, we have the education and skills of long standing. The Colorado School of Mines probably just pips our West Australian School of Mines at undergraduate level, but ours is superior in postgraduate studies. Both are well ahead of the next group.  On mining engineering, the third, fourth and fifth places for excellence go to Australian universities. Canada’s McGill is sixth. When it comes to the difficult task of processing rare earths, for example, the Australian Nuclear Science and Technology Organisation and the CSIRO know what to do.

On top of the know-how, we have massive potential and actual supplies of critical minerals. The US designates 50 minerals as critical. Thirty of them we have in substantial amounts and a further 14 in modest amounts. Biden has just announced a series of heavier tariffs on a range of Chinese goods, including batteries, citing Chinese dumping. Australia has twice the amount of China’s reserves in battery minerals.

ASPI senior fellow Ian Satchwell points out: ‘Australia’s critical minerals sector, measured by exploration investment reserves and capital expenditure, is the largest of any nation other than China. Further mining companies in Australia producing critical minerals as primary outputs operate 54 mines and processing plants.

‘An additional 28 operations produce critical minerals as secondary products. There are currently 457 exploration projects targeting critical minerals and exploration in 2023 totalled US $342 million or 18 percent of global exploration budgets for critical minerals.’

We are world leaders in ethical mining practices, including environmental and indigenous concerns. We are easy partners for those with such worries. The recent budget builds on a growing array of assistance to processing and explorational activity looking into ‘A future made in Australia’ initiatives for 31 critical minerals to drive processing in Australia. That is through a production tax credit.

In addition, $566.1 million over 10 years will go into a new program run by Geoscience Australia—named Resourcing Australia’s Prosperity—which will map Australia’s prospective regions and further afield. Despite growing strength in our critical minerals performance, we are still only 20 percent explored.

In terms of our own version of statecraft to drive decisive competition with China, two examples stand out in rare earths processing. One is the work of the Australian company Lynas at Laverton in Western Australia, where the Japanese government helped the company to produce rare earths through to end-use—surviving repeated Chinese efforts to destroy them.

The other is Australian company Iluka’s project at Eneabba in WA, which is developing the capacity to process permanent magnet type heavy rare earths. This includes production of terbium and dysprosium essential for permanent magnets. Iluka’s production of heavy rare earth oxides will, according to their claims, produce 90 percent of the rest of the world’s supply of oxides outside China by 2027. Increasing funding could see them extend production through to metallisation.

The point is that Australia represents capability and quantity for a major capacity with heavy government support. As an AUKUS third pillar, we would have the focus. If we work with Canada and Japan on the third pillar, we would together be transformative. It is up to Australia to ensure that the AUKUS partnership can harness the resources to do the job and that the US is well linked-in. We can expect its support—indeed we have a joint Australia-US task force established already.

This can finally put some teeth into our plethora of agreements.