As US Commerce Secretary Wilbur Ross travels to Australia for discussions on rare earths security, a new report from the United States Studies Centre at the University of Sydney looks at how the Australian government should respond to a US push for non-Chinese sources of supply.

Chinese authorities have hinted that they may use their dominant position as a supplier of rare earths and associated manufactured goods to retaliate against US restrictions on technology exports to Chinese telecommunications group Huawei. China is responsible for between 80 and 90 per cent of processed rare earths and products such as powerful rare earth magnets.

The Trump administration has resolved that it is a national security priority to eliminate the dependence of the US military on Chinese supplies of critical minerals, particularly rare earths and derivative products. But report author David Uren suggests there are risks for the Australian government should it seek to intervene.

"Consistent with Australia’s alliance and the US national security concerns, the Australian government could consider providing its own financial support for the rare earths industry. But it would need to go into any such support with its eyes open to the possibility of losing taxpayers’ money. It is the prospect of loss that deters private investors," Uren said.

"Australia’s national security is no more jeopardised by Chinese investments in rare earth production than it is by its stakes in the iron ore industry. Chinese investors already have substantial stakes in promising Australian developments. The Foreign Investment Review Board should remain open to Chinese participation in Australia’s rare earths industry."

Key points

  • It is not in China’s interests to impose a rare earths embargo — the result would be the stimulation of competitive rare earths production and substitution.
  • Australia has at least half a dozen rare earth projects ready for development, but needing commitments from potential customers and financiers. Neither banks nor equity markets will finance them. 
  • It may be that the most promising source of commercial finance for developing Australia’s rare earth deposits comes from China, which is forecast to become an importer over coming years as growth in demand from its rare earths manufacturing outstrips supplies from its own mines.

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