No single country — regardless of its wealth or will — has the combination of mineral reserves, scale, and low-cost labour and energy to compete with China’s centrally planned critical-minerals industry. To break China’s grip on critical minerals, Australia, the United States and its allies need to shift their focus to innovation.
The current focus on treaties, subsidies and tariffs can be positive in the short term, but long-term success will depend on how quickly we can develop innovative critical-mineral processing technologies. Australia should position itself as the world’s laboratory for developing and commercialising these new mining technologies.
The United States is attempting to build a critical minerals trade bloc, termed FORGE, ahead of the resumption of China’s rare-earth export controls in November this year. This initiative, while still in development, seeks to circumvent China’s dominance through import tariffs, price floors and subsidies.
This can help in the short-term, but coordinating 30 different countries on tariffs, price floors and investments will be expensive, risky and difficult to maintain.
At best, the bloc acts as a unified front and counters China’s monopoly. At worst, it risks devolving into a resource scramble if limited new supply comes online. Long-term success will be measured in years, not months, and requires a more concerted effort towards leapfrogging China’s long headstart through innovation.
History offers a roadmap for this moment. In the wake of the 1973 oil crisis, the United States’ initial response was to bolster alliances and build multilateralism, creating the International Energy Agency. But the agency’s framework and rules were not sufficient in preventing a second price shock in 1979, and FORGE could face similar challenges. Ultimately, the Middle East’s monopoly on oil production was not broken by treaties; it was broken by innovation. Increased fuel efficiency, advancements in offshore drilling in the North Sea and the eventual shale revolution tipped the scales towards the West. Likewise, innovation holds the best chance of breaking China’s monopoly on critical minerals.
Australia is uniquely positioned to be the world’s laboratory for this innovation. It has strong scientific and environmental, social and governance credentials; a history of developing novel mining technologies; and world-leading mining companies with the capital to deliver.
Progressing technologies in mine waste extraction, deep sea mining and more efficient processing can unlock new critical minerals supply. ElectraLith, an Australian startup, is rapidly scaling up a clean, versatile and cost-effective method to extract and refine lithium, which could completely cut Chinese processing facilities from the supply chain.
Investments into improving material efficiency and developing new technologies that don’t require critical minerals could reduce overall demand as well. Electric-vehicle makers are already innovating away from cobalt batteries to mitigate risks associated with the Democratic Republic of the Congo’s supply dominance. In future, electric-vehicle batteries could be powered by abundant commodities such as sodium, iron and carbon.
Innovation needs to be central to FORGE’s long-term strategy, and partners must collaborate on research and development, pilot projects and deploying technologies.
Australia is uniquely positioned to be the world’s laboratory for this innovation. It has strong scientific and environmental, social and governance credentials; a history of developing novel mining technologies; and world-leading mining companies with the capital to deliver. Its rich natural resources make it an obvious candidate for pilot projects. A combination of coordinated policy efforts, venture capital and a willingness for allied countries to accept higher prices for critical minerals will be key.
Australia’s Critical Minerals Strategy, which is under review this year, needs a renewed focus on innovation and research. While current initiatives such as the Critical Minerals Research and Development Hub are an excellent start, they need the firepower of venture capital to avoid the valley of death between prototype and profit. The Australian Government should consider whether establishing an innovation fund, like the United States’ Compass Fund, could help develop homegrown innovations to break China’s dominance.
In innovation, the goal is not to outcompete China’s subsidised production on price; it’s to build resilience into supply chains by unlocking alternative production. Just as offshore oil extraction in the North Sea is considerably more expensive than Middle Eastern production, it gives the West a crucial supply backstop. Consumers recognise the value of diversified supply and are willing to pay a premium for it.
FORGE partners rightly acknowledge that moving away from artificially low, subsidised prices is the first step to incentivising industry to take risks on new technologies. Australia must advocate for the partnership to shift its focus away from trying to compete with China, and instead focus on innovations that allow the West to produce critical minerals without China.