While Australia and trusted partner countries are focused on supply-side market strategies to combat China’s monopoly on refined rare earths, successful derisking can only be accomplished through both demand-side and supply-side measures. This could be achieved via a binding plurilateral Economic Security Agreement, a new report from the United States Studies Centre (USSC) at the University of Sydney argues.

In The missing market: Why US and allies’ rare earth derisking needs a demand-side strategy, Dr Naoise McDonagh, USSC Non-Resident Fellow and MBA Director and Senior Lecturer in Geopolitics and International Business at the School of Business and Law at Edith Cowan University, notes that China’s 2025 export controls over rare earth magnet manufacturing showed how quickly China's dominance over critical inputs can halt global manufacturing lines.

“Rare earth permanent magnets are used in EV batteries, wind turbines, robots, defence systems and much more,” said USSC Director of Economic Security Hayley Channer. “When 92% of the world’s rare earth magnets come from one source, this is a strategic vulnerability for all the countries and companies that rely on those technologies.”

The report finds that the United States, the European Union, Japan and Australia are focused mainly on supply-side measures, such as a full supply-chain industrial policy, regulatory architecture, state-backed supply assurance and refining tax credits — all of which are necessary but ultimately insufficient.

To address this, Dr McDonagh proposes a binding plurilateral rare earth magnet Economic Security Agreement amongst the G7 and partner countries. This Agreement could lead to a derisked, commercially viable and contestable market for supply and create market demand through a capacity-linked tariff-rate quota.

In other words, “the current derisking models used around the world are simply not enough to shift the market and diversify rare earth supply,” concluded Ms Channer. “A rare earth magnet agreement between trusted partners presents a viable solution to this highly complex supply chain problem.”

Read or download the report now

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Key recommendations:

Establish a rare earth permanent magnet economic security agreement

  • Negotiate an economic security agreement for the rare earth permanent magnet supply chain, building on G7 Critical Minerals Alliance derisking goals.
  • Adopt common standards-based rules-of-origin and a pathway toward the G7 aim of reducing dependence below 60% on any single supplier outside the G7 and partner countries by 2030.

Aggregate demand and stabilise project revenues

  • Coordinate public and defence procurement, strategic-reserve purchases, export credit and offtake backstops across oxides, metals and alloys, and magnets.
  • Use competitively allocated price floors, ceilings or contract-for-difference mechanisms to protect viable projects against non-market limit pricing.

Create a capacity-linked protected, contestable market for qualifying supply

  • Permit non-qualified imports tariff-free only up to residual demand that cannot be serviced by verified qualified supply. Reduce this quota as qualified supply expands and apply a price-equalising out-of-quota tariff to prevent non-market supply from undercutting qualified producers.