The missing market: Why US and allies’ rare earth derisking needs a demand-side strategy

Executive summary

Rare earth permanent magnets (REPMs) have become one of the most important geoeconomic chokepoints in the global economy. They are essential inputs to electric vehicles, wind turbines, robotics, industrial motors, consumer electronics, aerospace and defence systems. Production of REPMs depends on rare earth mining feedstock. China accounts for around 91% of refined rare earth oxide output and 92% of global rare earth permanent magnet production.

This gives Beijing monopoly-like power over the supply of key magnet inputs, and buyer power over demand for rare earth raw materials and oxides. In 2025, Beijing leveraged this dominance to counterbalance US trade pressure by controlling exports of rare earth oxides, rare earth processing technologies and magnet manufacturing. This caused global manufacturing disruptions as magnet supplies ran out.¹

The central argument of this report is that successful derisking from China’s rare earth weaponisation requires both supply-side and demand-side market strategies. Initiatives underway in four jurisdictions covered in this report are key to REPM derisking: Australia, the European Union, Japan and the United States. Actions by these jurisdictions remain mostly focused on supply-side interventions; these are necessary but insufficient.

Without a demand-side strategy for securing market demand, current supply-side investments will remain vulnerable to weak offtake, Chinese limit pricing and renewed market concentration.

Private firms have strong incentives to purchase lowest-cost products and fear paying a premium that their competitors may avoid. This produces an economic security externality: diversified supply is a public good with higher costs attached, while market pressures mean individual firms are unable or unwilling to pay. As a result, realising demand for supply-side initiatives coming to market is not a given.

To address this externality the report recommends a plurilateral rare earth permanent magnet Economic Security Agreement (ESA). Building on the G7 Critical Minerals Resilience and Production Alliance, to which Australia is a partner, the ESA should create a derisked, commercially viable and contestable market for qualified supply across the REPM ecosystem. The agreement buttresses existing supply-side measures by creating secure market demand through a capacity-linked tariff-rate quota applied to single suppliers outside the G7 plus partner economies that hold excessive market share. The latter is defined by the G7 as single suppliers with 60% or more market share² across the REPM supply chain. Non-qualified imports would retain tariff-free access up to the volume required to meet demand that cannot yet be serviced by qualified supply. As more qualified capacity becomes operational, this residual quota would contract accordingly.

The goal of the ESA design is to convert economic security from a voluntary corporate choice into an enforceable market rule. By linking trusted demand, qualified supply and conditional market access, an ESA would give investors’ confidence that commercially sustainable markets will exist for non-China rare earth oxides, metals, alloys and permanent magnets. Without a demand-side strategy for securing market demand, current supply-side investments will remain vulnerable to weak offtake, Chinese limit pricing and renewed market concentration.

Policy recommendations

1. Establish a rare earth permanent magnet economic security agreement
   1. Negotiate an economic security agreement for the rare earth permanent magnet supply chain, building on G7 Critical Minerals Alliance derisking goals.
   2. 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.
2. Aggregate demand and stabilise project revenues
   1. Coordinate public and defence procurement, strategic-reserve purchases, export credit and offtake backstops across oxides, metals and alloys, and magnets.
   2. Use competitively allocated price floors, ceilings or contract-for-difference mechanisms to protect viable projects against non-market limit pricing.
3. Create a capacity-linked protected, contestable market for qualifying supply
   1. 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.

Introduction: Beijing’s rare earth ace card

China’s activation of comprehensive rare earth product and technology export controls during 2025 highlighted the country’s control over one of the modern economy’s major chokepoints.³ Beijing deployed its rare earth ace card as a countermeasure to President Trump’s ‘Liberation Day’ tariffs against China, initially applying licensing controls to rare earths, rare earth oxides and metals. This was followed in October by broader curbs on rare earth refining and separation technologies, products and rare earth permanent magnet (REPM) manufacturing, and applications involving military users or end uses were banned as the default position.⁴ The October package was suspended for one year as part of a negotiated concession with the Trump administration for a trade truce.⁵

Given that in 2024 China accounted for 60% of global mined rare earths, 91% of refined rare earth oxide output and 92% of global REPM production,⁶ the export controls had immediate, powerful consequences. REPMs are critical inputs to advanced manufacturing. Reduced exports meant that consumer and defence sector production lines went idle globally as magnets ran short,⁷ exposing the deep vulnerability of the United States and other advanced economies to Chinese REPM supply chain dominance.⁸ As a result, Beijing dramatically altered the global balance of geoeconomic power in one fell swoop, transforming the Trump administration’s position of assumed trade war escalation dominance over China to one of escalation equality.⁹

China’s production output exceeds the next nine largest manufacturing economies combined.

Beijing developed this chokepoint power through decades of targeted strategic industrial policy across the mine-to-magnet supply chain.¹⁰ Beijing also dominates the demand side of the market for refined rare earths due to China’s vast manufacturing sector that represented 28% of total global value-added manufacturing and 35% of gross manufacturing in 2024.¹¹ China’s production output exceeds the next nine largest manufacturing economies combined.¹² China’s leading position in sectors that are REPM-dependent, such as wind turbines, electric vehicles and electric motors, means the country is the single largest source of demand, accounting for 60% of global REPM demand in 2024.¹³ In effect, Beijing has both near-monopoly seller power and monopsony-like dominant-buyer power in the market. As a result, new derisked REO and REPM supply could ironically depend on Chinese buyers for commercial bankability, if diversified end-user markets are not established. This poses further risks of non-market practices to disrupt trade and firm profitability.¹⁴ The challenge of derisking China’s REPM export controls is a two-sided problem — both the supply and demand-side of the equation must be addressed.

This paper proceeds as follows:

• Section 1 outlines the centrality of REPMs to modern manufacturing.
• Section 2 reviews supply-side derisking efforts by the United States, the European Union, Japan and Australia.
• Section 3 identifies key risks in current derisking strategy relating to a lack of demand-side management for commercially sustainable derisked supply.
• Section 4 outlines an economic security agreement that can operationalise the G7’s goal of reducing dependence below 60% on any single supplier outside the G7 and partner countries by 2030.¹⁵

1. Understanding the rare earth permanent magnet supply chain challenge

The International Energy Agency (IEA) estimates that if China fully implemented its rare earth export controls, it would threaten US$6.5 trillion annually in downstream non-Chinese economic production. Full export controls would particularly affect products requiring REPMs.¹⁶ The United States and Europe would disproportionately be impacted, with economic losses of over US$1.5 trillion each. Other countries like Australia that import defence and consumer goods reliant on Chinese inputs would also face severe indirect impacts.

Why are rare earth permanent magnets so important?

Neodymium-iron-boron (NdFeB) permanent magnets account for around 96% of rare earth consumption by value and around 50% by volume.¹⁷ NdPr is the primary input to standard REPMs, which are prized by industry for their powerful magnetic performance, low weight, compact size, resistance to demagnetisation and low cost compared to alternatives.¹⁸ Standard NdPr-based REPMs tend to lose magnetism as temperature increases above 80 degrees Celsius. Hence, the heavy rare earths dysprosium (Dy) and terbium (Tb) are crucial additives for REPMs that maintain magnet performance under high-temperature conditions of up to 230 degrees Celsius, critical for some consumer and defence applications.

The Mountain Pass Rare Earth Mine in California is North America’s only active source of rare earth minerals.Source: Getty

Permanent magnets are the largest use application for NdPr (>70% of global output) and Tb/Dy (>90% of global output).¹⁹ Data up to 2025 shows China’s domination of the supply chain:

• For NdPr with: 60% of mining, 90% of midstream separation, 95% of midstream metallisation
• For Dy/Tb: 95% of mining (including Chinese-controlled operations in Myanmar), >95% of midstream separation, and >95% of metallisation.²⁰

China also accounted for 92% of global REPM production in 2024, with Japan manufacturing 7% and negligible production elsewhere.²¹ Demand for REPMs is set to grow rapidly in consumer sectors as well as in defence manufacturing. In 2024, the world economy consumed 260,000 tonnes of REPMs.²² Of these, China produced around 239,000 tonnes, exported 58,000 tonnes²³ and used the remainder as inputs to final manufacturing. Global demand is predicted to more than double to 600,000 tonnes within a decade through surging demand from electric vehicles, wind turbines and robotics.²⁴ Excluding China, the United States is predicted to have the strongest domestic demand growth globally, with a fivefold increase from 10,000 tonnes currently to over 50,000 tonnes by 2035.²⁵ Currently planned new US production of REPMs, discussed in section 2, will cover only some of this growth, while the European Union has no significant REPM production in train.

Control over the rare earth permanent magnet supply chain has proven to be a powerful instrument to deter the United States and others from acting against Chinese interests.

Control over the REPM supply chain has proven to be a powerful instrument to deter the United States and others from acting against Chinese interests. This was evidenced when the Trump administration backed down on new tariffs and semiconductor export controls in October 2025 in return for Beijing pausing full implementation of its export controls.²⁶ Unsurprisingly, Beijing’s actions have imparted significant new momentum into derisking efforts already underway. The report now turns to these efforts.

2. Derisking China’s rare earth weaponisation

The four jurisdictions covered in this report — the United States, the European Union, Japan and Australia — are chosen for their influence on global derisking efforts in REPM supply chains. The United States and the European Union are the two largest manufacturing zones outside of China. Each represents major potential sources of non-China demand for midstream REOs and REPMs, as well as final-use demand for REPMs in consumer and defence products. The US and EU markets will therefore be crucial to securing commercially bankable non-China supply chains. Japan is the only other significant producer of REPMs: Japan is already a major REPM manufacturer and has the most mature and successful derisking strategy to date. Australia is investing heavily in upstream and mid-stream mining and refining and is home to Lynas Rare Earths, the only significant producer of heavy and light REOs outside of China. Finally, these four jurisdictions have strong economic complementarities and existing deep institutional linkages suitable for partnering within an economic security REPM ecosystem arrangement discussed in section 4.

The United States, the European Union, Japan and Australia each have different derisking models that reflect domestic ore resources, domestic industrial demand, manufacturing capabilities, strategic prerogatives, and political choices regarding pace and level of direct intervention in the market.

Each of the four jurisdictions has different derisking models that reflect domestic ore resources, domestic industrial demand, manufacturing capabilities, strategic prerogatives, and political choices regarding pace and level of direct intervention in the market (see Table 1).

Table 1 covers significant REPM supply chain derisking initiatives that are currently operational or with high likelihood of being operational within three years due to agreed financing, offtake commitments or announced investment decisions. These initiatives highlight that REPM supply chain derisking is progressing unevenly and remains highly exposed on the demand side, as discussed below.

The United States is moving furthest toward a full mine-to-magnet industrial model through MP Materials and USA Rare Earths, backed by price floors, defence offtake and large-scale finance. However, its planned 20,000 tonnes per annum (tpa) NdFeB capacity by 2028 still depends on securing sufficient heavy rare earth inputs, successful execution of commercial plans by lead private firms, and only MP Materials currently has guaranteed offtake.

The European Union has one of the most developed regulatory frameworks but the weakest tangible supply-chain delivery, with no rare earth extraction or processing and only limited REPM capacity such as Neo Performance Materials’ facility in Estonia.

Japan has the most mature demand-anchoring strategy, but one that is heavily dependent on a single firm, Lynas Rare Earths, running a supply chain starting in Australia’s Mt Weld mine and finishing in Malaysia for REO separation into NdPr and recently the Dy and Tb heavy oxides. Most of these REO outputs are under contract with Japan Austral Rare Earths (JARE) for distribution to Japanese industry, which remains the only major non-China REPM producer.

Australia is emerging as a key upstream and midstream oxide supplier through new projects such as Iluka Resources’ Eneabba REO refinery (heavy and light rare earths) and Arafura Rare Earths’ Nolans NdPr project, as well as numerous other prospective rare earth projects. Australia’s approach focuses primarily on supporting mines to come online through production tax credits, financial derisking through export credit agency support and offtake commitments for building a strategic reserve.

Within the three-year time frame that will see the prospective projects in Table 1 come online, global demand for REPMs is estimated to grow from 260,000 tpa in 2024 to around 375,000 by 2029.³² Theoretically, the REPM initiatives underway across these four jurisdictions provide the basis for an additional 22,000 tpa of finished magnet production (Table 2). Adding the US projects for REPM output with Japan’s existing 18,000 tpa magnet production could provide up to 40,000 tpa of magnet production by 2029. Australia’s advanced projects for additional REO offer scope for increasing REPM output further. However, there are uncertainties around execution risks for the projects themselves, as well as the level of REPM production capacity that will exist to use new Australian feedstock as it comes online.

If all listed projects achieved their announced capacity, together with existing Japanese production, they would supply approximately 11% of projected 2029 global demand. This would still leave diversification well short of the scale required to meet the G7 dependency objective. Other G7 members not covered here are Canada and the United Kingdom. Canada possesses emerging commercial capabilities in rare-earth separation, metallisation and recycling, particularly through the Saskatchewan Research Council. However, no financed industrial-scale Canadian REO mining/refining or REPM manufacturing has reached a sufficiently advanced stage to be included in medium-term production forecasts through to 2030. The United Kingdom has no REO mining activities, but has a domestic recycled magnet production capacity of up to 300 tpa through HyProMag,³⁶ a UK-based metal processing company. While the level of output is too small to meaningfully support G7 and partner derisking requirements, given expected global demand by 2029 is estimated at nearly 400,000, HyProMag demonstrates recycling can play a role in creating new REPM supply.

The broader lesson is that major derisking efforts underway will significantly undershoot G7 aspirations for no more than 60% REPM supply by 2030. Furthermore, derisking cannot succeed by mining or oxide production alone; the remaining strategic risk is whether non-China REO producers, metallisation producers and rare earth magnet projects can secure bankable, long-term demand for their individual products. This will be challenging given their outputs will be more expensive than the Chinese equivalent.

3. How the profit motive works against REPM derisking

In 2025, global demand for REPMs was around 280,000 tpa, whereas China’s total REPM production capacity is estimated to be around 400,000 tpa.³⁷ This means that China can easily cover all current REPM demand globally and can meet estimated global demand in 2030 without adding any new REPM capacity. Additionally, China remains by far the lowest-cost supplier globally, and its rare earth sector is consolidated under state control. This means Beijing can leverage its low-cost magnet industrial base and overcapacity to destroy the economics of alternative suppliers when they come to market by relaxing export controls and driving down prices, a practice known as limit pricing.³⁸ Limit pricing involves a monopolistic supplier reducing prices temporarily when new competition comes to market to undermine competitor profitability. In sectors with high capital costs and long investment horizons to profitability (like mining and manufacturing), limit pricing is a powerful tool deterring private investors from entering the market. It can also bankrupt existing competitors, as occurred with Molycorp in 2015 and almost occurred with Lynas until Japan’s JOGMEC stepped in with financial support in 2016.³⁹ Lynas remains to this day one of two commercial-scale non-Chinese producers of NdPr oxide, and the only non-China producer of heavy rare earths Tb/Dy.

The reality remains that, absent policy initiatives, sustained commercial demand for more expensive refined rare earths produced in Australia and elsewhere is not a given. Only MP Materials and Lynas have demand support approaching comprehensive medium-term revenue assurance. Other advanced projects have secured partial offtake but retain substantial demand and price risk.

Figure 1. Market dynamics and state capitalist strategy

Arafura’s final investment decision (FID) in May 2026 highlights this demand-side gap in current strategy. Arafura began giving market guidance in 2022 that it was targeting FID in that year,⁴⁰ and has stated each year thereafter in its investor announcements that FID was expected in the given calendar year. Yet FID was only reached in 2026. Understanding why Arafura took considerably longer to reach this point is crucial for policymakers to grasp the demand-side problem in REPM supply chains.

To access its senior debt financing during construction, Arafura is required to have binding offtake for 80% of its nameplate NdPr output of 4,440 tpa, equating to 3,552 tpa, making this target a key metric for announcing FID. To achieve this, Arafura requires private firms to sign offtake agreements for NdPr that is not yet available and, when it is, would be more expensive than Chinese equivalents, particularly if China engages future strategic limit pricing. Between 2022 and 2025 Arafura secured cornerstone offtakes with Hyundai and Kia for 43% of its total offtake target (secured in November 2022), Siemens Gamesa for 15% (April 2023), Traxys Europe contracting 8% (March 2025) and Traxys North America (May 2026) contracting 14%, securing 80% of the firm’s total target for binding offtake prior to FID. In early 2026, the Australian Government’s new Critical Minerals Strategic Reserve provided a non-binding letter of support to purchase a further 500 tpa, taking total binding and non-binding offtake to 94% of the offtake target, with Arafura announcing FID would proceed.⁴¹

A non-binding letter of support from a strategic reserve that is not yet operational by a country with no manufacturing activities that require NdPr is arguably a fragile way to secure Arafura’s offtake threshold. Soon after Arafura announced its FID in May 2026 it signed an additional 5-year agreement for offtake with an unnamed Indian firm for 500 tpa, getting its total agreed offtake to 108% of the required amount to access senior debt.⁴² However, fragility remains in Arafura’s FID, as evident in the firm’s May 2026 post-FID investor presentation.⁴³ Here it notes that the sunset date for conditions such as delivery of NdPr for its two largest offtakes, Hyundai and Kia, and Siemens Gamesa are 30 June 2026 and 30 September 2026, respectively. Since Arafura is at least three years from its first NdPr output, it will not meet those sunset delivery dates and is currently re-negotiating with both customers. Losing either Hyundai/Kia or Siemens would reduce existing offtake below the threshold for accessing senior debt.

Despite significant public funding support, Arafura’s final investment decision has been delayed for years due to an inability to secure requisite private offtake and remains at risk from offtake re-negotiations with its two largest counterparties. Failure of either to agree new terms will impact senior debt financing availability.⁴⁴ Offtake constraints were a material contributor to delay and remain a financing risk. This begs the question: where is the demand for Arafura’s NdPr? China has been weaponising its rare earth monopoly since 2010, and its expansive export controls in place since 2025 have significantly disrupted G7 and EU economies experiencing reduced access to critical inputs to their manufacturing sectors. One might reasonably expect over-subscribed offtake demand for Arafura’s NdPr, not an ongoing struggle to secure contracts.

Iluka Resources, Australia’s second major rare earth oxide operation, offers further insight. Iluka’s new Eneabba rare earth refinery is at an advanced stage of construction and scheduled to have first oxide output (NdPr, Dy/Tb) in 2027. In June 2026, Iluka announced its first binding “take-or-pay” multi-year agreement for supply of 10% of its planned oxide output starting with an unamed global automotive firm.⁴⁵ The latter’s details have been kept in confidence. Given Iluka’s operations are far more advanced than Arafura’s, and the turmoil in global rare earth supply chains since China radically tightened export controls in 2025, it is noteworthy that a year out from first production Iluka has only secured offtake for 10% of output.

The missing market for derisked rare earth oxides

Two issues help explain the challenge of securing the demand-side of REPM supply chains: (1) commercial risk and (2) geopolitical risk.

On the commercial side, private firms are hesitant to enter binding offtake because non-China supply is more expensive and buyers fear paying a premium that their competitors avoid. While Chinese supply is tight now, future Chinese limit pricing achieved by relaxing export controls could mean binding offtake today locks a buyer into considerably higher prices than competitors that hold off. Hence, even though individual firms may be aware of the risks involved in depending on Chinese supply, they rationally prefer to maintain maximum optionality and hope their competitors pay the higher cost needed for system resiliency. What is rational for individual firms is irrational from a national economic security perspective: if most firms act this way, China will maintain chokepoint power. This produces a market failure that externalises an economic security cost onto society, with ramifications for economic stability and national security. This is not the fault of individual firms, who cannot survive by going against the market. Only government has the regulatory power to require market participants to internalise cost externalities for securing public goods.

The second factor is geopolitical risk for firms that enter into offtake agreements with non-Chinese rare earths producers. Industry participants in the upstream supply of REO/REPM have noted that there is market demand for alternative non-China supply. However, they note that customers are wary of signing offtake arrangements until product is actually available for delivery out of fear that China may punish them for supporting efforts at breaking Chinese market dominance.⁴⁶ This could include China refusing to supply such firms with rare earth products.

Signage of the China Rare Earth Group is seen at its processing plant in Longnan county, Ganzhou, November 2025.Source: Getty

This concern is credible, as China has previously punished individual firms and governments for acting against its perceived interests.⁴⁷ Amplifying this risk, in April 2026 China issued new “Regulations on Industrial and Supply Chain Security” that treat supply chains as core to national security. The regulation targets normal commercial due diligence information gathering by foreign firms operating in China — often legally required by their home countries — as a potential threat to Chinese economic security.⁴⁸ The broadly worded regulations conceivably allow for punishment of non-Chinese firms engaging in derisking actions that shift demand in strategic sectors away from China, if Beijing interprets such acts as undermining the country’s industrial base.⁴⁹

In summary, the commercial incentives and geopolitical risks that firms face in rare earth supply chains undermine the long-term bankability and project viability of non-China operations. That offtake agreements by private firms have been slow to emerge for Australian REO producers highlights the challenging commercial conditions of these projects. For now, China retains the whip hand over the REO/REPM supply chain and downstream sectors dependent on these outputs. Beijing can decide to move from supply constraint to supply saturation at any time, collapsing prices and in turn destroying the viability of for-profit operations. Once competitors are removed, supply constraint can be re-applied.

4. An ‘Economic Security Agreement’ as a potential path forward

The preceding analysis demonstrates that REPM derisking is unlikely to be achieved through uncoordinated national industrial policies. The core problem is not simply that China dominates individual supply-chain stages, but that it controls the integrated ecosystem linking rare earth mining, separation, metallisation, alloying, magnet manufacturing and end-use demand. Furthermore, the public good at stake is national economic security, while the private incentive for firms is cost minimisation, a goal tied inextricably to firm survival. Minimising costs in the current market environment leads to ongoing supplier concentration and thus a powerful self-sustaining economic security externality.

An economic security agreement is needed to break the current market equilibrium by regulating the ESA countries to shift permanently to derisked supply. The proposed Economic Security Agreement (ESA) should be designed to create a protected, contestable and commercially viable dependable REPM ecosystem. Contestability in an era of weaponised trade requires state protection for qualified suppliers. The proposed ESA offers an operational mechanism for implementing the June 2026 G7 Leaders’ Declaration, which Australia endorsed. The Declaration commits participants to minimise dependence on any single external supplier for rare earths and permanent magnets outside the G7 and partner countries below 60% by 2030 and under 50% as soon as possible thereafter.

To achieve this, the Declaration expressly contemplates demand aggregation, revenue-stabilisation mechanisms, joint procurement, price floors, quotas and plurilateral trade agreements.⁵⁰ An REPM Economic Security Agreement converts these non-binding commitments into stage-specific, investable rules and protected markets across oxides, metals, alloys and magnets. The ESA also aligns with the EU-US Action Plan for Critical Minerals Supply Chain Resilience announced in April 2026, which put forward intent to “explore a broad range of trade policies and instruments” to secure derisking.⁵¹

The ESA should cover five linked obligations:

1. Map demand and qualified capacity by supply-chain stage
   Maintain a shared registry covering separated oxides, metals, alloys, magnet production and relevant end-use demand.
2. Establish a common derisked, high-standard supply chain
   Define substantial transformation, chain of custody, traceability, beneficial ownership and control, environmental and labour compliance and anti-circumvention requirements. Geographic origin alone is insufficient to derisk concentrated supply where controlled firms may operate through third jurisdictions.
3. Adopt a stage-specific diversification pathway
   Use the G7 below-60% derisking objective as the headline target, while mapping out the required targets at each relevant stage to meet this goal.
4. Aggregate demand and stabilise project revenues
   Combine public and defence procurement, reserve purchases, joint purchasing, export credit, offtake backstops and competitively allocated floors, ceilings or contract-for-difference mechanisms.
5. Establish a capacity-linked tariff-rate quota for REOs, Rare Earth Metals/Alloys and REPMs
   Permit imports from non-qualified suppliers on a zero tariff up to the quota threshold volume required to meet demand not yet serviceable by qualified supply. Apply a price-equalising over-quota tariff that prevents non-qualified imports from undercutting trusted suppliers. Progressively reduce the zero in-quota tariff volume as verified qualified capacity expands toward the agreed market-share target.

These recommendations form interrelated steps for building a high-standards coordinated market-support framework. They provide the missing signal to private investors that governments are committed to a long-term market for derisked supply across the REPM supply chain. Tariffs remain one of the most effective tools for mitigating non-market oversupply in international trade, and for that reason are regularly applied by countries, including Australia, through WTO anti-dumping measures.⁵² They can be repurposed to support the G7’s goal of reducing dependencies across the REPM supply chain.

By creating a coordinated market-support framework and protecting a profitable market for private-sector-led derisked supply of rare earths and REPMs, ESA countries can also reduce their fiscal exposure over time by creating a self-sustaining industry. The outlined ESA would protect supply security without imposing tariffs on imports that remain temporarily necessary to meet market demand. Each year, the tariff-free quota for non-qualified supply would be recalibrated against forecast consumption and verified deliverable capacity from qualified mines, refineries and magnet manufacturers.

As qualified capacity comes online, derisked market allocation would expand, and the residual quota available to non-qualified suppliers would contract by a corresponding amount. Once the agreed qualified-supply target was reached, non-qualified imports would retain tariff-free access only to the residual share of the market. Publishing the adjustment schedule several years in advance would provide investors with a transparent demand-growth pathway.

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Operationalising the Quad Critical Minerals Initiative

Building supply chain resilience in critical minerals: The path ahead

An Australia–United Kingdom agenda for economic security

The administrative systems required for tariff border adjustments and rules of origin arrangements already exist and are used regularly in regional free trade agreements stipulating local content and standards-based trade. Examples include the original 1992 North American Free Trade Agreement and its later renegotiated form as the 2020 United States-Mexico-Canada Agreement (USMCA). NAFTA set preferential access terms for the auto sector based on rules of origin, requiring vehicles to meet a 62.5% North American regional value content requirement to qualify for preferential treatment. The USMCA increased this to 75% and also requires 70% of a vehicle’s steel and aluminium content to originate from USMCA countries.⁵³ The USMCA also includes labour standards such as minimum wages and unionisation rights for workers in participating countries.

The USMCA agreement illustrates how standards and tariffs can reshape industrial sourcing through preferential access conditions. US vehicle and parts manufacturers shifted supply chains at both country and firm level. They reduced total imports of relevant goods, increased the proportion of imports from Mexico and Canada, and showed evidence of nearshoring and reshoring.⁵⁴ The proposed rare earth magnet ESA can be built to directly address the market failure across the REPM ecosystem using well-understood and currently operational trade agreement architecture.

The core policy challenge is to convert economic security from a voluntary corporate choice into an enforceable market rule.

The G7 Critical Minerals Production Alliance⁵⁵ discussions point toward the same conclusion reached in this report: derisked supply will not scale unless derisked demand is created. A plurilateral ESA is the logical evolution of the G7 work to date. However, as the European G7 members cannot create border adjustment tariffs out of step with the rest of the EU internal market, the G7 group cannot coordinate on a tariff-based ESA without participation from the European Union. Hence, a successful ESA would require combining the European Union’s market power with the non-EU G7 members and partners.

Rare earth derisking will not succeed through supply-side investment alone. Unless dependable producers are matched with bankable, long-term demand, new mines, refineries and magnet facilities will remain vulnerable to Chinese limit pricing, continued private-sector preference for lower-cost Chinese supply and investor hesitancy to fund rare earth operations. The core policy challenge is therefore to convert economic security from a voluntary corporate choice into an enforceable market rule. The ESA proposed here is designed to meet that challenge.