In this episode of "Inside the economist's mind," we dissect the historic United States–Australia Critical Minerals Framework, a strategic partnership signed by Anthony Albanese and Donald Trump designed to challenge China’s near-complete hold, or "iron grip," over the essential materials required for global industries.
The 8.5billiondealbetweenthealliesinvolvesacommitmentofatleast∗∗US1 billion from both the US and Australia** towards a pipeline of rare earth mineral projects. We explore how this agreement aims to secure mineral supplies for both countries' commercial, clean energy, and defense industries, particularly advanced military hardware.
Key projects receiving capital injections include a proposed gallium plant in Western Australia (to be co-located at an Alcoa alumina refinery), and the Arafura Rare Earths project in the Northern Territory, which plans to produce oxides like neodymium and praseodymium, crucial for magnets used in wind turbines and ballistic missile guidance systems. Gallium is vital for modern military technologies, such as radar and missile guidance technology, and the US is currently wholly dependent on China for its import.
However, the effort faces significant economic challenges. China has maintained its dominance through strategic tactics, including price manipulation of unprocessed rare earths to undercut rivals, and has recently expanded export controls on rare earths used by the US defense sector. While the framework includes measures to develop price floors to stabilize the market for new producers, economists note that the sector is so politicized that government money often acts as a necessary subsidy.
We discuss the strategic shift required, noting that raw supply diversification is meaningless without establishing midstream refining and processing capacity outside of China. Furthermore, the deal is explicitly designed for delivery to American and Australian buyers, raising questions about how China, the world’s dominant buyer of high-grade magnet materials, will respond