A worker in the Weil Mountains, northeast of Perth, Australia, picks up a pile of rare earth concentrate that will be dried in the sun and then packaged for further processing in Malaysia (Reuters)

Australia may have found a lucrative gap in the rare earth metal market, which is essential for defense industries and products such as semiconductors needed for artificial intelligence development.

Last week, China imposed strict controls on the supply of these critical minerals and strengthened export restrictions on rare earth metals. Currently, China restricts the export of 12 of the 17 rare earth elements on the periodic table. Over 70% of the world's rare earths are mined in China, and 90% are processed there.

The United States is one of many countries urgently needing these materials, and analysts believe that China is using access to these materials as leverage in its ongoing U.S.-China trade negotiations. The announcement of new restrictions comes just weeks before the meeting between the two leaders later this month.

But on Thursday, Australia seemed to be filling this gap, with Canberra's Treasurer Jim Chalmers telling reporters in Washington that "Australia is fully capable" of meeting global demand for rare earths.

Before meeting with the White House's National Economic Council Director Kevin Hassett, he said, "We will work with our partners to ensure we can become a very reliable supplier to meet the demand for critical minerals in the U.S. and other markets."

Can Australia Fill the Gap in Rare Earth Supply and Processing?

On September 24, Australian Trade Minister Don Farrell met with U.S. Trade Representative Jamieson Grier in Malaysia. According to ABC News, Farrell asked Grier, "How can we help make America great again?"

"Give us your critical minerals," the U.S. Trade Representative replied. Not long after, the White House confirmed that President Donald Trump will meet with Australian Prime Minister Anthony Albanese in the Oval Office on October 20.

Critical minerals seem to be an important topic of discussion.

There are 17 rare earth metals, including 15 lanthanides (metal elements), scandium, and yttrium. They are crucial for manufacturing magnets used in electric vehicles, semiconductors, and even modern military equipment.

Who Wins the Global Race for Critical Minerals? [English Video]

Hayley Channer, director of the Sydney-based think tank USSC, described the upcoming meeting between Trump and Albanese as "crucial."

She told ABC News that the U.S. has been concerned for some time about "Australian minerals always going through China." For example, "90% of Australia's lithium is sent to China for processing," she said.

There is good reason for this. Analysts and policymakers generally acknowledge that China has cultivated a large pool of rare earth processing talent in universities and state-owned enterprises. At the same time, its R&D network is years ahead of other countries.

However, Canberra seems determined to reverse this imbalance. Before the May parliamentary election, Albanese announced a A$1.2 billion critical minerals reserve plan aimed at helping Australia's mining industry develop, with a focus on processing technologies.

What Rare Earth Minerals Does Australia Have?

Despite having some of the most important rare earth metals in the world, such as neodymium used in wind turbine magnets, Australia's critical mineral reserves are about one-seventh of China's, according to the U.S. Geological Survey.

However, some deals have already been made. On October 8, U.S. Noveon Magnetics partnered with Australia's largest rare earth company, Lynas Rare Earths, to supply magnets to U.S. defense companies. This news pushed Lynas' stock to a 14-year high.

China's Export of Rare Earth Metals

Last week, Beijing tightened its export controls on rare earth metals by adding five new metals (holmium, erbium, thulium, europium, and ytterbium) to the existing list of seven, bringing the total restricted metals to 12.

In the future, foreign companies will need special approval from China's Ministry of Commerce to purchase rare earth magnets or certain semiconductor materials containing at least 0.1% heavy rare earth metals. To obtain these licenses, they must detail the use of the rare earth metals or products.

China implemented these new restrictions under the pretext of national security interests.

A spokesperson for China's Ministry of Commerce told reporters when announcing the latest restrictions: "Rare earth-related items have dual-use characteristics, and implementing export controls is an international practice."

China also imposed restrictions on the export of specialized technical equipment used for refining rare earth metals. Most of the regulations will take effect on December 1.

How Is the U.S. Responding to China's Restrictions?

Donald Trump threatened to impose 100% tariffs on Chinese exports starting November 1. He stated that his decision was a response to Beijing's "very hostile" actions.

Trump's statement would raise tariffs on many Chinese goods to 130%. This would be slightly lower than the 145% tariffs imposed earlier this year, when both sides reduced their tariffs in May to allow time for trade negotiations.

However, the recent dispute over rare earths could reignite a dangerous trade war between the world's two largest economies.

On October 13, U.S. Treasury Secretary Scott Bensons told Fox Business News: "This is China's confrontation with the world. They are aiming rocket launchers at the entire free world's supply chain and industrial base, and we won't accept it."

How Are U.S.-Australia Relations?

During Biden's administration, the U.S. and Australia established a "Critical Minerals Working Group." However, early this year, Trump imposed a 10% uniform tariff on most Australian exports, causing tensions in the bilateral economic relationship.

Additionally, the relatively low defense spending of Australia within the trilateral security partnership with the UK and the U.S., AUKUS, has raised questions. Australia's defense spending accounts for about 2% of its GDP, far below the 3.5% target that Trump urged U.S. allies to achieve.

Washington recently reviewed the agreement, questioning whether the transfer of U.S. military assets aligns with the "America First" policy. This review was led by Deputy Secretary of Defense for Policy Elbridge Colby, who had previously expressed skepticism about AUKUS.

That being said, Albanese and Trump's relationship seems relatively amicable. After Trump's election in May, Albanese received a call from the U.S. president and described their conversation as "very warm" and "constructive."

Trump, in turn, called Albanese "very friendly" and "very respectful," and said, "I can only say he's very good, he's my friend."

Which Other Countries Is Trump Trying to Get Rare Earth Minerals From?

Since returning to the presidency, Trump has struck several key mineral deals aimed at reducing U.S. supply chain reliance on China.

In Ukraine, Washington reached a mineral-for-reconstruction deal in April, allowing U.S. companies to gain priority access to rare earths and energy resources in exchange for investment after the war with Russia ends.

Meanwhile, negotiations with the Democratic Republic of the Congo focus on the extraction of cobalt and lithium, with the U.S. willing to provide security guarantees in exchange for mining rights.

In September, the U.S. and Pakistan signed a $500 million memorandum of understanding, with the U.S. pledging to build a multi-metal refinery and develop rare earth deposits in Pakistan.

Overall, these efforts reflect Trump's transactional strategy in resource diplomacy - linking security, technology, and strategic minerals. Analysts say Australia is likely next.

Sources: Al Jazeera

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