Highlights

• Australia is attempting to pivot from raw mining to strategic rare earth processing, challenging China's 90% market control.
• Government's 'Future Made in Australia' policy signals a break from free-market approach to secure economic sovereignty.
• Success depends on coordinated state capital, policy intervention, and guaranteed demand from key industries like EVs and defense.

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In a searing new analysis from the Hinrich Foundation (opens in a new tab), Dr. Naoise McDonagh (opens in a new tab), senior lecturer at Edith Cowan University and editor of Law & Geoeconomics, lays out Australia’s high-stakes gamble to transition from a global mining workhorse to a refined rare earth powerhouse—and why that path is anything but smooth.

McDonagh’s report, “Australia’s Rare Earths Lie Between Economic Security and Liberal Markets (opens in a new tab),” unpacks how China’s decades-long strategic planning—culminating in 90% control of rare earth processing and near-total domination of magnet-grade metals—has created a chokehold the West is only now scrambling to address. Beijing’s latest export restrictions on terbium, dysprosium, and other REEs sent prices soaring and exposed just how brittle the global supply chain remains.

Liberal Markets vs. Economic Security

The core tension? Australia’s deep-rooted faith in liberal markets is colliding with the harsh realities of state-backed Chinese monopoly power. McDonagh argues that Canberra’s new industrial policy—_Future Made in Australia_—marks a break from free-market orthodoxy, acknowledging that without strategic intervention, Australia will remain a supplier of ore, not value.

Iluka vs. Arafura: Two Paths, One Precarious Road

Australia’s two flagship rare earth projects, Iluka Resources (opens in a new tab) and Arafura Rare Earths (opens in a new tab), are case studies in strategic ambition. Iluka is building now, trusting demand will follow; Arafura is locking in offtakes before pulling the trigger. Both depend heavily on government-backed funding and—crucially—friend-shoring clauses that exclude Chinese buyers. Yet, while Lynas still ships to Malaysia for refining, Chinese buyers like Shenghe are scooping up firms like Peak Rare Earths outright, raising urgent questions about long-term control.

Dr. Naoise McDonagh

Pondering Assumptions

• Contested: Whether Iluka and Arafura can survive without Chinese offtake in a price-suppressed market.
• Speculative: That end-users (EVs, defense, electronics) will consistently pay a premium for ex-China supply.
• Undeniable: Without state capital and coordinated demand guarantees, the ex-China REE push may falter.

McDonagh’s conclusion is clear: No market-led solution will solve this. If Australia and its allies want to de-risk REEs, they’ll need policy, capital, and coordinated demand signals to do it. Otherwise, the Chinese monopoly remains unchallenged.

Source: McDonagh, N. (2025). Australia’s Rare Earths Lie Between Economic Security and Liberal Markets. Hinrich Foundation.