Highlights
- China’s rare earth dominance stems from decades of state-driven market manipulation, not just supply control.
- Western nations must develop coordinated market intervention strategies to challenge China’s pricing and production advantages.
- Proposed solutions include:
- International supply-side cartels
- Demand-side mechanisms
- Collective tariff approaches to rebalance rare earth economics
As geopolitical attention intensifies around rare earth supply chains, a new commentary from the Lowy Institute (opens in a new tab) shifts the debate away from traditional narratives of Chinese dominance and toward the structural market forces that sustain it. In a timely Interpreter article published May 26, analyst Walter Colnaghi (opens in a new tab) argues that China’s advantage in rare earth elements (REEs) lies not merely in its grip on supply, but in its long-running industrial policies that have distorted global market conditions—effectively rendering alternatives economically infeasible.
A point Rare Earth Exchanges (REEx) frequently makes is that the Lowy Institute is an independent think tank founded in April 2003 by Frank Lowy to conduct original, policy-relevant research on international political, strategic, and economic issues from an Australian perspective.
A Market Rigged in Advance
The piece underscores that while China’s near-monopoly on REE processing and export is well-documented, especially following its July 2023 export control laws covering seven key rare earth materials, the real issue lies in the way Chinese state planning has depressed global REE prices through decades of oversupply. Generous credit, massive state investments, and anticipatory production targeting emerging technologies have entrenched China’s position not just as a supplier, but as the price-setter and gatekeeper of global REE economics.
This long-standing strategy, Colnaghi notes, has created a “peacetime mindset” in Western firms that outsourced not only production but also environmental liabilities. In turn, that mindset has made it nearly impossible for REE projects in Australia, the U.S., or Canada to achieve commercial viability at current global prices, despite growing demand from defense, electric vehicle, and renewable sectors.
Domestic Fixes Won’t Work Alone
While Australia has taken steps—through its Critical Minerals Strategic Reserve, public-private co-investment vehicles, and downstream project support—Colnaghi cautions that without a fundamental shift in global market dynamics, these efforts could backfire. Increased production in already oversupplied markets may further collapse prices, undermining investment and discouraging diversification.
“The materials are not scarce,” the article states bluntly. “The real barrier is the artificially low prices created by decades of aggressive Chinese industrial policy.”
Strategic Response Involving Markets to Mechanisms
Colnaghi’s policy prescription is unapologetically interventionist. He calls for coordinated international market shaping—much like OPEC in oil. Proposals include:
- Supply-side “cartels” among like-minded nations to control output and set floor prices;
- Demand-side mechanisms like stockpiling mandates, off-take guarantees, and recycling quotas;
- Joint financing arrangements via platforms like the Minerals Security Partnership (MSP);
- Collective tariffs on Chinese REE imports to undercut artificially low pricing.
These recommendations represent a shift from reactive diversification efforts to proactive geoeconomic engineering. The costs, Colnaghi admits, may be real—higher component prices, for example—but manageable given REEs’ strategic importance and minuscule share of total product costs in high-value sectors like defense and semiconductors.
Trump’s Return Complicates Unity
The article also signals potential headwinds. With Donald Trump back in the White House, diplomatic cohesion among key mineral allies—particularly the U.S., Australia, and Canada—may fracture. Trade friction and bilateral tension could erode the trust needed to form and maintain pricing coalitions or investment consortia.
REEx has called for a Five Eyes rare earth alliance. We have noted that the three key cities with financing know-how include London, Toronto, and Perth. Is Washington DC reading?
“Australia and other key partners need to remind Washington that the right market conditions… cannot be created unilaterally,” Colnaghi warns.
A Call to Confront Weaponized Interdependence
In a global economy increasingly defined by weaponized interdependence, the Lowy Institute urges governments to move beyond rhetoric and take systemic action.
China’s ability to institutionalize economic coercion through rare earth policy should no longer be viewed as a product of geography or resource control, but as a deliberate outcome of long-term market manipulation.
For those watching the evolution of rare earth policy across the Indo-Pacific and Atlantic corridors, Colnaghi’s piece serves as both a diagnosis and a rallying cry. As the pressure for supply chain resilience intensifies, the question for the West is no longer whether it can build mines, but whether it can remake markets.
Source: Lowy Institute, “China’s Rare Earth Advantage Isn’t Just About Control” by Walter Colnaghi, May 26, 2025
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