Australia’s critical minerals push is being sold as a strategic win, but it risks doubling down on a “dumb” commodity economy while locking Canberra deeper into U.S.-led geoeconomic rivalry. With China’s dominance already entrenched and processing environmentally costly and uncompetitive, the real danger is mistaking subsidised extraction for strategy – and sacrificing long-term industrial sovereignty for short-term alliance politics.
The challenge is clear. Over the years, China has secured dominance over the supply of critical minerals and rare earths, materials essential for defence capabilities and advanced technologies. In response, the United States and Australia have signed a USD $8.5-billion framework to accelerate a pipeline of “priority projects” aimed at securing an alternative supply chain. This comes on top of billions of dollars in Australian government investments to expand domestic extraction and refining capacity.
Analysts have greeted these developments with near unanimous elation, heralding them as “our next mining boom” and a stabilising force in the U.S. alliance. Yet, while it is undeniable that Australia has judiciously used its critical minerals card to avoid the ire of President Trump, we must cut through the celebratory rhetoric and recognise that these developments may risk trapping us into two troubling long-term trends: the further entrenchment of Australia’s “dumb” commodity-dependent economy, and the deepening of a subordinate foreign-policy posture.
The Dead Race
First, we must acknowledge that any potential “race” with China has long ended. China’s dominance is unambiguous: it controls roughly 70% of global rare-earth mining, 90% of processing, and 93% of magnet manufacturing. It can open new mines more quickly, operates with far cheaper energy and labour costs, and tolerates lax regulatory conditions no Western country would accept. Under these circumstances, there is simply no credible economic case that rare-earth extraction and processing in Australia can be competitive in global markets.
Historically, there is a reason why Western governments have avoided competing with China: critical mineral processing is extraordinarily polluting. The industry produces vast byproducts of toxic waste and harms local communities. Despite current political messaging, most critical minerals are not “energy-transition” materials. Roughly 60% of the critical minerals on EU, U.S., and Australian lists have no energy-transition use case at all. China’s advantage has rested, in part, on a willingness to absorb the social and environmental consequences of its rare-earth dominance. But how far is Australia prepared to go? Especially given more than half of critical minerals mines lie on indigenous land, raising important questions on Native Title and First Nations community commitments.
If the race with China is already decided, Australia’s real race instead lies with Vietnam, Indonesia, Canada, the EU and countries in Latin America, many of which are expanding their own extraction and processing capacities. Yet if the industry is economically unviable without massive public subsidies, carries severe environmental costs, and faces intensifying competition from strategic allies like Indonesia and Canada, which are unlikely to ever weaponise their supply chains, then the question becomes unavoidable: what genuine value does doubling down actually offer Australia?
Our “Dumb” Economy
These considerations become more alarming when viewed against the long-term trajectory of the Australian economy. According to Harvard University’s Economic Complexity Index, Australia now ranks 105th in the world, placing it behind the likes of Botswana and Pakistan. In its “Greenplexity” index, which isolates countries’ current capabilities and presence in global green value chains, Australia scores even worse – ranking fourth lowest in the world.
This decline began decades ago. From the 1970s, Australia became a leading model for free-market globalisation, leaning heavily on its natural endowments to dig up and export commodities and raw materials. The results are stark. Manufacturing has collapsed to just 5.1% of GDP, and Australia now has the lowest manufacturing share of any OECD country.
The closure of Australia’s automobile industry in 2017 marked a defining moment in this trajectory. It also coincided with a sharp rise in domestic energy prices as east-coast gas began to be excessively exported to global markets, tightening local supply and crippling energy-intensive industries. Meanwhile, the country’s remaining engines of high-tech innovation, the CSIRO and the university sector, are now facing severe funding and staffing crises partly caused by decades of public disinvestment and the absence of a coherent government strategy.
Against this backdrop, the prospect of a “next mining boom”, this time without any underlying form of traditional economic logic, should not be greeted with elation but with apprehension. It may signal not strategic renewal but a deepening dependence on the very model that has hollowed out Australia’s economic complexity and limited its capacity for future technological and industrial growth.
The Geostrategic Risk
Finally, the new U.S.–Australia framework, with its implicit emphasis on preferential access, risks trapping Australia in the centre of great-power economic rivalry. The possibility is likely, with former Defence Minister Kim Beazley recently proposing to make critical minerals a “third pillar” of AUKUS. For better or worse, Australia has long shaped its economy to be highly dependent on international trade, and with China in particular. The current push, however, threatens to lock Australia firmly behind the U.S. in an intensifying geoeconomic arm-wrestle, one that undermines the openness of global markets and exposes us to potential retaliation.
And despite all this, an even more unsettling question remains: what happens if the United States simply loses interest? Washington may eventually accept the fundamental reality that Beijing’s critical-minerals supply is too cheap and too entrenched to ever compete with. In such a scenario, the U.S. could begin a new strategy of quietly increasing purchases from Chinese producers to build its own strategic stockpile. If that occurs, can Canberra plausibly expect an increasingly transactional White House to continue backing multi-billion-dollar projects in a distant ally that are unlikely to ever be commercially viable?
Put simply, when it comes to the green energy transition, we must take a comprehensive view of how particular industries can act as security multipliers across, economic, environmental, energy, social, and geostrategic aims. As it stands, critical minerals simply doesn’t pass the test.
Rather than riding a wave of elation, Australia could find itself saddled with debt-laden white-elephant projects, more dependent on American goodwill, and more reluctant to undertake the kind of strategic economic intervention needed to build the genuinely green, high-tech, and export-oriented industries of the future.
Dr Christopher Khatouki is a Postdoctoral Fellow at the University of New South Wales and the Vice President of the Australian Institute of International Affairs, NSW.
