How Australia, with friends, can secure its place in critical minerals

Australia’s critical minerals sector is at a crossroads. As the United States recalibrates its industrial policies under President Donald Trump, Australia’s role in securing non-Chinese supply chains for critical minerals has never been more important.

To secure its critical minerals industry in partnership with friends such as the US, Australia must ensure US trade policies actively support its push to move up the value chain. It also needs a strategy to sustain key production during downturns, must better align critical minerals, defence and industrial policies, and it should push for stronger reciprocal investment from allies, especially in processing and refining.

While Australia is at the centre of such initiatives as the US’s Minerals Security Partnership and AUKUS, practical outcomes such as viable new supply chains depend on targeted investment and policy coherence. The 2024 suspension nickel mines in Western Australia and ongoing challenges in rare earth and lithium processing expose serious vulnerabilities. Australia risks becoming a weak link in the supply chain, rather than a strategic powerhouse.

Established in June 2022, the Minerals Security Partnership was designed to promote responsible mineral production and processing among partner countries. Joe Biden considered Australia a key part of this vision, but Trump’s return adds uncertainty. While his administration is pushing for reduced dependence on China, his inward-looking trade policies could unintentionally harm Australia’s contribution.

If tariffs extend to processed or refined critical minerals, as they cover aluminium, Australia may be discouraged from moving up the supply chain. As of 2023, Australia supplied about half of the world’s raw lithium but lacked the processing capacity to realise the material’s full value. Mineral refining remains a weak point; China dominates the sector. Australia needs investment to compete, and the US is the partner of choice. Yet Australia supplies relatively few critical minerals to the US, limiting its leverage​.

At least five Western Australian nickel mines suspended operations in 2024 due to global oversupply and falling prices. The closures resulted in major job losses and raised concerns about supply chain resilience.

Nickel is a strategic material, with uses in batteries and defence. Indonesia, the world’s top nickel producer, is aligning itself closely with China and has joined the BRICS. So declining production in Australia is a strategic misstep.

Rather than waiting for market forces to decide the fate of its nickel industry, Australia should have used its 2023 critical minerals strategy to stabilise production. More importantly, countries in the Minerals Security Partnership, particularly the US, should have stepped up and invested in Australia’s mining and processing capabilities. Friend-shoring needs to be more than just rhetoric.

Despite setbacks in nickel, Australia is making progress in rare earths. Lynas Rare Earths is expanding its processing facilities in Kalgoorlie, and Iluka Resources is developing Australia’s first fully integrated rare earths refinery at Eneabba. Federal funding supports these projects.

China controls more than 90 percent of the world’s rare earth refining. It also has used export restrictions and bans as a geopolitical tool.

Australia’s Critical Minerals Production Tax Incentive—a 10 percent tax credit for onshore processing—raises serious questions. Since Australia lacks a viable downstream industry, such as refining, alloy production, or manufacturing, these processed materials still go to China. Australian taxpayers are just subsidising the middle stage of the supply chain, only for China to capture the higher-value downstream benefits. Without a full industrial chain, this policy doesn’t create real resilience in supply; it just makes Australian critical minerals slightly cheaper for China.

Australia’s critical minerals strategy also affects its national security one. Nuclear submarines rely on more than a dozen critical minerals, including rare earths for sonar systems, cobalt for high-performance batteries and titanium for hull construction. Other advanced defence systems depend on stable critical mineral supplies.

Securing these materials requires a coordinated approach. The US, through the Defense Production Act, can prioritise domestic mining, refining and processing of key materials for defence and high-tech industries, reducing reliance on imports from potentially hostile nations. In 2024 Australia was designated as a domestic source for funding, showing the potential for deeper collaboration and greater supply chain resilience.

If the US and Britain see Australia as a long-term defence partner, they should be investing in its critical minerals sector. AUKUS should be a platform for strengthening Australia’s industrial base, including processing and refining critical minerals.

Australia’s approach to critical minerals is guided by a suite of strategic policies and documents that play a role in securing supply chains, strengthening Australia’s industrial base and strategic position, but better alignment is needed.

Closer coordination of critical minerals policy with its defence, industry and trade strategies can revitalise capacity in the industry while helping to diversify mineral supply chains away from China.

Australia can’t afford to take a passive approach. Global supply chains are shifting fast. If Australia wants to be a cornerstone of Western critical mineral security, it must act decisively and demand that its allies do the same.