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SYDNEY – When Anthony Albanese meets Chinese leader Xi Jinping in Beijing on Monday, the meeting will mark a success for the Australian prime minister, who has managed to mend once-broken relations with his country’s biggest trading partner without concessions.
However, the focus of the event is Albanese’s previous trip abroad.
A week earlier, Albanese was in Washington making a not-so-subtle attempt to reduce his country’s dependence on China for critical minerals.
Albanian and American officials announced a series of measures to keep Australia’s vast stockpile of critical minerals – metallic elements and minerals crucial to clean energy technologies and some advanced weapons systems – from processing in China and instead to new factories in theirs to send to your own countries.
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“China has a head start, and that means we have to work a little harder and faster,” US Commerce Secretary Gina Raimondo warned at an event with Albanese.
“They have the technology and sustained investment… to dominate the critical minerals market,” she continued. “And we all know that if China sets this unfavorable direction for us, it can cause great pain very quickly.”
Albanese’s language was more cautious ahead of his China trip, which begins in Shanghai on Saturday and is the first by an Australian prime minister in seven years.
But Australian officials also fear Beijing will cut off key mineral supply chains – a move that could cripple the global transition to cleaner energy and undermine China’s military opponents.
“China’s market dominance has historically restricted trade in critical minerals,” Madeleine King, Australia’s minister for resources, who also traveled to Washington, told The Washington Post. “So we need to keep the possibility of these restrictions in mind. And if we don’t diversify, we will be beholden to them in the future.”
In China, frantic U.S.-Australia cooperation on critical minerals is fueling fears that military cooperation could creep into areas that threaten Beijing’s bottom line at a time when China’s economy is struggling.
“Under constant pressure from the United States, the foundation of Australia’s previous balanced policy of relying on China for economics and the United States for security has been undermined,” said Yu Lei, a professor of international politics at Shandong University. University-affiliated tabloid Global Times.
The conflict over critical minerals is just one front in a worsening geopolitical conflict between Beijing and Washington. The two superpowers are increasingly vying for influence in the Asia-Pacific region, where China’s growing military strength and assertiveness have spurred new American security initiatives, including a resurgent Quad and a groundbreaking deal to supply nuclear submarines to Australia.
In perhaps his most significant move, President Biden last year banned the sale of advanced computer chips and chip-making technology to China.
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The “chip war” threatens to spill over into critical minerals. China recently announced export controls on two metals used to make semiconductors, as well as graphite, which is crucial for electric vehicle batteries.
Announcements during Albanese’s trip to Washington included a $150 million loan to an Australian company building a graphite processing plant in Louisiana and a $100 million grant to another Australian company building a graphite processing plant in Louisiana Tennessee produces synthetic graphite.
These moves, along with others already taken in the rare earth element space, are part of a broader global trend toward protectionism and “friendshoring” and away from free markets that has accelerated during the Covid-19 pandemic.
In the case of critical minerals, U.S. and Australian officials argue that China already exerts near-monopolistic control.
“It’s not a free market,” King said. “China has dominated this, and they can really dominate any operation they want because of the nature of their regime.”
China is home to more than half of the world’s production of metals used in electric vehicles, including lithium, cobalt and manganese. It is the world’s leading graphite producer and exporter, processing almost all of the global graphite supply. And its state-owned companies have captured the market for rare earth elements needed for super magnets in modern weapons systems.
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“We are essentially in a cold war on the trade front right now,” said Jeff Green, a defense industry consultant and lobbyist in Washington. “I think the US government is responding in kind. We are working with allies like Australia, the UK and others to address this.”
China first flexed its critical minerals in 2010 when it suddenly halted rare earth exports to Tokyo amid a maritime dispute with Japan. Trading resumed after two months, but when a mine in California’s Mountain Pass tried to export rare earths to Japan, Chinese state-owned companies flooded the market, driving down the price and forcing the American upstart into bankruptcy.
China did the same with the Australian company Lynas, which would have gone under without the help of the Japanese government.
For years, Lynas was the only major rare earth producer independent of China’s supply chain. The company has a processing plant in Malaysia but is currently building one in Texas after its American subsidiary received a $258 million grant from the U.S. Department of Defense.
Thanks to funding from the Department of Defense, the Mountain Pass mine has also reopened and begun processing rare earths.
Australia announced a similar deal last year, giving Australian company Iluka a loan worth about $700 million to build a rare earth processing plant Down Under. In Washington, Albanese announced $1.3 billion in additional loans for Australian critical minerals companies.
Kim Beazley, a former Australian defense minister, said it was time for his government to intervene to boost domestic processing of critical minerals instead of sending them to China.
“The Chinese have absolutely used their statesmanship to ensure that a competitor is eliminated when they get going,” he said. “So we practice a little statesmanship too.”
In a recent article, Beazley warned that a conflict with Beijing could lead to China cutting off the flow of important minerals. He called for more critical minerals cooperation within AUKUS, the trilateral security partnership of Australia, the United Kingdom and the United States. With investment, Australia could supply the trio with key minerals for shared weapons systems for decades, he argued.
“We are a good ally, we know where the key weakness is and we have an answer to it,” he said.
More American investments could come. Biden has asked Congress to add Australia and the United Kingdom as “domestic sources” under the Defense Production Act. This would open up new investment and export opportunities for Australian companies in the critical minerals sector. They could also be eligible for funds from the Inflation Reduction Act passed last year.
Jane Nakano, senior fellow at the Center for Strategic and International Studies, said Australia deserved the domestic award given how important it had become to the United States in recent years. She supports diversifying key mineral supply chains but warned against marginalizing China too aggressively.
“It would be very challenging to even try to take China out of the game without significantly impacting the deployment of these clean energy technologies, not just in the US but elsewhere as commodity prices skyrocket or become quite volatile “, she said.
Marina Zhang, an associate professor at the University of Technology Sydney, said U.S. and Australian efforts to reduce dependence on critical Chinese minerals could backfire.
“Critical mineral supply chains may be one of the few areas where the U.S. and China can reach an agreement to cooperate in the context of climate change,” she said.
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Australia, meanwhile, finds itself in a “very delicate situation” and is torn between economic and national security interests, Zhang argued. It could be years before Australia and the United States are able to process the volume of critical minerals they are currently sending to China, and even then the products would be more expensive.
She and Nakano agreed that the issue was unlikely to come up at Albanese’s meeting with Xi because neither country currently has any reason to raise it. But Zhang feared that competition for critical minerals could escalate.
“It seems that this tug of war, this strategic competition, is getting worse recently,” Zhang said. “So we really don’t know what’s going to happen.”
Meaghan Tobin and Pei-Lin Wu in Taipei contributed to this report.