Learning Takeaways — Rare Earths: More Crucial to the Global Economy Than Ever
On Monday, July 14, the Association of Foreign Press Correspondents in the United States (AFPC) recorded a Foreign Press USA podcast episode in partnership with the Hinrich Foundation that focused on rare earth minerals and the crucial role they play in the global economy, where China dominates.
The interview was conducted by Adam Creighton, the chief economist at the Institute of Public Affairs in Australia and a former foreign correspondent previously based in Washington, DC. He spoke with Naoise McDonagh, a senior lecturer in trade and geopolitics at Edith Cowan University. McDonagh is also a director of the MBA program at that university's School of Business and Law.
This podcast episode was produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this episode. The transcript for this podcast episode is available HERE.
McDonagh described rare earths as “crucial inputs for everything in advanced manufacturing in [the] economy today.” He emphasized their importance in the production of permanent magnets—specifically “super magnets”—which are exceptionally strong and can withstand high temperatures. These magnets are vital in a wide array of sectors, including electric vehicles (EVs), military technology, and what he calls the “growing robotics sector.”
McDonagh outlines a wide scope of rare earth applications: electric motors, high-end metal alloys, aerospace materials, consumer electronics, computing equipment, and batteries (both for EVs and for renewable energy storage). He adds that they’re also used in more everyday technologies like “catalytic converters,” petroleum refining, medical imaging, and ceramics. “The list keeps going,” he says, pointing out that these elements are “everywhere as inputs to advanced industrial activities.”
McDonagh also ties rare earths to national security, noting that “defense is a very important sector for governments”—especially in today’s climate of rising geopolitical tension. He points out that many advanced consumer technologies are also “critical in defense,” used in systems like laser targeting and night vision equipment. This creates a feedback loop where “a lot of defense technologies feed back into the private sector,” further underscoring their strategic importance.
Creighton then brings up the related concept of critical minerals, noting that even President Donald Trump recently confused the terms by referring to “critical earths.” He asks whether rare earths are a subset of critical minerals.
McDonagh explains that critical minerals are not naturally occurring in a political sense—“they only become critical to humans when we need them for certain types of activities.” The label “critical” is a political designation made by governments, ideally “on empirical grounds,” based on how essential a mineral is to national economic or security interests and how vulnerable the supply chain is.
He explains that critical minerals are defined by “a high risk of supply chain disruption,” particularly in a globalized economy where supply chains are complex and often opaque. Governments assess this based on several factors: the importance of the mineral to key sectors like manufacturing, defense, and clean tech; the geopolitical concentration of supply; the lack of substitutes; and time sensitivity—i.e., whether manufacturers can absorb delays due to a lack of stockpiles.
As an example, McDonagh cites the “most recent round of Chinese export controls on light and heavy rare earths,” which almost caused auto industry shutdowns in North America, Europe, Japan, and South Korea. These industries had little redundancy in their supply chains and were “highly vulnerable” to such disruption. “They were about to shut down,” McDonagh says, adding that this development had “a massive impact” on U.S.–China trade negotiations and even forced the U.S. to ease up on tariffs.
He concludes by stressing that rare earths are not only part of the critical minerals list, they’re among the most critical due to how heavily their supply is dominated by one country —“and that’s China, 90%.”
Creighton transitions the discussion to China, asking how it became so dominant in rare earths—a field “which now it seems every country wants to have a piece of.”
McDonagh explains that the story of China’s dominance can’t be understood without recognizing how its system differs fundamentally from Western free-market democracies. China, he says, operates a “state-led, state-dominated economy” with “rule by law” rather than rule of law—meaning the party-state can “breach any law and make laws up as it requires.” There is no meaningful separation between public and private sectors, as the government can intervene “to any extent at any time.” The result is a hybrid economy that combines elements of Soviet-style command structures with aggressive market competition.
With that context in mind, McDonagh walks through China’s rare earth strategy. It began as far back as 1975, when the State Council established a “national rare earth development and application leading group” — a clear early signal of strategic intent. By 1990, rare earths were declared “protected and strategic minerals” just as China was opening to markets and foreign investment. Foreign companies were “fully excluded from mining,” and could only participate in processing through joint ventures with Chinese entities, all subject to government approval.
By the 2000s, China began imposing licensing restrictions and encouraging domestic downstream production—especially of magnets, which McDonagh calls a “very important element of all of this.” Monopoly control over global supply solidified between 2010 and 2015, when China “halved” its export quota and launched a “massive industry consolidation.” The number of mines was reduced from 123 to 10, processing plants from 73 to 20, and “six massive rare earth element industrial groups” were formed to integrate mining and processing.
In 2010, China began using rare earths as a geopolitical tool, applying export controls on Japan during the Senkaku Islands dispute. This marked the first time rare earths were wielded tactically. “They start realizing,” McDonagh says, “they have this very powerful control.”
Meanwhile, the West was embracing “full-on globalization.” Western nations welcomed cheap Chinese rare earths, while turning a blind eye to the environmental consequences. “Nobody really wants to deal with the pollution,” McDonagh says. China was “happy to do that,” and the rest of the world was happy to accept it. The absence of “major geopolitical tensions” allowed this dependency to grow unchecked.
The result today? “Ninety percent of processed rare earths” come from China, along with “60% of all mining.”
Rare earths are often “geologically dispersed,” making them uneconomical to mine in many places. But he notes that some modern efforts are looking to extract rare earths from waste material left behind in older mining operations, as seen in parts of Western Australia. Still, he emphasizes that “it’s dirty business no matter what, and it’s expensive.”
McDonagh also stresses that “the processing… is really challenging.” Unlike metals like gold or iron ore, which can be refined in a few steps, rare earths may require “hundreds if not up to a thousand chemical processes.” And in this area, China holds a commanding lead — not just because of decades of “researching it,” but due to the “practical experience,” trade secrets, and intellectual property it has accumulated.
“Theoretical knowledge is great,” McDonagh says, “but you need to have the practical experience as well.”
Adam Creighton
Creighton brings up the recent U.S.-China trade dispute and asks if the U.S. backed down because China threatened to cut off its supply of rare earth elements— particularly heavy rare earths.
McDonagh confirms that this played a “major part” in the U.S. de-escalating the trade war. While the broader trade relationship between the two countries is “still massive,” measured in the “hundreds of billions”, the rare earths were “China’s big card.” It had been “holding off” on using that leverage, but when it did, the effects were immediate and profound.
Rare earths represent a “complete choke point” in the supply chain, McDonagh says, due to China’s sheer dominance and the time sensitivity involved. Western companies operate on “just-in-time production” principles, which means they carry minimal inventory to reduce costs — and thus are highly vulnerable to sudden supply disruptions. When China “choked off” rare earths, U.S. automakers and their counterparts in the EU and Japan faced immediate production threats. American CEOs, McDonagh says, were “knocking on Trump’s door” warning, “We’re about to have to shut off production. You need to do something about this.” He calls it “a disaster in the making.”
Creighton then asks whether countries like the U.S., Australia, and Japan are now scrambling to mine rare earths domestically.
McDonagh says that “currently there is” a scramble, particularly after “this year has been so disruptive.” But he emphasizes that China’s use of rare earths as a strategic weapon is not new. It has “cut off Japan… twice,” and more broadly, it has perfected monopoly tactics long known to large corporations.
He explains that China’s strategy mirrors that of monopolies like Standard Oil in the 20th century: if a new competitor tries to enter the market, “you crash your price,” absorbing short-term losses to “drive the new entrant out.” Over time, this creates a chilling effect on investment. “Investors say, you know what? We're not even trying this market.” And in China’s case, the risk is amplified because “we’re actually playing against the government” of one of the world’s largest economies — one that “doesn’t care about commercial losses” if the strategic payoff is high enough.
As a result, McDonagh says, “private investors have not invested,” and governments have been “very lethargic” in responding — despite warning signs. That inaction is starting to change in 2024, he notes, and offers to go into further detail.
Creighton then references recent media coverage noting that the Pentagon took a stake in MP Materials, describing it as the only U.S. rare earths miner — a fact he says he found “pretty extraordinary”—not because of abundance, but because there’s “only one company outside of China that has significant supply” of both light and heavy rare earths: Lynas Resources, based in Australia.
He explains that Lynas only exists today thanks to Japanese government support, which began around 2012–2013. Japan had been burned by rare earth supply disruptions from China in 2010 and 2012, and McDonagh says they “learned their lesson.” Japan first backed Lynas with debt packaging and “pretty much bailed them out” again in 2016, due to volatility in rare earth markets caused by China’s ability to flood or cut supply. Thanks to that support, Japan managed to reduce its dependency on Chinese rare earths from 90% to 60%.
Now, Lynas is not only producing neodymium and praseodymium—essential for permanent magnets — but has “just started doing terbium and dysprosium as well,” key ingredients for high-strength magnets. McDonagh ties this into the strategic posture outlined in his recent paper, "Australia’s Rare Earths Lie Between Economic Security and Liberal Markets," for the Hinrich Foundation.
Australia, he says, is uniquely positioned: it has land, mining expertise, and resources. The government is now betting big on two projects: Iluka and Arafura. Iluka received a “$1.2 billion financing package” topped off with another $400 million, while Arafura recently secured “over a billion” including “$200 million in equity investment.” Both aim to produce light rare earths, while Iluka also plans to extract heavy rare earths.
Turning to the U.S., McDonagh discusses MP Materials, which recently received a “$400 million” Pentagon deal—including equity, a 10-year offtake agreement, and a price floor. He emphasizes these are “critical components” for building out an alternative to China’s market.
When Creighton asks why profitable projects need so much government support, McDonagh’s answer is blunt: “They haven’t been so profitable.” Investors have long stayed away from the sector because “you cannot solve the rare earths issue through markets — because it’s not a market.” Instead, he says, it’s a “state-dominated global monopoly by one single entity” — China — which uses its power for strategic, not just commercial, ends.
This monopoly suppresses investment through market manipulation: “massive fluctuations in global supply from the Chinese” crash prices and scare away investors. As a result, “you need government-backed support” to build any supply chain outside China. But McDonagh warns that this approach carries real risks: “Does that mean the public purse is going to continually have to prop these companies up?”
To avoid endless public subsidies, McDonagh suggests a hybrid solution: “use tariffs… to adjust Chinese supply to the floor price that you want.” This would create a “protected market” where the U.S., Australia, France, and others could compete, and “you wouldn’t have the public purse backing that market the whole time.”
He believes the MP Materials deal may now act as a benchmark—“a new floor for an X China supply.”
Turning to whether Australia’s big mining companies—like BHP or Rio Tinto— could easily pivot into rare earths, McDonagh is blunt: “Yeah, not at all. It’s not easy for anyone.” He points out that Australia’s mining giants are highly experienced in “dig it up and ship it out” operations, but rare earths are “one of the most difficult types of metallurgies that you can do.”
Even iron ore, he notes, “is fairly basic” by comparison — and yet Australia doesn’t even process that into steel domestically. Processing rare earths, on the other hand, requires “a lot more technical expertise,” particularly because of the intense chemical and industrial complexity involved.
China, aware of its lead in this area, has recently taken measures to protect its intellectual and human capital: “They’re registering who are all our experts in processing… They won’t let them out of the country.” The aim is to prevent “IP transfer” and protect China’s strategic advantage. As McDonagh puts it, “It’s not like you can just set up shop and start processing.”
Asked how long it might take for countries like Australia, the US, or France to match China’s sophistication, McDonagh lays out a two-phase challenge. First: “Can you even get an operation up and running?” In the West, permitting for major mining projects can take “anywhere between 10 to 20 years,” and rare earths are even “more polluting,” meaning resistance from stakeholders, regulatory bodies, and environmental groups is inevitable.
In Australia’s case, however, there is progress. Iluka is already under construction, and Arafura has “all the permitting in place.” Arafura’s final hurdle is securing offtake agreements — they aim to reach “80% offtake” to de-risk the project. They're currently at 63%, and “if they get to 80%,” McDonagh says, “they’ll start building immediately,” with construction taking about “three years.”
The second challenge is operational: even once these facilities are built, “there’s a lot of R&D out there,” but “having research and actually implementing are two different things.” It will take “learning by doing” before new plants become efficient and effective. As such, “they’ll probably be a lot behind the benchmark leaders in China.”
Naoise McDonagh
Still, McDonagh is optimistic about Australia’s ability to get these plants online. Lynas is already a well-established player. MP Materials in the US has some background. France has historic experience as well. But for “everywhere else,” McDonagh says bluntly, “if you’re starting fresh… it’s a Herculean task” to catch up.
He also explains that China’s first move has been to impose technology export controls, essentially mirroring the U.S. restrictions on semiconductors and generative AI: “China’s now doing that in reverse,” because it’s a “technology leader as well.” These controls are a way to “prevent technology leakage” to competitors like the U.S. and Australia.
Another likely response, McDonagh says, will be manipulating market prices to undermine new entrants—a tactic China has used before. But this time, he says, MP Materials—the only U.S. rare earths producer—is well protected, thanks to its Pentagon-backed deal.
He details the deal: the Pentagon guarantees a 10-year offtake agreement, committing to buy a set volume of product annually at a fixed minimum price — which is “double the current market price.” This gives MP Materials “very stable” income and makes it “impervious to price manipulation.”
In contrast, Australian companies like Iluka and Arafura are “more susceptible to that type of response,” as they don’t yet have a price floor. McDonagh’s concern is that once they are operational, a sudden market crash orchestrated by China could threaten their viability — making them “too big to fail.” If that happens, Australia might be forced to follow the U.S. example and “move to a price floor” to keep them afloat.
Creighton asks whether the American price floor helps Australia. McDonagh says it doesn't directly, but “indirectly it may create the conditions for an agreed type of price floor for ex-China supply.” This could eventually be built into a security trade partnership, where trusted suppliers operate in a protected market insulated from Chinese manipulation.
Australia is also considering a strategic reserve, which would involve long-term offtake agreements — presumably with Iluka and Arafura — to provide “some sort of long-term selling assurances.” But, McDonagh notes, “it doesn’t give them the price floor at the moment.”
On the geopolitical front, McDonagh highlights another development: Australia’s Foreign Investment Review Board has tightened scrutiny, especially regarding rare earth investments. While this isn’t publicly framed as anti-China, it clearly targets Chinese attempts to buy up premium rare earth assets, McDonagh says. That “creates tensions in the bilateral relationship,” even though relations have otherwise improved. China has begun to complain about unfair treatment, particularly in this sector, which it sees as being singled out.
Creighton asks whether Australia will export the rare earths it mines to the United States for processing or try to develop that capability at home.
Naoise McDonagh responds that this question highlights a major complication. Even if Australia builds an alternative supply to China, “you’ve moved the problem further down the supply chain.” That’s because China still dominates not just supply, but demand—as the world’s largest manufacturing hub. China leads in sectors that consume enormous volumes of rare earths: electric vehicles, solar panels, permanent magnets, and wind turbines.
For Australian firms like Arafura, this creates a serious commercial challenge. They’re expected to sell only to “supportive countries” as per their financing agreements—not to China. But as McDonagh points out, “the market outside of China is a lot smaller,” which makes it harder to secure the long-term offtake deals they need to begin production. Right now, “China is something akin to a monopsony position”—the dominant buyer on the global stage. It already represents “about 33% of global manufacturing” and is on track to hit 40% by 2030. In practical terms, that means even when Australian firms can process the rare earths, “you’re still struggling maybe to sell it globally because most of the demand is in China.”
Creighton points out the paradox: even if Australia can mine and process rare earths, it may still be dependent on China if China remains the primary buyer.
McDonagh agrees and emphasizes that even after processing, “one of the biggest sold market is China.” Financing for these projects—backed by governments in Canada, Germany, South Korea, and others—often comes with strings attached to avoid Chinese buyers. But since “the world’s manufacturing superpower” is China, excluding that market makes profitability more difficult. If China’s share of global manufacturing keeps growing, McDonagh warns, “these problems actually become even greater and de-risking becomes even tougher and more costly.”
Creighton then raises the broader question: given that Australia has one of the smallest manufacturing sectors in the developed world, is its rare earths strategy simply meant to support U.S. industry? And does it matter if Australia itself doesn’t make anything?
McDonagh strongly counters the idea that it doesn’t matter. That thinking, he says, belonged to “peak globalization,” where supply chains were built on “market efficiency” alone. But that world no longer exists. “We don’t live in an ideal world where all countries are rational economic agents.” Instead, we live in a strategic world where “many goals are non-commercial.” This is the realm of geoeconomics—“power politics by economic means.”
In this new reality, McDonagh argues, “some sovereign manufacturing capability for any country of a significant economic size” is essential. Australia does have such ambitions under its Future Made in Australia Act, but even if that initiative succeeds, the domestic market “will never be a major source of demand” for the rare earths Australia can produce. In global terms, Australia’s manufacturing base will remain small.
So, Australia’s rare earths must find customers in the “big major like-minded partners with major industry”—namely the United States, the European Union, Japan, and South Korea. That’s where the real long-term demand lies, and where Australia’s strategic partnerships must be built.
Creighton and McDonagh explored the idea of Australia establishing a strategic reserve of rare earths, similar to efforts already underway in the U.S. and Japan. Creighton asked whether such a stockpile would primarily benefit allies like the U.S., Japan, and the EU, should Australia move forward with it. McDonagh acknowledged that was the “conceptual idea,” but warned the policy may not be well-suited to Australia’s position.
He argued that other countries already have major industries—like the U.S. auto sector—that a stockpile could directly support in the event of a supply disruption. “Australia doesn’t really have that,” McDonagh said. Without a clear domestic use case, the country risks spending heavily to maintain a stockpile that could end up being redundant. “Some of these rare earths will actually oxidate, go off over a certain period of time unless you store them in very specific and costly ways,” he noted. Instead, he suggested Australia should focus on efficiently developing non-Chinese supply, rather than hoarding materials that might not serve a clear purpose.
Creighton then questioned why the U.S. or major American firms haven’t tapped into Africa’s rare earth resources, given low labor costs and looser environmental regulations. McDonagh pointed to the continent’s persistent challenges with political instability, which make it difficult to attract the long-term investments that rare earth mining requires. These projects typically span decades and demand highly skilled labor—“the most susceptible to political risks,” he emphasized.
On the topic of Japan, Creighton wondered whether the country has any domestic rare earth supply of its own. McDonagh explained that Japan is “relatively small and mountainous,” with limited accessible resources, but it has made serious efforts to diversify away from Chinese dependence. Thanks to early investments in Lynas, the Australian mining company, Japan has brought its dependency down to around 60%—far lower than the typical 90%. “They have a reserve of critical minerals as well kept for that proverbial rainy day,” McDonagh added, noting that this year has brought “quite a few of those.”
Creighton asked McDonagh about the volatility of rare earth prices—specifically how much prices can swing and why. McDonagh pointed to neodymium and praseodymium, which is currently trading at around $50 USD per kilogram. He explained that this is on the lower end and that prices can double or triple, depending on global demand, such as during the EV boom when lithium and other critical minerals also surged. But McDonagh stressed that even at $50, it’s hard for non-Chinese producers to operate profitably because “they have much higher ESG standards, they have much higher labor standards,” and lack access to the deeply subsidized costs available to Chinese firms—subsidized loans, electricity, land, and more. “That’s the challenge,” he said, “that ability to work at a loss that Chinese firms take on.”
Creighton then asked whether Australia could ever become a “rare earth superpower” on the scale of its iron ore or coal exports. McDonagh responded bluntly: “No, not by any means.” While rare earths are essential to a wide range of industries, they’re used only in small quantities. In 2023, the global cross-border trade in rare earths—both ore and processed minerals—was worth about $10 billion. For comparison, copper ore was worth $90 billion, and iron ore even more. In terms of volume, copper ore production was around 55 million tons, whereas NDPR oxides were only about 40,000 tons. However, rare earths command much higher per-ton prices: $70,000 per ton for NDPR compared to $1,600 for copper.
McDonagh acknowledged that rare earths could still represent a “reasonably good-sized opportunity” for Australia, especially if the country moves into advanced manufacturing and downstream processing. That would not only capture more value domestically but also help build technical expertise. “There’s a general uplift that you don’t get if you’re offshoring everything,” he argued, pushing back against critics of industrial policy. He said such investment leads to “knowledge transfer that feeds out into other sectors of the economy.”
When Creighton asked about global demand trends, McDonagh said compound annual growth rates have ranged between 8% and 12% over the past decade and are expected to remain in that range over the next 5 to 10 years. But he added that robotics could be a game-changer. As that sector expands—especially with companies like Elon Musk predicting it as the next major wave of industrialization—demand for rare earths could grow even faster. “You’ll need a hell of a lot of magnets,” McDonagh said, and rare earths will be central to that. While the market isn’t yet as large as copper or iron ore, “it’s growing at a healthy rate” and could double or triple in value over the next decade.
On the subject of whether forecasts for rare earth market growth rely solely on net zero policies, McDonagh replied that while renewables and EVs will certainly influence demand, the bigger picture is broader: rare earths are fundamental to nearly all advanced manufacturing. So even without aggressive climate policies, “the market will grow at a reasonable rate, whatever,” he said. And if sectors like robotics take off, growth could accelerate much further.
Creighton then shifted to a more philosophical question, asking if it had been a mistake for Western nations to rely so heavily on free market systems—especially given how far ahead China is in this area. McDonagh agreed in part, but also contextualized it historically. “It’s always great in hindsight,” he said, noting that even aside from strategy, China’s state-dominated economy naturally encouraged long-term intervention. Meanwhile, in liberal democracies, the 2000s were marked by optimism—the so-called “end of history” period. In that era, globalization and offshoring were widely embraced, and big corporations were encouraged to “go forth and prosper” in a one-world economy. Strategic concerns were downplayed. But that thinking, McDonagh said, led to a weakening of “geoeconomic muscle,” and Western nations are only now realizing that “economic security is national security and vice versa.”
To close, Creighton asked whether China would still dominate rare earths by 2035. McDonagh predicted a bifurcated global system: “China will have lost its hold over the US, the EU and its partner countries.” He said those regions are already working to decouple from China in strategic sectors and that we are heading toward separate geopolitical ecosystems. The model will increasingly resemble the defense industry, with tight controls, restricted flows of technology and expertise, and domestic or allied production. “All the strategic markets are going to start developing like that,” McDonagh said, because control over those sectors confers critical strategic, economic, and technological advantages.
