Stepping back from blanket government de-risking of minerals supply chains

As the world decarbonises and US–China rivalry intensifies, nations are seeking greater control over the mineral resources that feed green technologies and expand defence infrastructure.

Once of interest mainly to geologists and geographers, rare earths and critical minerals are now basic inputs in global production chains and are front and centre to economic security and defence agendas. Disruptions and volatility in the supply of energy and minerals create global waves, as demonstrated when energy prices responded to Russia’s invasion of Ukraine in 2022 and when China used the ‘rare earth weapon’ to bring Trump’s America to the negotiating table on tariffs in 2025.

Geopolitics are rapidly reconfiguring Asia’s resources trade away from lower costs to pricing in security.

Asia is home to important resource consumers like India, Japan and South Korea, as well as major suppliers like Australia and Indonesia. Uniquely, China is both a major supplier and the largest single consumer of resources and critical minerals.

The complementarity between producers and consumers has been a key engine for economic growth but is now challenged from two directions: the weaponisation of resource interdependencies and increasing industrial policy and protectionism, or ‘resource nationalism’.

In our latest issue of * East Asia Forum Quarterly (EAFQ)*, launched today, we examine these dynamics, providing a clear-eyed assessment of how increasing geopolitical and economic competition is changing where and how the world’s finite mineral resources are extracted, refined, traded and manufactured.

A major focus is China’s extraordinary dominance of global consumption, minerals refining and manufacture. Our contributors explain China’s industrial might in these sectors and reflect critically on the core logic — and practical reality — of urgent Western efforts to securitise mineral resources and reduce dependency on a geopolitical rival. They consider a range of cases, illustrating how China’s neighbours grapple with the current moment and try to strike a balance between economic integration with China while ensuring secure access and supply of mineral resources and their products.

They reflect on the difficulty of that reordering: Australia’s prosperity has long depended on ‘dig and ship’ extraction and turning over that model is hard and high risk. Reorganising mineral supply chains is not easy and risks slowing global momentum for the green energy transition.

Despite dramatic changes, the basic complementarity of the region’s producers and consumers remains intact, and government policy that seeks to manage risks rather than overturn market structures would appear to deliver a better outcome for all.

In the first of our lead articles from EAFQ this week, Rod Eggert observes that ‘we are in the midst of a profound re-assessment of globalisation. Over the past 15–20 years, much of the Western world has transitioned from “least-cost” globalisation to the embrace of nation-focused, state-led industrial policy’.

‘Critical minerals’, says Eggert, ‘have become subject to supply risk’: short-term risks faced by mineral users resulting from a lack of geographic diversity in production which, because of lag-times in developing new capacity, can morph into medium term issues; and longer term risks that ‘production capacity a decade or more into the future will be insufficient to satisfy the material requirements for key technologies, with concerns around affordability and environmentally and socially responsible production’.

The COVID shock, Russia’s invasion of Ukraine and increased geopolitical tension since 2010 has seen governments re-embrace industrial policy. They are also seeking to co-finance critical mineral projects at home and with allied and partner economies, through providing price guarantees, subsidies and a variety of restrictions on international trade.

Eggert concludes that it’s too early to say where policymakers and companies are settling on ‘the degree to which they want to take advantage of the efficiencies of international markets in a new version of globalisation’.

In our second lead article from* EAFQ* this week, Marina Yue Zhang accepts the logic and evidence of the trends that Eggert identifies but worries about the confused application of industrial policy instruments to the separate objectives of national security and competitive positioning vis-a-vis China’s state-led development.

The turn towards state capitalism in North America and Europe, with governments becoming ‘direct economic actors, applies the logic of military supply chains to the climate challenge that can only be met by the mobilisation of market forces across the global economy’, Zhang suggests.

Minerals may be seen as economically vital but not deemed critical if supplies are diversified and resilient. Strategic minerals are important to defence and critical infrastructure. The same minerals in defence applications and green technologies are classified differently in different countries in reflection of different national security priorities.

As Zhang points out, defence ‘applications typically account for only a very small fraction of demand for critical minerals — well under one per cent of global volume for bulk commodities — while overwhelmingly demand is driven by green energy and industrial uses essential to decarbonisation’. Securing military supply chains through state procurement arrangements is necessary. But imposing the same strictures on all mineral supply chains raises costs, undermining efficiency in global energy transition, especially for developing economies.

Folding the pursuit of these two policy objectives into a single policy framework cannot optimise outcomes for both security-sensitive and energy transition minerals.

The solution lies in segmenting supply tracks for security-related and energy transition technologies.

The call for a two-track approach to securing minerals supply chains is sensible. Retreat from blanket government de-risking to targeted support and integrating China’s industrial capacity will lower the global cost of emissions reduction and accelerate global deployment of productivity-improving renewable energy technologies.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Law, Policy and Governance, The Australian National University.