Damon Mcknight
China has imposed export restrictions on rare earth elements and magnets used in defence, energy, and automotive sectors, in retaliation for new US tariffs. These materials are vital to defence technologies, but the US is entirely dependent on China for their supply. China's near-total global control of rare earth refining and its monopoly on heavy rare earth processing have exposed the vulnerability of Western supply chains. Australia has the potential to break China's monopoly on rare earth refining and processing, and investors are closely watching Australian producers. However, it is unclear if Australia can act fast enough to counter China's critical mineral ban.
| Characteristics | Values |
|---|---|
| Date of ban | April 2025 |
| Goods banned | Rare earth elements and magnets |
| Reason for ban | Retaliation for new U.S. tariffs |
| Countries impacted | Australia, Japan, the U.S. |
| Impact on Australia | Potential $27bn blow to the economy |
| Future outlook | Australia may counter China's monopoly |
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What You'll Learn
China's monopoly on rare earth elements
China has a near-total monopoly on the production of rare earth elements, which are crucial for a range of advanced defence technologies, such as fighter jets, submarines, missiles, radar systems, and drones. This monopoly has been characterised as a deliberate national resource policy, similar to OPEC's management of oil, with the intention of linking pricing to the strategic significance of critical minerals.
China's control of the market is most notable in the critical material and tech metal markets. Tech metals are the main metals used in technologies, and China currently controls around 90% of the production of rare earth elements. This has created a supply chain dominance that other countries cannot compete with.
Rare earth elements are highly sought-after due to their use in green technologies, such as solar panels, wind turbines, and electric vehicles. They are also used in high-temperature magnets, of which China owns 100% of the production, and which are a major component of weapons systems.
The United States is particularly vulnerable to disruptions in the supply chain of rare earth elements, as it is entirely dependent on China for their supply. In response to increased tariffs from the US, China imposed export restrictions on seven rare earth elements in April 2025, requiring companies to secure special export licenses. This has exposed the vulnerability of Western supply chains, with the US only having one operational rare earth mine.
Australia has the potential to break China's monopoly on rare earth refining and processing, with strategic deposits such as Mt Weld in Western Australia drawing interest from Japan, Europe, and the US. The Australian government has begun taking measures to seize this opportunity, including considering strategic stockpiling and providing funding for a rare earth refinery, which is due to be operational by 2026.
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Australia's critical role in countering China's ban
China has imposed export restrictions on seven rare earth elements and magnets used in defence, energy, and automotive sectors. This move is in retaliation for new U.S. tariffs. However, China has not placed a complete ban on exports, but the policy does function as a chokepoint, leveraging China's near-total global control of rare earth refining and its monopoly on heavy rare earth processing.
Australia is in a unique strategic position to counter China's ban. As a trusted US ally, it possesses the resources, partnerships, and political capital to step into the breach. Australia has the potential to break China's monopoly on rare earth refining and processing. Australia's rich geological endowment and transparent regulatory environment put it in a better position than the US to develop secure supply chains.
The Australian government has begun to take advantage of this opportunity. Under its Future Made in Australia initiative, the federal government is considering measures such as strategic stockpiling, production tax credits, and expanded support for domestic processing. Iluka Resources, for example, has secured funding to build a rare earth refinery, due to be operational by 2026.
Additionally, the Australian Critical Minerals Research and Development Hub is working to boost international R&D cooperation on critical minerals. The hub includes government agencies working in partnership with industry and universities to boost technical capacity.
However, it is important to note that Australia's dual role as a major upstream supplier to China and a strategic ally of the US places it on a diplomatic tightrope. Aligning too closely with either side could invite retaliation from the other.
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The impact of US tariffs on China-Australia trade
US President Donald Trump's tariff increases on Chinese products have had a significant impact on China-Australia trade. In response to these tariffs, China's Ministry of Commerce imposed export restrictions on rare earth elements and magnets used in defence, energy, and automotive sectors. These materials are vital to defence technologies, and the US is entirely dependent on China for their supply. This has exposed the vulnerability of Western supply chains and prompted countries like Australia to explore alternative sources and supply chains.
Australia has been caught in the middle of rising trade tensions between the US and China. While Australia refused to form an alliance with China against the US tariffs, it recognised the potential impact of reduced demand in China for its exports. Australia's most valuable exports are not sold in the US, and its economic growth has been fuelled by exports to China, such as iron ore used to fabricate steel. A decrease in manufacturing demand in China for Australian exports poses a significant threat to Australia's economy.
The US-China tariff war has also created opportunities for Australian consumers to benefit from cheaper Chinese-made goods. Products once destined for the US, such as cars, phones, and electronics, may now be exported to Australia, resulting in lower prices for Australian customers. However, there are warnings that a global downturn sparked by the trade war could negatively affect Australia's key exports to China, including coal and iron ore.
To reduce its reliance on China, Australia has expressed its intention to diversify its trade by strengthening ties with other regions, including the European Union, Indonesia, India, Britain, and the Middle East. Additionally, Australia is exploring ways to enhance its domestic processing capabilities for critical minerals and rare earth elements. This includes initiatives like the Australian Critical Minerals Research and Development Hub, which aims to boost international R&D cooperation in this sector.
Overall, the US tariffs on China have had a complex impact on China-Australia trade. While Australia refused to ally with China against the tariffs, it is vulnerable to the potential consequences of reduced demand in China and the disruption to global trade. Australia is now focused on diversifying its trade partners and strengthening its domestic capabilities to ensure economic resilience.
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China's ban on Australian mainland apples
China has lifted its ban on apple imports from mainland Australia. This is a significant milestone, as it opens up a new market for Australian apple growers, who have traditionally focused on the domestic market. The breakthrough came after China approved protocols for controlling the fruit fly pest, which was a previous concern for China.
The Chinese market is worth hundreds of millions of dollars for Australian fruit growers, and China bought $380 million worth of Australian fruit and vegetables in 2024 alone. This agreement is beneficial to Australian apple farmers, as it allows them to enter new trade markets and expand beyond the domestic market. According to the Australian Fresh Produce Alliance (AFPA), which represents the horticulture industry, the win for mainland apple growers shows the importance of stable two-way trade with China.
The Australian apple industry has faced challenges due to increasing costs and the inability to pass those costs on to supermarkets because of their buying power. With this new agreement, Australian growers can showcase the quality, crispness, and flavour of their apples to Chinese consumers, who have a well-established preference for branded, high-quality fruit with exceptional freshness and flavour.
Exports are expected to commence in the 2026 season, and the agreement was signed between Australia's Department of Agriculture, Fisheries and Forestry and China's General Administration of Customs. This new export avenue represents a considerable opportunity for mainland apples, as Australian apple exports currently account for less than 1% of domestic fresh apple production.
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Australia's vulnerability in the trade war
Secondly, Australia's role as a major upstream supplier to China and a strategic ally of the US puts it in a delicate diplomatic position. Aligning too closely with either country could invite retaliation from the other. This dynamic is further complicated by geopolitical tensions and competing interests between the US and China. Australia's endorsement of an inquiry into the origins of COVID-19 angered China, leading to import tariffs on several Australian exports.
Thirdly, the trade war has disrupted Australia's meat and barley exports, highlighting its vulnerability to geo-economic pressure. China's ability to wield market access as a strategic tool has become a concern, as Beijing is increasingly willing to use economic pressure to achieve its political and foreign policy objectives. The deteriorating bilateral relationship between Canberra and Beijing has exacerbated this issue.
Additionally, Australia's vulnerability is exposed in the context of critical minerals and rare earth elements. While Australia has the potential to break China's monopoly on refining and processing rare earths, it faces challenges due to the time and investment required to establish a self-sufficient supply chain. China's dominance in this sector has highlighted the vulnerability of Western supply chains, and Australia's ability to seize this opportunity will depend on its capacity to act decisively and develop secure supply chains.
Finally, Australia's overall economy is expected to be impacted by the trade war. While the majority of Australia's exports go to Asia, the value of its exports to the US is significant. The flow of trade in services can be affected by visa and travel restrictions, and intellectual property charges, the second-biggest Australian export to the US, could be vulnerable to non-tariff barriers.
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Frequently asked questions
China has not banned all Australian exports. However, China has imposed export restrictions on rare earth elements in response to U.S. President Donald Trump's tariffs on Chinese goods.
Rare earth elements are a group of 17 metallic elements widely dispersed over the earth's surface. They are difficult to extract from their ores, requiring large amounts of ore to produce small quantities of the elements.
China's ban on rare earth elements has impacted Australia's economy as Australia has potential to break China's monopoly on refining and processing these elements.
Australia's Prime Minister Anthony Albanese has vowed to use "dispute resolution" powers if necessary. The federal government is also considering measures such as strategic stockpiling, production tax credits, and expanded support for domestic processing.
China previously banned apples grown on mainland Australia due to fruit fly concerns. However, this ban has since been lifted.
