Pragmatism trumps principle as the US locks Australia in for the next 40 years in America’s ongoing trade war with China, writes Marcus Strom
The much-hyped deal signed last week by Anthony Albanese and Donald Trump on critical minerals and rare-earths – splashed across the Australian media but barely registering in the US – is a transactional arrangement, light on detail, but one that binds Australia tighter with US interests even as it declines as an empire.
This deal is also quintessential Albanese: pragmatism over principle. For a career politician, it isn’t just Trump that has mastered the ‘Art of the Deal’, as The Sydney Morning Herald splashed concerning Albanese’s Washington visit. In the framework of bourgeois diplomacy, Albanese’s visit was a triumph. But beneath the bonhomie and spectacle, lies something far less noble and troubling for Australian workers.
Doug Cameron, a national patron of Labor Against War, said it was a “double loss for the Australian people”. The Albanese government has traded access to Australian rare earths as a bargaining chip to ensure Trump stays on course to deliver AUKUS, a military pact fundamentally in the interests of the US.
“Selling off the family silver to get Trump’s blessing on AUKUS is a double loss for all Australians,” said Cameron, a former ALP Senator and secretary of the AMWU manufacturing union.
“AUKUS was already a dangerous and wasteful project that drags Australia into future wars,” he said. “Now it’s being used to justify giving away the minerals that should underpin Australia’s renewable and manufacturing future.”
Transactional power games
For Albanese, politics is a transactional game. He is now cast in a role as Labor’s answer to John Howard – believing that simply ‘being there’ in office advances undefined ‘Labor values’, while in practice sacrificing the general interests of the working class. His government clings to a fantasy of the post-war ‘rules-based’ order – a world led by US imperialism where piecemeal reform at home could be traded for subservience abroad.
But that order has been shattered by Trump – in Ukraine, in Gaza and in Washington itself. Reliance on the US cannot guarantee Australian security; and it never did for the people of Vietnam, Indonesia, the Philippines, Korea.
Canberra’s problem is it remains economically tied to China while militarily chained to the United States – an increasingly impossible act as tensions rise. Albanese believes he can play both sides, but something will no doubt give.
If the trade war between Beijing and Washington turns hot, Australia’s economy will suffer terribly, AUKUS or no AUKUS.
This future hasn’t hit the Australian government yet. But it will. And all the old guarantees will evaporate.
It is always worth recalling Henry Kissinger’s warning that to be America’s enemy is dangerous, but to be its friend can be fatal.
Pivot to Asia, AUKUS and all that
The rare-earths deal is a subset of AUKUS geopolitics, which is a more pointed form of Barack Obama and Hilary Clinton’s 2011 “pivot to Asia”.
Washington’s hopes of a New American Century emerging from the US victory in the Cold War, promised by both Bush presidencies, turned to ash in Iraq and Obama and Clinton sought to rectify the US’s position amid new geopolitical realities.
The US, realising late that its unipolar moment was over, now faced a rival in China that had quietly built global dominance in rare earths.
Australia’s reserves – about 4 or 5 percent of global totals – are being leveraged as a strategic reserve for the US. The fact sheet issued by the US Embassy in Canberra reveals the transactional and political nature of this deal. It boasts of $US3 billion in investment through the US Export-Import Bank and Australian co-funding, in exchange for “enhanced burden sharing” in defence spending – to the tune of $US7.8 billion in the short term.
Despite diplomatic efforts by Canberra, Trump did not reduce any tariffs (which sit at 10 percent baseline but for steel and aluminium are at 50 percent).
Once again, Uncle Sam walks away the winner, both financially and geopolitically.
The rise of China caught some napping in the State Department right up to Obama’s election. Writing in the Australian Financial Review this week, Rana Foroohar noted that during the (Bill) Clinton administration, the US approved General Motors selling off Magnequench, an Indiana company that manufactured rare-earth magnets used in electronics and jet guidance systems – to Chinese owners with ‘close ties to Beijing’.
As late as 2005 under George Bush jnr, the Magnequench factory, which under the deal was meant to stay in Indiana, was moved to China. Bush gave it the green light.
In Australia, Chinese interests gained the lease of Port Darwin while Tony Abbott was prime minister. This was the local ‘turning point’ but these examples show that the US and Australia largely saw the ‘rise of China’ as a manageable moment for the US. That all changed post 2015 and has culminated in the Anglosphere military and technology pact we call AUKUS, and the concomitant media hype aimed at Beijing.
AUKUS – as outlined by Obama’s Assistant Secretary of State, Kurt Campbell – locks Australia in for the next 40 years in the US struggle with China over dominance of the East Asian theatre.
Strategic mineral reserve for imperialism
This critical mineral and rare-earths deal is a subset of this. The main game for rare earths remains China. It has the lion’s share of reserves and controls 85 percent of refining capcity and 90 percent of rare-earth alloy and magnet production. It is also a big player in critical minerals, a broader pool of resources.
Just 10 countries hold almost all global rare-earth reserves, according to figures from the US Geological Survey. Just how much is in each country shifts from survey to survey. The USGS says Russia has 3.8 million tonnes; it claims closer to 30 million.
In 2024 figures, the top five countries were China (44 million tonnes); Brazil (21 million); India (6.9 million); Australia (5.7 million) and Russia (3.8 million). Of the total global reserves, estimated at more than 90 million tonnes, 80 million tonnes are in just five BRICs aligned countries – China, Vietnam, Brazil, Russia and India.
The geopolitical calculus of these numbers is obvious.
These minerals are vital not just for the renewables revolution (electric vehicles and wind turbines) but increasingly for military industries.
For the US, locking in Australian critical minerals and rare earths is an insurance policy, lest it lose access to the main game or fails to adequately develop its own supply chains.
While Australia has about 5.7 million tonnes in rare earths, it is abundant in critical minerals: bauxite (for aluminium), cobalt, copper, lithium, manganese, nickel. But most of the proposed projects in the Trump-Albanese deal will underwrite rare-earths projects.
For Albanese, this is dressed up as “sovereign capability”. In reality, it’s a subsidy for private profiteering.
Billionaires like Gina Rinehart are happy to abandon their “free market” idolatory when state cash flows their way. The Australian government has already poured billions into the sector, even though the entire global market for rare earths is worth only about $US4 billion a year, though it is rising.
Dr Lian Sinclair, an economic geographer at the University of Sydney, has said: “Rare-earth mines already attract extreme levels of public finance … since 2021, Australian mines and refineries have attracted an astonishing level of government financing.” She and her colleague Professor Neil Coe said five local projects have been promised $6.1 billion in government loans, about half from Australia, the other half from the US, Japan, South Korea and Japan.
So, there is no problem with financing – the problem is finding a market.
“However, without investment in refineries and magnet production in allied countries, Australian miners will continue to either sell into or be outcompeted by Chinese domestic industry,” Dr Sinclair has said.
A big problem, as noted by the Guardian Australia’s economics editor Patrick Commins, is that “Anthony Albanese has struck a multibillion-dollar deal with Donald Trump to develop critical minerals projects in Australia that will never be commercially viable”.
China’s long game
The US is playing catch-up. As far back as 1992, Chinese leader Deng Xiaoping said that critical minerals would be turned into the Beijing’s strategic assets. “The Middle East has oil. China has rare earths,” he is widely attributed as saying.
China wasted no time developing this sector in the intervening 30 years. Reuters reports Consultancy AlixPartners estimates of China controlling up to 70 percent of global rare-earths mining, 85 percent of refining capacity and about 90 percent of rare-earths metal alloy and magnet production.
A $US3 billion public equity deal to underwrite a potential $US13 billion production pipeline with Australia is not going to overturn that dominance.
The west didn’t realise the scale of its reliance on China for rare-earths, really, until the 2010 Senkaku Islands dispute. After a collision between a Chinese fishing trawler and Japanese coast guard ship, a dispute erupted during which China halted its rare-earth exports to Japan. At the time, Japan relied on China for more than 90 percent of its rare earths.
In response, Japan put a team together to look at diversifying its rare-earth sources. It has since reduced reliance on Chinese rare earths to 60 percent, still a huge exposure. Part of the review was to see if the Australian mining sector could assist. They landed on Lynas Rare Earths for part of the solution, but found that more broadly, rare-earths extraction and processing in Australia was prohibitively expensive. That hasn’t changed.
In Australia, there are now three players: Lynas Rare Earths, Iluka Resources and Arafura Rare Earths (in which Gina Rinehart has a 10 percent stake). However, none of these can exist without ongoing government subsidy. Arafura alone has been extended more than $1 billion in government assistance.
The free marketeering columnist, Chanticleer, in the Australian Financial Review, crowed “Free money keeps ASX’s rare-earth frenzy running”.
It noted that Arafura Rare Earths “has been on a tear this year [share prices up 375 percent], and has been helped by a [further] $154 million taxpayer injection”.
But, it asks, “will buyers want what it offers when China is cheaper?”
Quite.
These companies will likely reap the lion’s share of the US-Australian deal – but this does not solve the diversification problem given how much rare-earth reserves are locked in ‘BRICs’ countries, and produced for much less.
This underlines that the main purpose of the deal is not to establish Australia as a determining player in the market, but act as a safety net for the US.
US economy is over financialised
For decades, Beijing has built an integrated, state-directed industry while western capital chased short-term returns. US capitalism, hollowed out by financialisation, lacks the industrial base to compete in many industries and is turning to tariffs and other levers.
Further US strategy in Asia will continue to subcontract production to its allies – Japan, South Korea, the Philippines and now Australia – while locking them into military dependence and guaranteed markets for weapons systems.
A tangible outcome of this strategy is Australia spending $10 billion on frigates from Mitsubishi Heavy Industries.
A big part of the problem for US imperialism is that its capital is fully financialised – US companies exist just to make profits, not things. Japanese capital is far less financialised. Chinese investment is of a different nature again: mostly industrial and state directed capital.
A deal that serves capital, not humanity
Far from ensuring peaceful economic development and sovereignty, this minerals deal reinforces and reflects an imperial system that serves capital, not people.
For the working class in Australia, being trapped between the two great powers’ trade and military rivalry is a recipe for disaster. Should a war break out, it will be catastrophic.
Capitalism and the system of imperialism that maintains it is a dead end. Australia’s future lies in cooperation and solidarity with Asia and the Pacific. Not with the rulers in Tokyo, Manila, Seoul and Jakarta, not in choosing between Washington and Beijing – but with the billions of people in our region, who are also victims of a system that prioritises national competition for resources over global cooperation aimed at a world at peace, with environmentally sustainable economic development for all.