Critical minerals are a focal point of international contention in an increasingly fracturing international system. These minerals underlie competition across civil and defence sectors and promise economic opportunity throughout their supply chain. Furthermore, they are vital to the clean energy transition, with minerals needed for electric vehicle batteries, solar panels and even wind turbines. Yet, their supply chains face extensive challenges.

Since ASPI’s inaugural Darwin Dialogue in 2023, Australian and foreign governments have begun implementing industrial policies to support domestic growth in critical minerals and downstream industries.

The Darwin Dialogue 2024 brought together high-level government representatives of Australia, the US, Japan and South Korea and senior representatives of other nations, academia and think tanks, held over two days in April 2024. It assessed the rise of industrial policies and discussed the next policy steps to achieve diversified supply chains, unlock investment in industry, protect industry from geopolitical risks, and deepen market environmental, social and governance considerations.

Australia’s critical mineral policy is principally shaped by the Critical Minerals Strategy, released in December 2023, and the Albanese government’s flagship industrial policy, Future Made in Australia, announced ahead of the Federal Budget 2024-25. It is further backed by close collaboration with state governments.

Implementing Future Made in Australia comes with significant costs, but industrial policies help navigate our geopolitical environment—especially in highly exposed sectors such as critical minerals.

In many respects, the rise in industrial policies is a targeted response to China’s dominance across supply chains. But it is also an attempt to stay competitive against policies implemented by allies—principally the United States’ dryly named Inflation Reduction Act (2022).

However, concerns remain around the strategic planning behind a Future Made in Australia. The government must stick to a clear, results-oriented strategy, making targeted investments to build a viable interconnected sector in collaboration with states and territories. Currently, there is a risk that investments could be process-oriented and perhaps disconnected.

Industrial policy is a double-edged sword: it protects and promotes domestic industry while also picking winners and potentially further fracturing the international trade order. It must be handled with caution. We must be careful about where we compete, where we cooperate and, importantly, with whom we do either.

Governments naturally focus on domestic industries and opportunities and selectively engage partners, but no single nation can build the necessary mineral supply chains alone. At the Darwin Dialogue 2024, there was broad consensus that national and transnational government interventions are unavoidable in the critical minerals sector—but they must be implemented carefully.

Overly focusing on domestic concerns instead of working internationally obscures pressing, near-existential challenges for the critical mineral sector. Current supply chains are insecure, and projected demand is likely to far outstrip supply of many critical minerals. This could constrain energy transition and building defence capabilities.

Rapid expansion of critical minerals production is needed. To achieve that, Australia and its allies must harmonise policies and build shared supply chains, rather than build domestic competitors that may cannibalise one another. Some competition is needed and unavoidable, but it must be proportionate.

Australia’s policy framework must work to attract new domestic and international investment sources, particularly since the Foreign Investment Review Board is rightly blocking Chinese investment into critical minerals on national security grounds. Policy options include unlocking superannuation fund investment, maximising use of free trade agreements and increasing demand by building joint stockpiles. We must also protect industry from politically driven price risks, noting that political risks are remarkably difficult to project or hedge against as they are external to the market.

Notably, unlocking new investment and developing new supply chains is not about bifurcating global trade or alienating any one nation from the supply chain. Doing so would be neither effective nor realistic. Rather, Australia and its allies must strive towards diversifying supply chains away from any singular, concentrated source or destination.

Furthermore, in developing these supply chains, Australia and its allies must maintain and extend high standards of environmental, social and governance performance. This means limiting harmful impacts of energy transition and building business models that are resilient to geopolitical or domestic social-licence risks over the medium to long term.

ASPI’s report from this year’s event, Darwin Dialogue 2024: Triumph through Teamwork, offers 11 key policy recommendations for government and industry to evolve Australia’s critical mineral policy framework.

It identifies ways to deepen minilateral cooperation with the US, Japan and South Korea across government and industry, secure new streams of funding for Australian industry, increase the number of graduates from Australian universities in fields related to critical minerals mining and processing, and improve market environmental, social and governance considerations.