The Blade of Negotiation, the Cannon of Regulation - Can the US-Australia Agreement Disrupt China's Supply Dominance: China's "Magnet" Regulation and the Trump Administration's Shift to Australia

Introduction: The Asymmetry Reflected in Metaphors

An Australian business newspaper sharply commented on the new US-Australia agreement, stating, "Trump brought a knife, but China brought a bazooka." The essence of the metaphor lies in the asymmetry where the US-Australia policy package aims to "create supply," whereas China can shoot a regulatory tool that "stops supply/controls the flow" in one go. The article points out the reality that despite the slowdown in the Chinese economy, China maintains an advantage in key materials even amidst the US-China trade war.muckrack.com

What Was Decided: Contents of the US-Australia Agreement

On October 20 (US Eastern Time), President Trump and Australian Prime Minister Albanese signed a cooperative framework on critical minerals (such as rare earths). They announced that each country would invest at least $1 billion over six months, moving a project pipeline worth a total of $8.5 billion. According to reports, this includes a $2.2 billion LOI from US EXIM and investments such as gallium refining in Western Australia. The aim is to establish an "alternative chain" from mining to refining and magnet manufacturing across continents.AP NewsReuters

There are also reports that a "price floor" mechanism is being discussed in this agreement, aiming to "activate banks" for non-Chinese mining and refining businesses that have been deterred by China's dumping-like price fluctuations in the past. However, the final execution of each project depends on the assessment of offtake agreements and funding.Al Jazeera

At That Moment, China Reloaded Its "Ammunition"

In the same October, China significantly expanded export controls on rare earths and permanent magnets. There are two key points of note. First, the application has been extended to "products" such as magnets and alloys, clearly stating "extraterritorial application" that requires China's approval for re-export outside the region even if there is minimal Chinese-origin content or involvement of Chinese technology. Second, military applications and semiconductor-related uses are generally disallowed and subject to individual review. This marks a shift from the previous "export permits for ores and oxides" to a higher level of "technology and end-use" management, strengthening effective control from upstream to downstream of the supply chain.AP News

Even in the latest statistics, exports of rare earth magnets decreased in September compared to the previous month. As the impact of the system permeates, the mere "friction" of license reviews will increase the volatility of global inventories and prices.Reuters

Dissecting the Asymmetry of "Knife" and "Bazooka"

Policy Speed: US-Australian investments come with several years of lead time until factories and refineries are operational. In contrast, China's new directives have high immediacy, capable of constricting export routes with a single notice.Reuters

Supply Coverage: Beyond the volume of mining, China dominates in "processing" such as refining, composition, and magnetization. The reality that most of the world's magnet manufacturing is concentrated in China enhances the effectiveness of regulations.CSIS

Extraterritorial Application: Similar to how US export controls on China have bound extraterritorial companies based on "US-origin technology," China also restricts re-exports outside the region based on "Chinese-origin components/technology." This is "mutual extraterritoriality" in the materials field.AP News

The Game of Prices and Investment: While the US and Australia aim to revive investment animal spirits with "price floors" and government funds, China holds the "faucet" to raise or lower prices. As a result, private investors find it difficult to have confidence in long-term price forecasts.Al Jazeera

SNS Reactions: Evaluations, Skepticism, and Realism

① "Strategically Correct" Group
Government-related accounts and geopolitical accounts emphasize the significance of supply diversification. The narrative "Australia's role is significant now that the dangers of China's dominance are clear" stands out.X (formerly Twitter)

② "But It Takes Money and Time" Group
In the investment cluster, the US-Australia agreement is calmly evaluated as "strategically sound but with little investment appeal." Many see the outcomes as mid-to-long-term due to bottlenecks in refining, environmental compliance, and human resources.Reddit

③ "The Design Details Are Key" Group
In specialized Reddit subs, attention is focused on the details of the "mechanism," such as the EXIM LOI, Australia's refining premises, and US equipment investments. Discussions continue based on primary information like "specifying processing within Australia," "initial funding of $1 billion each over six months," and "gallium refining projects."Reddit

④ "Political Show" Group
On the highly newsworthy X (formerly Twitter), signing scenes and speech clips are spreading. While the attention is high, the focus tends to be on short-length information, with economic discussions being dispersed.X (formerly Twitter)

⑤ "Bazooka Theory" Group
The strong assertion that "China has aimed a bazooka at the free world's supply chain" is also circulating. It functions as a phrase that succinctly reflects the power asymmetry surrounding supply networks.The Economic Times

What Gets Stuck on the Ground: Three Bottlenecks

1. Refining and Separation "Chemical Plant Capability"
   The difficulty level jumps significantly for HRE (heavy rare earths) compared to LRE (light rare earths). There is a persistent view that even Japan remains dependent on China for HRE. The US and Australia need to overcome the triple barriers of environmental permits, waste liquid treatment, and skilled personnel.Reddit

2. The "Last Mile" of Magnet Supply
   The magnet process, closest to the final product, is China's stronghold. The new rules tightly control this area. Even if Australia produces oxides, if magnetization halts, "decoupling from China" remains incomplete.Reuters

3. Price Mechanism
   While price floors encourage investment, excessive support can also become a hotbed for demand destruction and fiscal burden. Drawing the line between volatility control and overprotection is challenging.Al Jazeera

Market Sentiment

Changes in customs statistics and the "bleed" of permits can sway prices and inventories in the short term. Even a slowdown in magnet exports sensitively affects investor sentiment, forcing downstream industries like equipment, automobiles, and defense to increase inventories and avoid designs (de-risking).Reuters

What Will Be Visible in Six Months: Organizing Evaluation Axes

• Actual Funding: How the EXIM LOI bridges to project finance.Reddit

• Implementation of Refining Capacity: By-product refining of gallium and others is highly compatible with Australia's aluminum and alumina industries. The start of actual equipment is key.Al Jazeera

• Speed of Regulatory Expansion: China's system operation (approval rates, review days, scope of use rejection) is an "invisible policy interest rate" that sways the market.AP News

• International Cooperation: How much "in-group" procurement increases from Japan, Europe, India, and others.South China Morning Post

Conclusion: Short-Distance Leadership, China. The Outcome of the Long-Distance Battle Remains Uncertain

The US and Australia have shown the will and funding to increase "the power to create." Meanwhile, China has institutionalized "the power to stop" and "the power to permit," expanding its "range" over the entire value chain. The short-term leadership clearly lies with the latter. However, the strengthening of extraterritorial application ironically accelerates companies' geopolitical risk avoidance, potentially "leveling the ground" for investment in the mid-to-long term. The showdown between the knife and the bazooka ultimately becomes a war of attrition over "who can pay the costs longer."muckrack.comReuters