April 16, 2025 • 22 mins
So many of us have been yanking at our hair, or just standing around, slack jawed, as we’ve watched sharemarkets collapse and the chance of a recession barrel towards us - all as a result of Donald Trump’s tariffs. But to focus on the economic chaos is to miss the larger domino effect that’s been taking place in the background, as countries begin scrambling for a safe harbour.
Today, international and political editor Peter Hartcher, on the “surreal” moment Australia now finds itself in. And how so-called “rare earths” are at the center of it all.
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Episode Transcript
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S1 (00:01):
From the newsrooms of the Sydney Morning Herald and The Age.
This is the morning edition. I'm Samantha Selinger Morris. It's Thursday,
April 17th. So many of us have been yanking at
our hair or just standing around slack jawed as we've
watched share markets collapse and the chance of a recession
(00:22):
barreled towards us all as a result of Donald Trump's tariffs.
But to focus on the economic chaos is to miss
the larger domino effect that's been taking place in the
background as countries begin scrambling for a safe harbor. Today,
international and political editor Peter Hartcher on the surreal moment
(00:42):
Australia now finds itself in, and how so-called rare earths
are at the centre of it all. Okay, so Peter,
we know that everyone is saying these tariffs are dumb.
You've pointed this out. Uh, analysts across the globe are
having fun pointing this out. But I have to ask
you a week on since Trump has imposed really these
(01:03):
insanely high tariffs on China, what's actually happened? Like what's
been the impact?
S2 (01:08):
Well, I'd just correct you on one point. The people
around Trump in his administration have not said that these
are dumb, these tariffs. They've said that it's part of
the greatest economic strategy ever by any US president.
S1 (01:22):
This is right. We just missed the art of the deal.
S2 (01:24):
That's right. Now that was that was Stephen Miller, who's
deputy chief of staff to Trump for policy. And his
treasury secretary said that isolating China was always the strategy.
And he said that with a knowing smile, just to
let everybody know how dumb they are. But I'm afraid
they haven't convinced anybody. So I suppose the first observation
(01:46):
to make is that all around the world, global growth
has now been downgraded. Many experts now expect a recession
in the US and a loss of income In many
other countries, China will be a particular victim because the
tariffs on China are so large. And China has built
(02:08):
a system built on exports, so they will also suffer.
S3 (02:12):
China has called on the United States to cancel all
tariffs after Washington announced exemptions for some consumer electronics.
S4 (02:19):
The ball is in China's court. China needs to make
a deal with us. We don't have to make a
deal with them.
S2 (02:26):
But the whole globe has suffered.
S5 (02:28):
The European Union, that bloc of 27 nations, has essentially
said if it does not strike a trade deal with
the United States, then they can expect to see tariffs
on things like toilet paper.
S2 (02:38):
One indicator is that since the beginning of the year,
US share prices are down 8% now. So that's an
indicator that an 8% expectation of lower incomes. But it's
affecting the whole world. And if you've checked your if
you have a superannuation account and you've looked at the balance,
it's it's lower than it was two weeks ago. And
(02:58):
that's all because of what Donald Trump is doing. But
the big, you know, geopolitical consequence of what's just happened
is that Trump has shown the world that the US
has departed from any semblance of rationality, and US allies
have concluded that the US has departed from any semblance
(03:21):
of goodwill, friendliness, trust. The whole planet can see. Except
for those people who think Trump is just an unmitigated genius.
That the US has now been downgraded in the eyes
of the world. And some of the evidence for that
is the fact that the US dollar and US bonds,
(03:44):
which are normally rally in times of uncertainty and shock
and surprise, have gone the other way and continue. We
continue to see signs of weakness. In other words, global
investors have said the US is no longer a reliable
safe haven and the world's going to look to other
(04:04):
countries and other currencies. They're going to look to the
EU and the euro. They're going to look to the
Japanese yen. They're going to look elsewhere. Donald Trump represents
a level of sheer chaos, but also hostility. The sheer
hostility with which he's done this. That just tells everybody
(04:25):
that the America that we thought we knew no longer exists.
S1 (04:30):
Okay, so the Trump camp says we've just missed the
art of the deal. This is incredible. We're going to
isolate China. You're obviously painting a very different picture, as
is every economic analyst that pretty much bar none that
I've heard from. So I guess tell us some brass tacks, though.
How has China responded? Because China has not been cowed
by this by any stretch. It's quite the opposite. Tell
(04:51):
us what China's done.
S2 (04:52):
Yeah. So the Chinese government has responded. So while Trump
has put cumulative total tariffs on imports from China of
about 145%, China's response has been to enter the retaliatory game.
They're imposing tariffs on imports from the US of 125%,
not quite as drastic as America's, but really the combined
(05:16):
effect of this will be to kill most trade between
China and the US. That will be the net effect.
But China has gone further in a couple of ways. One,
they've got much more specific about punishing particular US companies
and a particularly vital resource that the US needs that
(05:36):
every modern manufacturing country needs. And that's rare earths where
China has a near-monopoly in the supply, global supply of
processed rare earths. And on the geopolitical level, we see
the president of China, XI Jinping, arrived in the last
day or so in Vietnam. He's also going to Malaysia
(05:58):
and Cambodia. And this is very deliberately to draw a
contrast between the madness and instability going on in the
US and the stability and friendliness that's going to be
emanating from Beijing. That's right. Now, you know, you're going
to have a hard time persuading countries like Vietnam, which
has been engaged in a in a fairly quiet but
(06:19):
pretty frantic contest over its maritime territories with China. But
nobody is going to turn down the opportunity to I mean,
this is just a great example because it's so current,
because XI Jinping is there. But if you're Vietnam, Trump
has just put a 43% tariff. Now he's rolled that
back to ten pending a 90 day review. But the
(06:42):
initial hostility and the shock of putting a 43% tariff
on a country that the US had been cultivating to
bring into its camp against China, that is just a
dreadful thing to do because it makes unviable Vietnam's entire
economic model, which was based on competitive exports. Trump just
(07:03):
destroyed that, or is now partly retracted it, but obviously
can't be trusted. So of course, China looks more attractive
this week than it did last. So XI Jinping is
taking full advantage and driving that home, and you can
expect that our Chinese friends will be doing that with
every country they possibly can from now on.
S1 (07:21):
Absolutely. And I want to turn to something you've just mentioned,
which is that part of China's strategy here is, in particular,
what it's doing to its rare earth deposits and who's
got access to it. So please tell us what China
has announced and and how this is really going to
impact the United States in particular.
S2 (07:40):
For some time. The Chinese government has had some controls
over some of the rare earths that it exports. Last week,
it canceled all exports, suspended exports entirely. What are rare
earths and why do they matter? Um. There are 17
rare earth elements. Minerals. They've been called the technology minerals.
(08:02):
And the reason for that is that they're essential in
almost every high tech product you can think of. A
typical mobile phone has eight different rare earth elements in it.
Tiny quantities, but essential to its functionality. Missile guidance systems
rely on them. You can't have computer microchips. Semiconductors without
(08:26):
rare earths. You can't have an MRI scanning machine. Many
cancer treatments rely on rare earths. Night vision goggles. Just
hundreds and hundreds and hundreds of applications. LEDs. Lights, computer screens.
The entire suite of electronic products. Nuclear propulsion systems, for example.
(08:48):
Submarines need rare earths, so they're extraordinarily valuable. The name
is a bit of a misnomer because they're not very rare.
They're all around the world. They're in the earth everywhere,
but they're scattered very thinly, very sparsely. And what's rare
about them is finding concentrated deposits in economically viable quantities.
S1 (09:11):
And so tell us. I mean, how much does China
reign supreme when it comes to rare earths?
S2 (09:15):
Well, there are two measures. One of them is how
much of the essential raw resource is lying under the ground,
and the other is, where is it processed? Where do
you get the finished product from? The companies obviously need
to make things with. And China is leading the world
on both. They've got about more than a third of
(09:38):
all the raw, rare earth elements underground. After that, the
next biggest is Brazil with about a fifth. And then
there's Vietnam. India. Yea, they're all pretty well endowed. And
then you get to Australia. Australia is also pretty well
endowed with 5%. That's that's proven known economic reserves and
(10:00):
the Australian reserves have the advantage of being high quality,
highly concentrated so-called primary resources. But then the process level is,
is a very different story, because the Chinese very craftily
have spent more than 20 years trying to develop a
monopoly over the processing of the finished rare earths. And
(10:22):
this comes from a famous strategic dictum that China's former leader,
Deng Xiaoping, uttered in the 19. Well, he said it
in the 80s as well as the 90s, he said.
Saudi Arabia has oil. China has rare earths. Right. In
other words, this is our great geopolitical trump card. And
(10:44):
XI Jinping today is playing that card. So China today
does 90% of all the processing of rare earth minerals.
So that's pretty close to a chokehold on global supply.
S1 (10:56):
Okay. So this really gets us to the crux of
of what's happening and what you've pointed out in our
latest column, which is that Trump thought, well, I'm just
doing a genius move here. I'm going to isolate China.
Everyone else, including you in your latest column was pointed out, actually,
it's going to have the opposite impact. It's going to
isolate the United States. And you have said, well, you
put it very colorfully. You said that China, as a result,
(11:18):
in particular, when it comes to, you know, cutting America
off from these rare earths, it's got a boot on
the throat of us manufacturing medicine and military capabilities. So
I guess how crippling could this be for the United States?
Like how isolated?
S2 (11:33):
Extremely so when it comes to the US, does have
some endowment of its own rare earths, but only about 1%
of known global reserves of an economic scale. They do
a little more than that at the processing end of
the market. But it's still, I think it's only ten
under 10%. And that's not enough to supply their needs,
(11:54):
which is why they've been importing so much from China.
So to suddenly be cut off now from that supply,
Donald Trump will realize if he hasn't already, he will
realize quite soon that this is a very urgent priority
for the US to fix, because, for example, there are
about 4000 US weapons systems that contain rare earths. Kim
Beazley has said that the that Western Australia, which is
(12:17):
where most of the Australian deposits of rare earths are concentrated,
is ground zero in a global war for critical earth.
So this puts the Australian resources suddenly in the spotlight,
as well as a potential source that the US can
turn to. But it means that the US needs to
import some rare earths to make MRI scanning equipment or
(12:41):
missile guidance systems, and they can't get them. It will
be crippling Unless Trump eases some of those restrictions.
S1 (12:48):
And Peter, what about the impact on Australia, though, of
of China cutting off the exports of its processed rare
earths to the world? Is this. Is this going to
cripple us somehow?
S2 (12:57):
Not directly. The effects on Australia shouldn't be large, because
what will happen is that we continue to import mostly
from China. Are goods that contain rare earths, all the
laptops and mobile phones. We will continue to import those.
And in fact, the price might get cheaper because of
the Trump tariffs, although he's temporarily exempted most of them.
And the Albanese government has said that it will do
(13:20):
a couple of things. One, pay a production tax credit
on rare earth processing. I think that starts in two
years time. 27 they've also said that the Albanese government
will create a strategic reserve of rare earths in Australia,
and Albanese has said that he'll have more to say
(13:41):
about that. He's only really mentioned it as a headline.
We have no detail, but he said he'll talk about
that during the course of this election campaign. So we're
still waiting to hear that. And the government did sign
an agreement with the Biden administration to cooperate in jointly
developing rare earths minerals in Australia, even as the treasurer
has issued repeated divestment notices to Chinese investors who've been
(14:06):
trying to establish mines in Australia. And they've been trying
to do it through covertly, through fake names and fake corporations.
And Jim Chalmers has been forced several times now to
issue divestment notices against those companies. So there's a real
there's a vigilance to prevent any more of the industry
falling into Chinese hands.
S1 (14:26):
We'll be right back. Okay. And you mentioned just a
bit earlier that XI Jinping is just this week. He's
making this so-called charm offensive in, in Asian countries to,
like you say, present China as the reliable Well, uh, sane,
I guess. Alternative in trade compared to the United States.
(14:48):
But I wanted to ask, I guess, how Trump is
responding to that, because you pointed out in your column
that Trump is accusing Vietnamese top leader who's just signed,
I believe, dozens of agreements, including deals on supply chain
and artificial intelligence and railway cooperation with XI Jinping. Trump
has said in response that, you know, this is them.
This is the pair trying to figure out how do
(15:09):
we screw the United States of America? So is he
just flailing in the wind? Is that is that what
we've seen from Trump in response?
S2 (15:15):
Absolutely. He is he really surprised that he can do
this to countries, not just the economic harm, but the
sheer insult of what he's done, while all the time
railing against every country that he can think of. Does
he really think that they're just going to fall silently
quiescently quietly and let him monster them? Of course they're not.
(15:39):
China is the alternative, uh, Basis. The Alternative power center
for global economic. Political power. And of course, countries will
turn to it as an. Alternative. Countries owe that to
their own citizens. Donald Trump only aggravates the problem he's
(16:01):
created with that sort of insult. Similarly, he'd said about
the European Union just some weeks ago, he said the
EU was created to screw the United States of America.
I mean, then he expects any sort of consideration. Are
there is there is no the entire system, the so-called
(16:25):
Washington consensus of market based economics and everything that went
with it is gone. And the alliance structure of the
US is crumbling.
S1 (16:37):
So is it fair to say that his response, even
just in the last few days, to to what he's
done and then what the response has been to the
tariffs that he's just with every move, he's isolating the
United States further from all its allies.
S2 (16:49):
Yes. So politically, geopolitically, a lot of countries still look
to the US and will continue to to extract whatever
benefit they can from America, obviously. But increasingly countries will
be inclined to hedge between the US and China. No
one can any longer look to the US as its
sole source of sustenance. So that's that's one consequence. The
(17:12):
other is the economics. So in terms of industrial input
stuff that you need to make products, the ratio is
3 to 1. The US depends on China for three
times as many industrial inputs as China.
S1 (17:25):
Right.
S2 (17:26):
Does the other way around. That's just one simple illustration
of just how wrong Trump has it, as there's a
well regarded economist in Beijing, Arthur Kroeber, who works for
he's created a company many years ago called Gavekal economics.
And he says China can get along just fine without
(17:47):
US products. Just fine.
S1 (17:50):
Okay, but what about implications? I guess on our defense,
because I'm wondering with with XI Jinping's charm offensive, you know,
in countries in our region does all of this, I guess,
undermine decades of efforts of Australian and American governments to
maintain a very delicate strategic balance and peace in the region?
Because on top of this, on top of, you know,
(18:10):
China's encroachments, I guess, to Vietnam and Cambodia and Malaysia,
we heard reports just on Tuesday that Russia has asked
Jakarta for access to an Indonesian military base in the
province of Papua. So that's a lot of our enemies,
I guess, either gaining access to our region or trying to.
So how bad of a spot are we in here?
S2 (18:29):
Peter, it's a bit surreal because we are in a
very difficult spot, and yet the election campaign is being
conducted as if we're in normal times and we're not.
Rory Medcalf is the head of the National Security College
at Anu, and he said a few years ago now
(18:51):
that Australia has to expect bad news on the front
page about China's approaches to us. China's undermining of our
position every day for the next ten years. And then
we have Russia as well, which is showing renewed interest
in South East Asia, as you say. We now know
(19:12):
that Russia did approach Indonesia to ask if they could
base some long range military aircraft on one of their islands,
which would have put it 1400 kilometres from Darwin.
S6 (19:24):
We obviously do not want to see Russian influence in
our region.
S2 (19:30):
And we know that not last November, the Russians conducted
joint military manoeuvres with Indonesia. Now, Indonesia is not the
problem in itself, but it has a long standing position
of non-alignment, which means it won't commit in any formal
terms to an alliance with Australia. Relations are good, but
the president, Prabowo, is famously mercurial, is obviously cultivating ties
(19:55):
with Russia to expand Indonesia's options and its hedging so
that it can hedge between the US, China and Russia.
So he's prepared to have a better relationship with Russia.
Other countries won't be able to resist Russian pressure and inducements,
just as we've seen China enlarge its footprint in the
(20:16):
Pacific as it seeks a military base closer to Australia. Likewise,
we can now expect to see more of Russia advancing
into our region, and we are simply not prepared. The.
At the very beginning of this election campaign, the dominant
story was the Chinese Navy task group that circumnavigated Australia
(20:38):
and conducted live fire tests just off the coast of Sydney. Uh,
that's you know, you'd be naive to think that that
wasn't making a statement. So this is the situation we face,
and yet the seriousness of it and the responses to
it are not debated in the election campaign. We we
continue to live in a kind of a la la
(20:58):
land where we assume that things haven't changed and it's
still a 1980s or something. So I suppose the net
takeaway here, Samantha, is we're in a world of extreme unpredictability,
great change and ambition, a time of ambition from predatory nations.
(21:20):
I'm talking here about Russia and China, and now the
US also is a predator. Look what its ambitions are
with Greenland and Canada, for example. And in a time
of predators, we look like pretty nice prey. Mhm. And
we've got to do something to make sure that we
can't easily be preyed upon.
S1 (21:40):
Well thank you so much, Peter, as always for your time.
S2 (21:42):
It's a pleasure, Samantha.
S1 (21:50):
Today's episode of The Morning Edition was produced by myself
and Julia Carcasole, with technical assistance by Josh towers. Our
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(22:12):
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day's most important news in your inbox every morning. Links
are in the show. Notes. I'm Samantha Selinger. Morris. Thanks
for listening.
From the newsrooms of the Sydney Morning Herald and The Age.
This is the morning edition. I'm Samantha Selinger Morris. It's Thursday,
April 17th. So many of us have been yanking at
our hair or just standing around slack jawed as we've
watched share markets collapse and the chance of a recession
(00:22):
barreled towards us all as a result of Donald Trump's tariffs.
But to focus on the economic chaos is to miss
the larger domino effect that's been taking place in the
background as countries begin scrambling for a safe harbor. Today,
international and political editor Peter Hartcher on the surreal moment
(00:42):
Australia now finds itself in, and how so-called rare earths
are at the centre of it all. Okay, so Peter,
we know that everyone is saying these tariffs are dumb.
You've pointed this out. Uh, analysts across the globe are
having fun pointing this out. But I have to ask
you a week on since Trump has imposed really these
(01:03):
insanely high tariffs on China, what's actually happened? Like what's
been the impact?
S2 (01:08):
Well, I'd just correct you on one point. The people
around Trump in his administration have not said that these
are dumb, these tariffs. They've said that it's part of
the greatest economic strategy ever by any US president.
S1 (01:22):
This is right. We just missed the art of the deal.
S2 (01:24):
That's right. Now that was that was Stephen Miller, who's
deputy chief of staff to Trump for policy. And his
treasury secretary said that isolating China was always the strategy.
And he said that with a knowing smile, just to
let everybody know how dumb they are. But I'm afraid
they haven't convinced anybody. So I suppose the first observation
(01:46):
to make is that all around the world, global growth
has now been downgraded. Many experts now expect a recession
in the US and a loss of income In many
other countries, China will be a particular victim because the
tariffs on China are so large. And China has built
(02:08):
a system built on exports, so they will also suffer.
S3 (02:12):
China has called on the United States to cancel all
tariffs after Washington announced exemptions for some consumer electronics.
S4 (02:19):
The ball is in China's court. China needs to make
a deal with us. We don't have to make a
deal with them.
S2 (02:26):
But the whole globe has suffered.
S5 (02:28):
The European Union, that bloc of 27 nations, has essentially
said if it does not strike a trade deal with
the United States, then they can expect to see tariffs
on things like toilet paper.
S2 (02:38):
One indicator is that since the beginning of the year,
US share prices are down 8% now. So that's an
indicator that an 8% expectation of lower incomes. But it's
affecting the whole world. And if you've checked your if
you have a superannuation account and you've looked at the balance,
it's it's lower than it was two weeks ago. And
(02:58):
that's all because of what Donald Trump is doing. But
the big, you know, geopolitical consequence of what's just happened
is that Trump has shown the world that the US
has departed from any semblance of rationality, and US allies
have concluded that the US has departed from any semblance
(03:21):
of goodwill, friendliness, trust. The whole planet can see. Except
for those people who think Trump is just an unmitigated genius.
That the US has now been downgraded in the eyes
of the world. And some of the evidence for that
is the fact that the US dollar and US bonds,
(03:44):
which are normally rally in times of uncertainty and shock
and surprise, have gone the other way and continue. We
continue to see signs of weakness. In other words, global
investors have said the US is no longer a reliable
safe haven and the world's going to look to other
(04:04):
countries and other currencies. They're going to look to the
EU and the euro. They're going to look to the
Japanese yen. They're going to look elsewhere. Donald Trump represents
a level of sheer chaos, but also hostility. The sheer
hostility with which he's done this. That just tells everybody
(04:25):
that the America that we thought we knew no longer exists.
S1 (04:30):
Okay, so the Trump camp says we've just missed the
art of the deal. This is incredible. We're going to
isolate China. You're obviously painting a very different picture, as
is every economic analyst that pretty much bar none that
I've heard from. So I guess tell us some brass tacks, though.
How has China responded? Because China has not been cowed
by this by any stretch. It's quite the opposite. Tell
(04:51):
us what China's done.
S2 (04:52):
Yeah. So the Chinese government has responded. So while Trump
has put cumulative total tariffs on imports from China of
about 145%, China's response has been to enter the retaliatory game.
They're imposing tariffs on imports from the US of 125%,
not quite as drastic as America's, but really the combined
(05:16):
effect of this will be to kill most trade between
China and the US. That will be the net effect.
But China has gone further in a couple of ways. One,
they've got much more specific about punishing particular US companies
and a particularly vital resource that the US needs that
(05:36):
every modern manufacturing country needs. And that's rare earths where
China has a near-monopoly in the supply, global supply of
processed rare earths. And on the geopolitical level, we see
the president of China, XI Jinping, arrived in the last
day or so in Vietnam. He's also going to Malaysia
(05:58):
and Cambodia. And this is very deliberately to draw a
contrast between the madness and instability going on in the
US and the stability and friendliness that's going to be
emanating from Beijing. That's right. Now, you know, you're going
to have a hard time persuading countries like Vietnam, which
has been engaged in a in a fairly quiet but
(06:19):
pretty frantic contest over its maritime territories with China. But
nobody is going to turn down the opportunity to I mean,
this is just a great example because it's so current,
because XI Jinping is there. But if you're Vietnam, Trump
has just put a 43% tariff. Now he's rolled that
back to ten pending a 90 day review. But the
(06:42):
initial hostility and the shock of putting a 43% tariff
on a country that the US had been cultivating to
bring into its camp against China, that is just a
dreadful thing to do because it makes unviable Vietnam's entire
economic model, which was based on competitive exports. Trump just
(07:03):
destroyed that, or is now partly retracted it, but obviously
can't be trusted. So of course, China looks more attractive
this week than it did last. So XI Jinping is
taking full advantage and driving that home, and you can
expect that our Chinese friends will be doing that with
every country they possibly can from now on.
S1 (07:21):
Absolutely. And I want to turn to something you've just mentioned,
which is that part of China's strategy here is, in particular,
what it's doing to its rare earth deposits and who's
got access to it. So please tell us what China
has announced and and how this is really going to
impact the United States in particular.
S2 (07:40):
For some time. The Chinese government has had some controls
over some of the rare earths that it exports. Last week,
it canceled all exports, suspended exports entirely. What are rare
earths and why do they matter? Um. There are 17
rare earth elements. Minerals. They've been called the technology minerals.
(08:02):
And the reason for that is that they're essential in
almost every high tech product you can think of. A
typical mobile phone has eight different rare earth elements in it.
Tiny quantities, but essential to its functionality. Missile guidance systems
rely on them. You can't have computer microchips. Semiconductors without
(08:26):
rare earths. You can't have an MRI scanning machine. Many
cancer treatments rely on rare earths. Night vision goggles. Just
hundreds and hundreds and hundreds of applications. LEDs. Lights, computer screens.
The entire suite of electronic products. Nuclear propulsion systems, for example.
(08:48):
Submarines need rare earths, so they're extraordinarily valuable. The name
is a bit of a misnomer because they're not very rare.
They're all around the world. They're in the earth everywhere,
but they're scattered very thinly, very sparsely. And what's rare
about them is finding concentrated deposits in economically viable quantities.
S1 (09:11):
And so tell us. I mean, how much does China
reign supreme when it comes to rare earths?
S2 (09:15):
Well, there are two measures. One of them is how
much of the essential raw resource is lying under the ground,
and the other is, where is it processed? Where do
you get the finished product from? The companies obviously need
to make things with. And China is leading the world
on both. They've got about more than a third of
(09:38):
all the raw, rare earth elements underground. After that, the
next biggest is Brazil with about a fifth. And then
there's Vietnam. India. Yea, they're all pretty well endowed. And
then you get to Australia. Australia is also pretty well
endowed with 5%. That's that's proven known economic reserves and
(10:00):
the Australian reserves have the advantage of being high quality,
highly concentrated so-called primary resources. But then the process level is,
is a very different story, because the Chinese very craftily
have spent more than 20 years trying to develop a
monopoly over the processing of the finished rare earths. And
(10:22):
this comes from a famous strategic dictum that China's former leader,
Deng Xiaoping, uttered in the 19. Well, he said it
in the 80s as well as the 90s, he said.
Saudi Arabia has oil. China has rare earths. Right. In
other words, this is our great geopolitical trump card. And
(10:44):
XI Jinping today is playing that card. So China today
does 90% of all the processing of rare earth minerals.
So that's pretty close to a chokehold on global supply.
S1 (10:56):
Okay. So this really gets us to the crux of
of what's happening and what you've pointed out in our
latest column, which is that Trump thought, well, I'm just
doing a genius move here. I'm going to isolate China.
Everyone else, including you in your latest column was pointed out, actually,
it's going to have the opposite impact. It's going to
isolate the United States. And you have said, well, you
put it very colorfully. You said that China, as a result,
(11:18):
in particular, when it comes to, you know, cutting America
off from these rare earths, it's got a boot on
the throat of us manufacturing medicine and military capabilities. So
I guess how crippling could this be for the United States?
Like how isolated?
S2 (11:33):
Extremely so when it comes to the US, does have
some endowment of its own rare earths, but only about 1%
of known global reserves of an economic scale. They do
a little more than that at the processing end of
the market. But it's still, I think it's only ten
under 10%. And that's not enough to supply their needs,
(11:54):
which is why they've been importing so much from China.
So to suddenly be cut off now from that supply,
Donald Trump will realize if he hasn't already, he will
realize quite soon that this is a very urgent priority
for the US to fix, because, for example, there are
about 4000 US weapons systems that contain rare earths. Kim
Beazley has said that the that Western Australia, which is
(12:17):
where most of the Australian deposits of rare earths are concentrated,
is ground zero in a global war for critical earth.
So this puts the Australian resources suddenly in the spotlight,
as well as a potential source that the US can
turn to. But it means that the US needs to
import some rare earths to make MRI scanning equipment or
(12:41):
missile guidance systems, and they can't get them. It will
be crippling Unless Trump eases some of those restrictions.
S1 (12:48):
And Peter, what about the impact on Australia, though, of
of China cutting off the exports of its processed rare
earths to the world? Is this. Is this going to
cripple us somehow?
S2 (12:57):
Not directly. The effects on Australia shouldn't be large, because
what will happen is that we continue to import mostly
from China. Are goods that contain rare earths, all the
laptops and mobile phones. We will continue to import those.
And in fact, the price might get cheaper because of
the Trump tariffs, although he's temporarily exempted most of them.
And the Albanese government has said that it will do
(13:20):
a couple of things. One, pay a production tax credit
on rare earth processing. I think that starts in two
years time. 27 they've also said that the Albanese government
will create a strategic reserve of rare earths in Australia,
and Albanese has said that he'll have more to say
(13:41):
about that. He's only really mentioned it as a headline.
We have no detail, but he said he'll talk about
that during the course of this election campaign. So we're
still waiting to hear that. And the government did sign
an agreement with the Biden administration to cooperate in jointly
developing rare earths minerals in Australia, even as the treasurer
has issued repeated divestment notices to Chinese investors who've been
(14:06):
trying to establish mines in Australia. And they've been trying
to do it through covertly, through fake names and fake corporations.
And Jim Chalmers has been forced several times now to
issue divestment notices against those companies. So there's a real
there's a vigilance to prevent any more of the industry
falling into Chinese hands.
S1 (14:26):
We'll be right back. Okay. And you mentioned just a
bit earlier that XI Jinping is just this week. He's
making this so-called charm offensive in, in Asian countries to,
like you say, present China as the reliable Well, uh, sane,
I guess. Alternative in trade compared to the United States.
(14:48):
But I wanted to ask, I guess, how Trump is
responding to that, because you pointed out in your column
that Trump is accusing Vietnamese top leader who's just signed,
I believe, dozens of agreements, including deals on supply chain
and artificial intelligence and railway cooperation with XI Jinping. Trump
has said in response that, you know, this is them.
This is the pair trying to figure out how do
(15:09):
we screw the United States of America? So is he
just flailing in the wind? Is that is that what
we've seen from Trump in response?
S2 (15:15):
Absolutely. He is he really surprised that he can do
this to countries, not just the economic harm, but the
sheer insult of what he's done, while all the time
railing against every country that he can think of. Does
he really think that they're just going to fall silently
quiescently quietly and let him monster them? Of course they're not.
(15:39):
China is the alternative, uh, Basis. The Alternative power center
for global economic. Political power. And of course, countries will
turn to it as an. Alternative. Countries owe that to
their own citizens. Donald Trump only aggravates the problem he's
(16:01):
created with that sort of insult. Similarly, he'd said about
the European Union just some weeks ago, he said the
EU was created to screw the United States of America.
I mean, then he expects any sort of consideration. Are
there is there is no the entire system, the so-called
(16:25):
Washington consensus of market based economics and everything that went
with it is gone. And the alliance structure of the
US is crumbling.
S1 (16:37):
So is it fair to say that his response, even
just in the last few days, to to what he's
done and then what the response has been to the
tariffs that he's just with every move, he's isolating the
United States further from all its allies.
S2 (16:49):
Yes. So politically, geopolitically, a lot of countries still look
to the US and will continue to to extract whatever
benefit they can from America, obviously. But increasingly countries will
be inclined to hedge between the US and China. No
one can any longer look to the US as its
sole source of sustenance. So that's that's one consequence. The
(17:12):
other is the economics. So in terms of industrial input
stuff that you need to make products, the ratio is
3 to 1. The US depends on China for three
times as many industrial inputs as China.
S1 (17:25):
Right.
S2 (17:26):
Does the other way around. That's just one simple illustration
of just how wrong Trump has it, as there's a
well regarded economist in Beijing, Arthur Kroeber, who works for
he's created a company many years ago called Gavekal economics.
And he says China can get along just fine without
(17:47):
US products. Just fine.
S1 (17:50):
Okay, but what about implications? I guess on our defense,
because I'm wondering with with XI Jinping's charm offensive, you know,
in countries in our region does all of this, I guess,
undermine decades of efforts of Australian and American governments to
maintain a very delicate strategic balance and peace in the region?
Because on top of this, on top of, you know,
(18:10):
China's encroachments, I guess, to Vietnam and Cambodia and Malaysia,
we heard reports just on Tuesday that Russia has asked
Jakarta for access to an Indonesian military base in the
province of Papua. So that's a lot of our enemies,
I guess, either gaining access to our region or trying to.
So how bad of a spot are we in here?
S2 (18:29):
Peter, it's a bit surreal because we are in a
very difficult spot, and yet the election campaign is being
conducted as if we're in normal times and we're not.
Rory Medcalf is the head of the National Security College
at Anu, and he said a few years ago now
(18:51):
that Australia has to expect bad news on the front
page about China's approaches to us. China's undermining of our
position every day for the next ten years. And then
we have Russia as well, which is showing renewed interest
in South East Asia, as you say. We now know
(19:12):
that Russia did approach Indonesia to ask if they could
base some long range military aircraft on one of their islands,
which would have put it 1400 kilometres from Darwin.
S6 (19:24):
We obviously do not want to see Russian influence in
our region.
S2 (19:30):
And we know that not last November, the Russians conducted
joint military manoeuvres with Indonesia. Now, Indonesia is not the
problem in itself, but it has a long standing position
of non-alignment, which means it won't commit in any formal
terms to an alliance with Australia. Relations are good, but
the president, Prabowo, is famously mercurial, is obviously cultivating ties
(19:55):
with Russia to expand Indonesia's options and its hedging so
that it can hedge between the US, China and Russia.
So he's prepared to have a better relationship with Russia.
Other countries won't be able to resist Russian pressure and inducements,
just as we've seen China enlarge its footprint in the
(20:16):
Pacific as it seeks a military base closer to Australia. Likewise,
we can now expect to see more of Russia advancing
into our region, and we are simply not prepared. The.
At the very beginning of this election campaign, the dominant
story was the Chinese Navy task group that circumnavigated Australia
(20:38):
and conducted live fire tests just off the coast of Sydney. Uh,
that's you know, you'd be naive to think that that
wasn't making a statement. So this is the situation we face,
and yet the seriousness of it and the responses to
it are not debated in the election campaign. We we
continue to live in a kind of a la la
(20:58):
land where we assume that things haven't changed and it's
still a 1980s or something. So I suppose the net
takeaway here, Samantha, is we're in a world of extreme unpredictability,
great change and ambition, a time of ambition from predatory nations.
(21:20):
I'm talking here about Russia and China, and now the
US also is a predator. Look what its ambitions are
with Greenland and Canada, for example. And in a time
of predators, we look like pretty nice prey. Mhm. And
we've got to do something to make sure that we
can't easily be preyed upon.
S1 (21:40):
Well thank you so much, Peter, as always for your time.
S2 (21:42):
It's a pleasure, Samantha.
S1 (21:50):
Today's episode of The Morning Edition was produced by myself
and Julia Carcasole, with technical assistance by Josh towers. Our
executive producer is Tammy Mills. Tom McKendrick is our head
of audio. To listen to our episodes as soon as
they drop, follow the Morning Edition on Apple, Spotify, or
wherever you listen to podcasts. Our newsrooms are powered by subscriptions,
(22:12):
so to support independent journalism, visit The Age or smh.com.au.
Subscribe and to stay up to date, sign up to
our Morning Edition newsletter to receive a summary of the
day's most important news in your inbox every morning. Links
are in the show. Notes. I'm Samantha Selinger. Morris. Thanks
for listening.
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