China’s recent export restrictions on key critical minerals — an apparent response to renewed US tariffs under President Trump — are reminding the world of Beijing’s dominant grip on vital inputs for electric vehicles, semiconductors and defence applications.
In this context, Prime Minister Anthony Albanese’s election pledge to establish a $1.2 billion national critical minerals reserve appears timely.
Originally framed during the campaign as a tool for generating leverage in potential negotiations with the United States — echoing the logic of America’s own Defense National Stockpile — the initiative has been welcomed as a sign that Australia is taking strategic control over its economic future.
Resources Minister Madeleine King’s speech earlier this month provided the first insight into the reserve’s intended logic. The minister framed it as allowing Australia “to deal with trade and market disruptions from a position of strength”, involving “small and temporary” stockpiles with offtake agreements based on a strategic rather than purely commercial rationale.
Crucially, the reserve is expected to “generate cashflow from sales to key partners and deliver a return to government”. A government taskforce will now consult with industry on the reserve’s design, ahead of a proposed mid-2026 launch.
These aspirations reveal a fundamental tension in promising both strategic value and commercial returns, especially in designing a reserve for materials Australia will not itself consume.
Australia is a supplier, not a consumer — so who benefits?
Unlike the US, Japan, or South Korea, Australia does not manufacture advanced products that depend on critical minerals. Our comparative advantage lies in extracting and exporting raw and semi-processed inputs. This creates an uncomfortable question: if Australia is stockpiling materials it doesn’t consume, who does this reserve protect?
There are essentially two possibilities. First, the reserve could function as insurance for manufacturing partners — Australia stockpiles today in exchange for some future strategic payoff. Second, it could serve as an indirect subsidy for domestic producers unable to secure sufficient commercial offtake agreements. Both scenarios raise questions about value for Australian taxpayers.
Japan and South Korea already operate sophisticated stockpile systems and have deep experience navigating opaque, thinly traded critical minerals markets. Their firms work closely with state agencies and have built global reputations for reliability and long-term coordination. If Australia is serious about strategic coordination, cooperating with Tokyo and Seoul is essential — starting with data-sharing on stockpile volumes, demand forecasts, and production scaling capacity.
The US presents a more complex case. America’s Defense National Stockpile, established just prior to World War II, has struggled with similar challenges around commercial viability and strategic purpose. Australia’s reserve could potentially complement US stockpiling efforts, but this would require negotiating explicit coordination mechanisms.
The stockpiling paradox
If the reserve is genuinely strategic, proximity to manufacturing centres matters more than proximity to mining sites. Australia should seriously consider storing portions of its reserve in allied manufacturing hubs — Japan, South Korea, or even the US. This would reduce lead times and embed Australian minerals deeper into partner supply chains.
Moreover, critical minerals cannot be easily stockpiled because they exist as intermediate products that degrade over time or require expensive storage facilities. Refined metals are generally more storable, but without local processing capabilities, Australia lacks access to the parts of the supply chain where stockpiling is most needed to respond to supply disruptions.
These concerns speak to the policy’s central contradiction: why should Australian taxpayers fund what effectively becomes another country’s strategic reserve? The answer presumably lies in the broader strategic relationship — Australia gains influence and insurance in exchange for assuming stockpiling costs. Still, the government should explain these specific strategic benefits to justify this expenditure.
Beyond the subsidy trap
The risk of regulatory capture looms large. Companies whose projects could benefit from further offtake agreements — Arafura and Iluka in rare earths come to mind — stand to gain most from government purchasing commitments. As both have already received substantial public support, a troubling possibility emerges — that the reserve becomes a backdoor subsidy for firms that cannot otherwise secure commercial customers.
The perverse result would be companies repaying taxpayer-funded loans with taxpayer-funded purchases.
These concerns are amplified by the government’s insistence that the reserve will generate positive cash flow. If the Commonwealth can systematically buy low and sell high in critical minerals markets, why aren’t private investors already doing this? The more likely scenario is that the government will purchase above market rates to support domestic producers, then struggle to recover costs.
The failed wool price reserve scheme offers a cautionary precedent. When governments enter commodity markets with mixed commercial and strategic objectives, they often achieve neither. Ms King dismissed the distortion concern, arguing that critical mineral markets are already distorted. Even if true this begs the question: if markets are distorted, how can the government be confident in its ability to predict their direction?
Getting the governance right
If the government proceeds, institutional design becomes critical. The reserve needs governance mechanisms that can resist capture while maintaining strategic flexibility. This requires at least clear mandate definition and transparent purchasing criteria, and possibly independent oversight. International coordination agreements should specify burden-sharing arrangements, release triggers, and dispute resolution mechanisms.
Most importantly, the government needs be clear about costs. A genuinely strategic reserve will likely generate negative cash flows — that’s the price of insurance! Attempting to reconcile commercial returns with strategic purpose risks achieving neither effectively.
Strategic value in economic security policymaking
A critical minerals reserve isn’t inherently misguided, but early signals conflate multiple objectives without resolving their tensions. Australia must clarify what strategic outcomes justify the expenditure.
If the goal is supporting domestic producers, direct production subsidies or loan guarantees would be more transparent and efficient. If the goal is strategic coordination with allies, joint planning mechanisms and shared facilities deserve priority over unilateral stockpiling. If the goal is leverage in US negotiations, the quid pro quo needs explicit articulation.
Well designed, a reserve could reinforce Australia’s reputation as a reliable supplier while strengthening economic security partnerships. Poorly conceived, it risks becoming an expensive subsidy mechanism that undermines market signals while failing to deliver genuine strategic value.
The Albanese government is embarking on an ambitious economic security agenda that extends well beyond critical minerals to encompass sovereign manufacturing and supply chain resilience. Effective policy requires integrating hard-headed economic analysis with a focus on concrete strategic outcomes, cooperation with partners, and enhancing institutional capability. A $1.2 billion reserve that tries to be simultaneously strategic and profitable risks becoming neither.
Eli Hayes is a researcher at the Australian National University and the University of Sydney. Darren Lim is a senior lecturer at ANU’s School of Politics and International Relations
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