The world may be underestimating the difficulty of loosening China's stranglehold on critical minerals. Mining stocks in Australia surged this week following a landmark deal between Prime Minister Anthony Albanese and US President Donald Trump, who declared that in about a year "we'll have so much critical mineral and rare earths that you won't know what to do with them." While these initiatives look promising, Beijing's intensifying clampdown on technology and talent risks stalling momentum.

The bilateral pact, through which both countries have pledged roughly $4 billion in taxpayer money for mining and processing, is the latest government-led effort to break the world's reliance on China. The world's second-largest economy produces over 90 percent of global refined rare earths and rare earth magnets, which are vital to electric vehicles, electronics, precision-guided missiles and more. It's a small market, with 2024 production totalling just $6.5 billion, analysts at Goldman Sachs estimate. But given its importance across so many industries, the bank calculates that just a 10 percent disruption in those sectors could result in $150 billion of lost output.

An often-used refrain is that rare earths are not rare, but that is only partially true. Of the 17 types, less than half are classified as "light". They're generally more abundant, and easier to mine and refine. Typical uses include making certain magnets, polishing agents for glass and some batteries. By contrast, the other category of more valuable medium and heavy rare earths are almost exclusively found in China and Myanmar. They're more complex to process and are vital to high-performance magnets and military-grade weapons and systems.

Even before Washington's latest deal with Canberra, Australia had emerged as a promising contender in producing some heavier metals, specifically dysprosium and terbium. Earlier this year, $12 billion Lynas Rare Earths became the first commercial producer of those separated rare earths outside China. There are also promising deposits in Madagascar, Greenland, Vietnam and elsewhere, but developing those new mines will require up to 10 years, per Goldman Sachs analysts.

And once the sites are up and running, China's biggest chokehold is in midstream processing, where the mined ore is separated into individual rare earth elements and then refined into high-purity oxides or metals. Building and ramping up refineries takes around five years, Goldman Sachs reckons. Today, firms from the People's Republic, led by state-backed behemoth China Rare Earth Group, effectively control 98 percent of the world's heavy rare earth processing capacity.

The urgency to break free from China's hold will only rise. Earlier this month, Beijing unveiled sweeping export controls that will grant Chinese authorities extra-territorial control over certain critical minerals including 12 types of rare earths, most of them heavy, as well as related production technology and equipment covering processing, recycling, magnet manufacturing and more.

The new rules, which partly go into effect in December, will give authorities greater oversight on where shipments end up, even if a foreign-made product only contains trace amounts of Chinese-origin materials, or was made using Chinese technology and tools.

As a result, Beijing has powerful leverage ahead of trade talks with Washington. It also makes it harder for businesses to find workarounds by stockpiling and re-routing supplies. The Pentagon plans to spend $1 billion to replenish national critical minerals inventories, the Financial Times reported in October. And one study found that following China's 2024 ban of germanium and gallium to the United States, both critical materials continued to make their way to American firms, probably thanks to re-export hubs like Belgium.

With avenues to offset the impact of tougher Chinese curbs narrowing, expect more public-private and cross-border initiatives. The US Department of Defense has already partnered with companies including American MP Materials and Lynas to tackle the financial hurdles in developing processing capacity. Key to many of these projects are off-take agreements, or long-term guarantees that set a floor price to incentivise facilities to keep running amid volatile markets.

Some of those efforts have hit snags: Lynas in August warned of "significant uncertainty" of its $258 million contract with the government agency to build a heavy rare earth processing facility in Texas. Moreover, future governments might not be willing to subsidise production to the same extent as today's leaders.

Overcoming the technological barriers requires more than just money. China's dominance flows partly from the country's steady accumulation of specialised skills and tacit industrial know-how in producing complex things at scale. This was the result of decades of strategic planning and investment, and it'll probably take just as long for another country to match China's capabilities. Western companies will also have to address the significant environmental concerns from mining and processing rare earths.

Globally, there is a worrying skills shortage in mining. Across OECD countries, over 72 percent of the sector's workforce is over 35 years old. In the United States, more than half of mining workers - roughly 221,000 - will retire or need to be replaced by 2029, according to a 2023 report from the Center for Strategic & International Studies think tank. Attracting experts from abroad will be vital: in 2020, there were just 327 American degrees awarded in mining and mineral engineering, compared to the 1,000 undergraduates and 500 graduates at China's top mining university program alone, CSIS noted.

The skills crunch in rare earths looks even more acute: there may be just "a couple of dozen" experts in separation and refining in the US, Europe and Japan collectively, compared to thousands in China, according to one estimate. Beijing has already started to catalogue the country's experts in this field to ensure they don't travel abroad and reveal industry secrets, the Wall Street Journal reported in June, citing sources. Combined with tighter controls on talent and tech looming, the People's Republic is building a fortress of critical minerals expertise.

Ultimately, this means the world will have to cope with disruption risks from China's rare earths dominance for longer.