As we enter the second quarter of the 21st century, by 2026 Australia has positioned itself not as a neutral or independent actor in an intensifying geopolitical context of global power competition, but rather within the framework of strategic hedging. This approach is not limited to maintaining traditional alliance relationships; it encompasses a multidimensional foreign policy model that includes economic, resource-based, and diplomatic diversification. Understanding Australia’s position within this model requires consideration of both its historical background and the current turning points experienced in the 2024-2025 period.
Australia’s foreign policy tradition has been built on a Western-centric understanding of alliance and, in particular, security and defense relations with the United States for many years. Regional balances have been shaped within the framework of US-UK-centered alliances since the Cold War era, and the US presence in the Pacific basin has been one of the key factors determining Canberra’s defense and foreign policy preferences. However, since the 2010s, factors such as power shifts in the world system, increasing economic competition, and the rising strategic importance of resources have triggered a significant transformation in Australia’s foreign policy priorities. This shift is underpinned by dynamics such as China’s rise, the fragility of global supply chains, climate and energy transition, and a significant increase in demand for strategic raw materials.
The year 2025 stands out as a year in which transformation in foreign policy and strategic positioning began to take shape for Australia in this context. In particular, the US-Australia Critical Minerals Framework Agreement signed in October 2025 is seen as more than just an economic agreement between the two countries; it is considered a strategic initiative by the Western world to restructure the China-centric supply chain for rare earth and critical minerals.[i] Under the agreement, the US and Australia have each committed to investing at least $1 billion, with this investment planned to trigger a total of $8.5 billion in projects.[ii]
The significance of this agreement is not limited to its economic dimension; it also carries strategic implications. China currently holds a dominant position in the global production and processing of rare earth elements; a significant portion of the critical infrastructure for rare earth production, magnetic material manufacturing, and advanced technology and defense industries is China-centric.[iii] Western countries’ dependence on this Chinese monopoly has been redefined as a significant strategic risk in the context of increasing geopolitical tensions, supply chain vulnerabilities, and technological dependence in recent years. This risk has led Australia to reassess its geo-economic position. The Canberra administration aims to transform its rich mineral reserves into a hub encompassing the extraction, refining, and processing of strategic raw materials, rather than viewing them solely as a source of raw materials.[iv]
Another important aspect of the agreement is that it envisions Australia not only remaining a raw material exporter but also embracing the role of “supply, processing, and alternative production for the external supply chain.” Initiatives to produce, process, and refine rare earth oxides, particularly the planned gallium facility in Western Australia, represent concrete steps in this direction.[v] However, existing infrastructure deficiencies, environmental and social concerns, and limited technological processing capacity constitute the most fundamental obstacles to this transformation.[vi]
Therefore, Australia’s new foreign policy strategy is built on the pillars of “supply chain independence, maintaining alliance relations with the West, and multilateral diplomacy.” This approach differs from the traditional bloc alliance concept; here, bloc identity ceases to be an absolute criterion, with flexibility, resource diversification, and the transformation of geoeconomic position into a strategic advantage coming to the fore. This perspective recalls the classic form defined in the strategic hedging literature: in an environment of competition between major powers, the goal is to preserve marginal independence by avoiding unilateral dependence and developing multi-axis relationships.
The fundamental risk associated with this model is the difficulty and fragility of the conversion process. First, establishing processing and refining capacity is not an easy process; it requires significant investment and entails high costs in terms of technological infrastructure, regulation, and environmental and ecological standards. As seen, the Australian government proposes and plans to implement mechanisms such as price floors to support this process and stimulate the market.[vii]
Secondly, while this strategic shift reflects Australia’s efforts to reduce its economic dependence on China, the economic ties established with China in the past, particularly in the areas of minerals and exports, cannot be abandoned overnight. This situation creates an area of vulnerability for Canberra, both diplomatically and economically. China, in particular, is seeking to maintain its power over rare earths and other critical minerals. This could increase competition in the supply chain, leading to price pressures, export restrictions, or political intervention.[viii]
Thirdly, Australia’s adopted model of “multi-faceted balancing/foreign policy, geo-economics, and defense-trade” prioritizes pragmatism and interest-based relationships rather than relying on ideological or unilateral bloc affiliations. However, this approach may lead to debates in domestic politics and in social and environmental spheres in the long term. The environmental impacts of the mining and mineral processing sector, the rights and living spaces of indigenous peoples (especially Aboriginal communities), and integration into the local economy are issues that form the overlooked but critical dimensions of the transformation.[ix] Therefore, it is important for the Canberra administration to carry out the transformation in a careful, inclusive, and sensitive manner.
In this context, Australia’s foreign policy and economic strategy as of 2025 can be summarized as follows:
- Maintain traditional defense and security alliances (particularly with the US);
- Position critical minerals and rare earth resources as strategic assets, creating independent and Western-compatible supply chains;
- Transforming its economic structure by planning a transition from an economy based on raw material exports to one based on refining and advanced technology/processing chains;
- Pursue resource and technology cooperation with actors such as the EU, Canada, and Japan through multipolar and multidimensional diplomacy, without being tied solely to the US–China or China–West axis;
- Manage the environmental, social, and economic risks of this transformation; develop sensitive policies in domestic politics in areas such as social justice, environmental protection, and indigenous peoples’ rights.
The most significant long-term benefits this model could bring to Australia include geostrategic autonomy, the potential to become a central player in global supply chains, and securing a strong position with the West in terms of technological independence. On the other hand, the risks are also significant: mismanagement, environmental neglect, diplomatic reactions, or global price fluctuations could threaten the sustainability of this project.
As a result, Australia is moving away from traditional alliances and trade dependency by 2025, aiming to build a multifaceted, pragmatic, resource-based, and strategically balanced foreign policy and foreign economic vision. If successfully implemented, this vision could position Australia as a “bridge country, strategic supply hub, and balanced actor” within the new global power balances.
However, achieving this identity is not easy: resource wealth alone is not sufficient; responsible resource management, technological investments, regular diplomacy, environmental and social awareness, economic diversification, and long-term strategic determination are also required. Therefore, Australia’s foreign policy in the coming period should not be seen merely as geostrategic balancing; it should be viewed as a complex but potentially effective paradigm that combines “resource management, economic transformation, geopolitical autonomy, and international responsibility.”
[i] “US, Australia sign rare earth, mineral agreement as China tightens supply”, Al Jazeera, https://www.aljazeera.com/economy/2025/10/20/us-australia-sign-rare-earth-mineral-agreement-as-china-tightens-supply, (Access Date: 28.11.2025).
[ii] “Jonathan Barrett, Australia and the US have signed a critical minerals deal to take on China’s monopoly. Here’s what you need to know”, The Guardian, https://www.theguardian.com/world/2025/oct/21/australia-us-critical-minerals-rare-earths-deal-china-explainer, (Access Date: 28.11.2025).
[iii] Nicole Johnston, “US-Australia rare earth deal targets China’s stronghold”, Sky News, https://news.sky.com/story/us-australia-rare-earth-deal-targets-chinas-stronghold-13454361, (Access Date: 28.11.2025).
[iv] David Speers, “Australia sees opportunity in China-US rare earths dispute”, ABC, https://www.abc.net.au/news/2025-10-16/trump-albanese-xi-critical-minerals-us-china/105884214, (Access Date: 28.11.2025).
[v] Ibid.
[vi] Patrick Commins, “The world dropped the ball on critical minerals and China pounced. Is it too late for Australia and the US to close the gap?”, The Guardian, https://www.theguardian.com/business/2025/oct/26/rare-earths-critical-minerals-industry-australia-us-china, (Access Date: 28.11.2025).
[vii] Melanie Burton, “Australia weighs price floor for critical minerals, boosting rare earths miners”, Investing, https://www.investing.com/news/commodities-news/australia-considering-price-floor-to-support-critical-minerals-projects-minister-says-4169148, (Access Date: 28.11.2025).
[viii] “US wants to make rare earth deals with Australia but without China involved, expert says”, ABC, https://www.abc.net.au/news/2025-10-16/us-is-open-to-make-rare-earth-deals-with-australia/105895128, (Access Date: 28.11.2025).
[ix] Nic Fildes, “Mining billionaire backs Australia rare earth project in race to boost west’s supplies”, The Financial Times, https://www.ft.com/content/3a9e3c6e-a8a0-45c0-91fa-d0e2a8c89415 (Access Date: 28.11.2025).
