Australia’s economic security outlook: Expert perspectives on challenges facing Australia in 2025

Introduction

In late 2024, the United States Studies Centre’s Economic Security program convened a group of analysts, academics, and private-sector representatives to assess Australia’s response to economic security challenges. The group considered four key topics: trade and investment; industrial policy; critical minerals supply chains; and technology derisking. This report reflects a collection of perspectives expressed on the day, as there was no consolidated viewpoint. The purpose of the discussion was to share knowledge and perspectives rather than generate recommendations. This report provides a snapshot of non-government views on Australia’s economic security going into 2025.

Only 12 months ago, the term ‘economic security’ and associated polices were obscure within Australian public and private sectors. Now, engaging with economic security issues such as industrial policy, tariffs, supply chain security, and technology derisking has become mainstream for countries like Australia, the United States, and their Indo-Pacific and European partners. Only Japan stands out for its prior experience responding to and implementing economic security measures. As national security objectives further permeate economic activities, Australia will face more complex policy tradeoffs in 2025 and beyond.

The global acceleration to adopt economic security policies has been primarily driven by China but is also being shaped by the United States. China’s economic coercion, market manipulation, and overcapacity are major issues. In response to China’s weaponisation of trade, the introduction of US tariffs in 2017 and major industrial policy and technology controls in 2022 represent tectonic shifts in the global economic order. As the world’s largest economy and market, US policies have an outsized impact on other advanced industrial economies, influencing many other countries to adopt their own economic security measures. Intensifying US-China competition over the last decade solidified 2024 as a milestone year for economic security globally, as the timeline on the following page reflects.

Timeline of major economic security events in 2024

Australia’s approach to economic security in 2025

Like other advanced, trade-exposed economies, the Australian Government is navigating shifting geopolitical realities as best it can, straddling the need to remain a free and open trading nation while boosting competitiveness through industrial policy. After awakening to shifting global trends on trade and security in 2023 and signalling its policy responses in 2024, Australia is poised to implement economic security measures in 2025. These include the government’s ‘Future Made in Australia’ industrial policy and related ‘National Interest Framework’, a framework for assessing government investment on economic and national security grounds.¹ 

Australia’s Minister for Resources Madeleine King talks with China’s Premier Li Qiang during a visit to Tianqi Lithium Energy Australia, a 51-percent Chinese-owned venture on the outskirts of Perth, June 2024Source: Getty

However, there are considerable differences in approach to economic security from Australia’s two major parties, Labor and the Liberal-National coalition. This is particularly evident in relation to energy policy. Outside of government, there is uneven acceptance and action towards this issue by different sectors, among sectors, and within sectors. Both political and commercial uncertainty has flow on effects for how Australian businesses are investing, or not, in segments of the economy where private sector support its crucial for government policy to succeed. Simultaneously, the Australian economy faces four competing funding pressures: the significant cost of AUKUS and national defence, building a care economy for its ageing population, increasing access to housing, and investing in the energy transition. Following the outcome of a federal election by May 2025, the way Australia balances its national expenses and addresses economic security challenges will become clearer.

1. Reducing exposure to trade and investment risks

Avoiding US tariffs and understanding the Australian business context

With all Chinese trade restrictions from 2020 to 2024 on Australian exports now lifted, a major concern for Canberra in 2025 is US President Trump’s approach to trade. President Trump’s term will last until 2029 — almost the rest of this decade — and he is poised to entrench the United States’ economic security approach including tariffs, protectionism, and re-shoring manufacturing. Trump has made multiple comments regarding imposing tariffs on imports, including potentially a universal 10–20% tariff that would include Australia.² While his statements could reflect an opening negotiating position to exhume bilateral agreements, attempting to circumvent these tariffs is likely to consume considerable Australian political capital and bureaucratic bandwidth. One view expressed was that Australia should avoid overinvesting in negotiations with the United States at the expense of cooperation with other advanced industrial economies.

Given Australia has a significant trade deficit and free trade agreement with the United States, Canberra is in a reasonably strong position to negotiate exemptions from tariffs. But President Trump’s approach to tariffs is highly unpredictable and he is not bound by established frameworks or norms. One view expressed was that Trump’s unpredictability risks Australia falling into a period of “strategic dithering,” whereby Australia waits for the United States to act before making its own decisions. Waiting for the United States to return to “normal” would be a mistake: structural changes within the United States mean trade protectionism is the new normal.

The US shift towards trade protectionism has ripple effects around the world, upending the long-standing global free-trade system. Australia must accept there will be enduring US concerns with free trade as it relates to national security and perceived unfair trading practices. One participant argued that, rather than repeatedly espouse the values of free trade, Australia should convince the United States that its solutions need guardrails. For instance, US blanket tariffs that aim to reclaim US manufacturing jobs from China harm US allies and partners, like US tariffs on New Zealand steel.³

The private sector is focused on efficiency, globalisation, just-in-time supply chains and not leaving potential profits on the table for competitors.

Turning to the private sector, both government and business need each other more than previously because neither can operate in a vacuum. Business needs to recognise that geopolitical tensions are entrenched and factor this into its operations and government needs to consider market realities and adapt its approach to industry. However, one view expressed was that too few Australian businesses are treating geopolitical instability as a serious or sustained risk. Because Australia’s private sector has weathered previous shocks like the Global Financial Crisis, China’s economic coercion campaign, and the Russian invasion of Ukraine, some businesses view current instability as run-of-the-mill. Industry largely expects to manage the next crises as and when they come and, for now, will continue to prioritise profit maximisation. The private sector is focused on efficiency, globalisation, just-in-time supply chains and not leaving potential profits on the table for competitors.

There remains a strong disconnect between national security perspectives and business perspectives. While businesses’ return to the Chinese market might be seen by government as an irrational risk, business will pursue profits until they cannot. Business believes it is contributing to Australia’s economic security by fostering positive trade outcomes, including with China. One contention was that, if the Australian Government is seeking to challenge China’s market dominance in clean energy via market distorting activities like industrial policy, it needs to work in closer partnership with business to achieve the desired effects. Business is seeking clear and sustained signals as to what direction government will be taking, such as around the energy transition, as well as incentives to invest in things they typically would not.

2. Reshaping Australia’s economy through industrial policy

Multiple risks, but a necessary policy response that must be maximised

Australia’s economy needs to be restructured to increase its resilience to economic coercion, transition to clean energy, increase global competitiveness, and capture the economic benefits of technologies like artificial intelligence (AI) and quantum computing. Industrial policy is seen as the solution to the restructuring challenge. However, Australia is instinctively wary of industrial policy given its previous negative experience in areas like domestic car manufacturing.⁴ Although the government’s ‘Future Made in Australia’ (FMIA) industrial policy is seen as a step in the right direction, multiple participants expressed the view that it has insufficient incentives and disincentives to shift markets.

FMIA includes A$22.7 billion from 2025 to 2035 for workforce skills training, renewable energy technologies, critical minerals processing, and industry innovation and technology.⁵ There was a view that Australia’s size, scale and place in the global economy stand to limit what it can achieve via industrial policy. Domestic challenges, such as a private-sector recession and high interest rates, present additional hurdles.⁶

Western Downs Green Power Hub in Chinchilla, Australia.Source: Getty

Several viewpoints on Australia’s industrial policy were expressed by participants, including:

Desire for a more comprehensive industrial policy

• FMIA includes economic ‘carrots’ but no ‘sticks’
  • Market disincentives are a valuable tool to guide business decision making
    • In the United States, disincentives like tariffs help steer investment towards domestic alternatives for priority sectors
    • The European Union’s (EU) emissions trading system provides another way of prompting business action
  • The absence of market disincentives fails to address the trade diversification challenge
    • For some Australian industries, there is no alternative market to China. For instance, China is the primary importer of some critical minerals, like lithium, and some seafood, like lobster
    • For industries where diversification is not an option, they need government assistance or could be forced out of the market

Concerns over delays, government capacity, and institutional inertia and inconsistencies

• FMIA and the 2022 National Reconstruction Fund (NRF) funding commitments raised expectations, but implementation has lagged
  • Only A$400 million of FMIA’s A$22.7 billion budget is being spent in FY2024–25⁷
  • The NRF made its first investment of A$40 million in November 2024, two years after the fund was announced⁸
• Government’s bandwidth challenges and poor track record in creating new comparative advantage in the Australian market
• FMIA lacks a lead agency to drive progress and strengthen coordination
  • FMIA implementation is shared by Treasury, the Department of Industry, Science, and Resources, and others
• Resistance in some government agencies to enact FMIA and different opinions between government agencies on the energy transition
  • This muddies market signals, making incentives and disincentives less relevant

Insufficient focus on the demand side of industrial policy

• There is a collective action problem among like-minded countries regarding who pays the “national security premium” to produce goods outside of China
  • With Chinese goods being cheaper than competitors, it is unclear which countries, taxpayers, consumers, and businesses will agree to pay higher prices
• There is a need to work with like-minded countries through official channels and systems to share the costs, risks, and potential benefits of market diversification

Supporting successful Australian industrial policy going forward

While countries like Japan, China and South Korea have historically harnessed the power of industrial policy, their models are not replicable today, nor in the Australian context. One example cited was that, where the South Korean Government was once able to direct corporations, Chaebols are now seen as wielding too much power and ignore instructions from officials.⁹ Rather than trying to replicate successful industrial policy of previous eras, Australia needs to create its own model, in synergy with its own domestic ecosystem.

Some participants suggested the Australian Government might consider:

• Deploying multiple policy levers as part of FMIA that can be pulled for different ends, including disincentives
  • This would help with Australia’s economic diversification challenge
• Facilitating more public-private debate about industrial and trade policy to help inform FMIA’s implementation and cultivate a community of support
• Cross-pollination between national security experts and economists to provide government with holistic advice
• Identifying international investors that could be brought in to build critical sectors and industries
• Higher investment into FMIA, targeted at a smaller number of industries
  • “Ruthless prioritisation” and government willingness to back industry innovators at scale is required

Alongside industrial policy to bolster domestic production, some participants encouraged economic resilience through offshoring as well as cooperative country groupings. There is much greater scope for the Australian Government and industry to work with third party countries to shore up supply chains. One participant suggested Australia draw lessons from Japan’s ‘flying geese’ economic development theory.¹⁰ Under this approach, Japan’s economic growth worked in synergy with other Asian economies’ growth, leveraging the comparative market advantages of highly developed, developed and developing economies at different stages. For instance, Australia could leverage the economic advantages of Southeast Asia’s developing economies more through building manufacturing bases in that region.

Rather than trying to replicate successful industrial policy of previous eras, Australia needs to create its own model, in synergy with its own domestic ecosystem.

When it comes to resilience through country groupings, one of the most successful recent examples cited was the International Energy Agency — an intergovernmental organisation — coordinating the release of emergency oil stocks in 2022.¹¹ This helped governments respond to shocks to both demand and supply, while managing prices. Rather than onshoring complete supply chains, Australia could maximise its economic security through multilateral groups to address supply chain challenges. In addition, Australia should focus on delivering key nodes within supply chains. For instance, Australia’s ‘Solar Sun Shot’ aimed at domestically manufacturing all components of the solar supply chain should be adjusted towards producing key components domestically and leveraging international supply chains for additional inputs.¹²

3. Diversifying critical minerals supply chains

Breaking China’s monopoly and navigating contradictions in approach between Australia and the United States

China has built end-to-end critical minerals supply chains and possesses expertise and technology like no other country — effectively controlling the global market for rare earths.¹³ Rare earths are needed for high-performance magnets in electric vehicles (EVs) and heavy rare earths are needed for guidance systems in defence equipment.¹⁴ The United States is desperate for rare earths for energy and defence uses and is almost 100% dependent on imports from China.¹⁵ Some participants asserted that China could use its market dominance to “turn the tap on and off” or dump its overcapacity to tank the price and drive out competitors. Another view expressed was that the Chinese economy is not in good health and the government lacks infinite funds to put pressure on exports for state goals. However, other participants saw one nation controlling that much supply and having already demonstrated a willingness to cut-off supply — to Japan in 2010 and to the United States in 2024 — as an untenable risk.

In response to China’s dominance, countries like Australia, the United States and their partners have pursued various levels of cooperation. Australia is party to upwards of 26 critical minerals agreements and initiatives and a member of the 2022 Minerals Security Partnership.¹⁶ One view expressed was that government has placed too much attention on establishing agreements and not enough on activating them, with Australia’s mining industry seeing little change in how things operate on the ground.¹⁷ Another view expressed was that the Australian Government is not in the business of buying or running mines — MoUs and regulations are the most familiar tools available to government. Ultimately, government needs to focus its resources towards a smaller number of high-impact critical minerals agreements and offer a more compelling business case to the private sector, otherwise there will be limited progress on critical minerals supply chain diversification.

Despite attempts at international coordination to break China’s critical mineral monopoly, national self-interest still dominates.

Despite attempts at international coordination to break China’s critical mineral monopoly, national self-interest still dominates. The US 2022 Inflation Reduction Act (IRA) and Australia’s FMIA have directly competed to locate and fund critical minerals processing, with the IRA outmuscling FMIA’s efforts to attract minerals processing. For instance, at least five Australian companies have been beneficiaries of US soft loans, grants, and tax credits for processing plants. This includes Element 25, South 32, Lynas, Syrah Resources and Novonix.¹⁸ In addition, US export-import (EXIM) bank loans have restrictions that complicate Australia-US cooperation. For example, EMIX bank investment is conditional on recipients using US-made equipment in their mining — undercutting Australia’s own industrial policy goals.¹⁹ The point was made that the United States is prioritising its domestic political and economic needs over international cooperation on critical minerals.

Australia and China are inextricably linked on the issue of critical minerals. Australia relies on China for offtake, processing, finance and expertise. China has processes that no other country can offer, such as lithium processing technology and specialist metallurgists. China is a major investor in Australian lithium but Chinese involvement triggers US financing exclusions — preventing greater US investment in this Australian resource. For instance, US company Albemarle has built a lithium hydroxide refinery in Kemerton, Western Australia. However, it also shares ownership in the nearby Greenbushes lithium mine that feeds the refinery with Chinese company, Tianqi. This Chinese stake triggers the US Department of Energy’s foreign entities of concern rule, preventing Albemarle from accessing IRA subsidies — a case study that demonstrates how US foreign entity rules can limit opportunities for even ‘friendly’ companies mining Australian lithium.²⁰ In contrast, Australia’s FMIA investments are more flexible and Albemarle and Tianqi’s own processing operations will qualify for tax production credits.

This disconnect between Australian and US policies on critical minerals supply chain diversification captures the core nature of economic security challenges in the broad: some goods and markets are so networked that distinct parts cannot be separated out to receive incentives or disincentives without unintended negative consequences.

Improving Australia’s approach to diversifying critical minerals supply chains

Suggested solutions to fell into four main categories: 1) prioritising key critical minerals MoUs and agreements; 2) instituting floor and ceiling prices for critical minerals offtake (products); 3) forming country groupings for joint stockpiling; and 4) disaggregating Chinese investment risks.

Prioritising key critical minerals cooperation agreements

• Government needs to focus its resources towards making progress on a smaller number of agreements most likely to bear fruit. Key contenders are European countries, South Korea, and Japan
  • The EU, France, Germany, and the Netherlands have sovereign funds to invest in Australia while South Korea and Japan are home to potential buyers

Instituting floor and ceiling prices for critical minerals offtake

• Floor and ceiling prices for Australia’s minerals could address falling prices that deter investment
  • This would address the issue of China’s price manipulation. However, there is great uncertainty regarding other countries’ willingness to sustain offtake agreements above market purchase rates

Forming country groupings for joint stockpiling

• This would require a joint offtake guarantee, whereby country members agree to purchase from within the group or select partner countries
• This could be feasible for critical minerals that have defence uses but are likely unviable for broader commercial applications like EVs. Member countries are more likely to agree to joint stockpiling for national security than commercial reasons

Disaggregating Chinese investment risks by mineral type

• To maintain some levels of Chinese investment, Australia could disaggregate risks by type of minerals, such as rare earths (high strategic value) versus lithium (lower strategic value)
  • For example, Australia could accept Chinese investment in lithium but not in rare earths

4. Technology security, competition, and derisking

Assessing US-China competition and highlighting the priorities and actions Australia should take

Technology competition has become a major feature of economic security because advanced technologies underpin both economies and national defence. Of primary concern are AI, semiconductors, quantum technologies, and biotechnology. Because it is hard to diffuse technology knowledge and advanced manufacturing capability outside of where it currently exists, countries can leverage chokepoints to their advantage.²¹

The United States and China remain locked in intensifying technology competition, with access to semiconductor chips serving as a primary example. Chips are the lifeblood of technology, especially for advanced AI capabilities, and the US 2022 CHIPS and Science Act represents a significant investment into building America’s own supply chain.²² When the United States placed further restrictions on advanced chip technology to China in December 2024, Beijing responded immediately with export bans on germanium, gallium and antimony — demonstrating the tit-for-tat nature of the competition but also the link between advanced technologies and their critical minerals inputs.²³ 

When it comes to critical technologies, the race between the United States and China to dominate technology is very complex. Framing this competition as a binary race, where one country is winning and the other losing, is problematic because it is difficult or even impossible to pinpoint where the race currently stands or is likely to go. Judging which country has the edge in any given technology requires a multidimensional examination that considers the various actors and diffuse supply chains that underpin the final technologies.

The TSMC facility in Phoenix, Arizona, January 2023.Source: Getty

One view expressed was that China is ‘winning’ the race for certain advanced technologies. In fields like clean energy technologies, Beijing secured the capabilities first and currently dominates this technology supply chain. China boasts a global dominance in critical and emerging technology research and development (R&D) and human capital.²⁴ Its government has been pouring funds into core technologies like AI and quantum technologies.²⁵ However, the United States and its allies lead in AI technology, advanced semiconductors, and quantum technologies. While China is out-competing the United States in investment in universities and tech scale-ups (mature and profitable businesses), it cannot match the United States for private investment and innovative start-ups (companies at the initial “birth” stage).²⁶ 

More broadly, the bifurcation of technology development could be preventing major breakthroughs that more often come from cross-disciplinary R&D. One participant highlighted that significant technology advancements have been achieved via international collaborations and future discoveries are now rendered less likely due to US-China competition and geopolitics.

Priorities and actions for Australia on technology derisking

Critical technology risks to Australia can be categorised as either immediate or longer-term. Australia’s response to immediate risks has been to pre-emptively ban the use of technologies that can collect and transmit data by tracking or recording users or offer access to foreign entities in critical systems. For instance, Australia banned Chinese vendor Huawei from bidding to provide its 5G network, removed Chinese CCTV from government agencies, and banned TikTok on government devices.²⁷ It has also educated government officials on the capabilities of connected vehicles, including Chinese EVs, to track GPS and record sound and vision, which could be fed back to Chinese servers and used by Chinese agencies.²⁸ These risks have been relatively straightforward to counter, typically through case-by-case assessments and bans.

Longer-term risks, however, are harder to counter. These risks include the way Australia promotes and invests its resources, R&D investment and innovation funding, the relationship between public and private entities, and technology supply chains.

When it comes to technology derisking, one participant contended that Australia needs a policy of its own, separate to the United States. This is because Australia is a ‘tech-taker, not tech-maker’ like the United States, and has distinct priorities. In developing its approach, Australia should consider the aggregation of risks and take calculated responses that do not always include complete bans of Chinese technology. There was a view that Australia needs to pivot from a ‘to ban or not to ban’ technology mindset towards a risk-based assessment approach that is more comprehensive and strategically coherent. This is especially important as Australia shifts from addressing critical infrastructure risks to dealing with technology risks facing everyday consumers. For instance, Australia will not follow the United States in banning Chinese-made EVs but could instead decide what market share is acceptable for Chinese EVs in Australia.

Australia needs to pivot from a ‘to ban or not to ban’ technology mindset towards a risk-based assessment approach that is more comprehensive and strategically coherent

According to one participant, Australia’s advantage over the United States was greater acceptance within its bureaucracy, industry, and society that the government can and should regulate technology rather than allowing platforms to self-regulate. Australia has agency in the tech space and has shown willingness to be a first mover, for example, banning Huawei from its 5G network, legislating to protect against foreign interference, and banning social media use by children under 16 years.²⁹ One perspective was that Australia’s willingness to break from the US approach and pursue its interests independently offers it a narrative advantage it can use to promote its preferred policies internationally as a middle power. As Australia moves towards dealing with risks in new areas, like consumer technology, it will be vital to have a clear government narrative as to why; clarity on harms (for example, the chronic, long-term and low-profile nature of some harms); and a focus on ‘systems risk’ over ‘China risk’.

Regarding where to invest most effort on critical technologies, Australia should work closely with its key allies in the United States (on AI and quantum technologies), other Five Eyes countries, and partners like India, South Korea and Japan. Each partnership offers complementarities and will help Australia maximise the impact of innovations, leverage industrial bases, and harness skilled workforces. Australia could also strengthen its approach by focusing attention and resources towards a smaller number of critical technologies. One view expressed was that FMIA and other government strategies try to do too much across too many technology areas including quantum, AI, and robotics — each of which are high-level, umbrella terms encompassing multiple sub-technologies.³⁰ Australia should focus on developing technologies where it already excels, like silicon-based quantum computing, and has the available financial and political capital. To that end, Australia could reduce effort towards semiconductors and battery manufacturing.³¹

Workshop motifs and Australia’s opportunity going forward

While economic security issues span multiple industries and involve networked challenges, several consistent themes to Australia’s approach emerged from the workshop. These included the need for Australia to:

• Tailor approaches specific to its context, rather than replicating policies from other countries
• Make bolder policy choices in the future industries and technologies it invests in and to accept greater risks of failure should those bets not pan out
• Act now rather than continue to admire the problem and hope a solution presents itself. Further delays could see Australia fall further behind its peers in global economic and strategic competition
• Avoid being consumed by managing relations with the United States and invest in partnerships with other countries around the world to collectively respond to economic security challenges

Australia has taken a big leap forward on economic security over the past year. The government has legislated the national interest framework, rolled out FMIA, reformed its foreign investment review scheme, acquired more data capabilities on international resource flows, conducted outreach to businesses, and improved inter-departmental coordination mechanisms.32 While there are implementation issues and inadequate resourcing, on balance, Australia is taking positive steps and trending in the right direction.

In 2025, Australia faces great uncertainty and a more congested policy and communication landscape under a second Trump administration. In these circumstances, it is difficult to formulate concrete responses and have the confidence they will succeed. However, there is an opportunity for Australia to use its agency and lead others in this new global environment — if it can rigorously prioritise and successfully implement policy. Whichever party wins the upcoming Australian federal election will be confronted with a massive domestic agenda and must prioritise better via new and more robust internal frameworks. The onus is on Australia to build its own economic security architecture to project its economic strengths, protect its national security, and shape its destiny.