Critical minerals need insulation from China’s market manipulation.

Risks in Investment

Investors can handle various risks, including those related to construction, interest rates, and weather. With hedging, they can even manage price movements in product markets. However, one risk they cannot price is political risk—the chance that government actions could ruin profits. Unlike other risks, you can’t hedge against political risk.

The Challenge of Political Risk

This issue becomes particularly significant in the context of the critical-minerals market. The chief executive of Iluka, a critical-minerals company, recently accused China of rigging rare earths prices. He pointed out that monopolistic production and interference in pricing are leading to market failure. This raises the question: how should we respond when price risk is essentially political risk?

Potential Policy Responses

From a political perspective, establishing a floor price for critical minerals presents an advantage. Taxpayers would only pay for results, unlike with soft loans, which can lead to significant losses if mines fail to produce. This approach could mitigate the impact of China’s market manipulation.

Need for Policy Intervention

Liberal democracies have been slow to move away from the free market orthodoxy in response to new geostrategic realities. China's manipulation of the market for critical minerals demands interventionist policy responses. It's time to reconsider our approach and protect our interests against such political risks.