US inflation fight a billion-dollar boon for Aussie industry

Australia has been granted preferred status ahead of China to supply critical minerals for the US electric vehicle program.

Australian Trade Minister Don Farrell meets Commerce Secretary Gina Raimondo in Washington this month. Picture: Yuri Gripas

Australia has been granted preferred status ahead of China to supply processed critical minerals for the US electric vehicle battery program under new laws signed this week by President Joe Biden that could be worth billions of dollars to the mining and manufacturing industries.

Trade Minister Don Farrell hailed the passage of the Inflation Reduction Act through the US congress as a major win for the Australian critical minerals sector with the rewriting of import and tax rules for electric vehicles in favour of countries with free-trade agreements.

Senator Farrell said Australia, which has some of the largest critical mineral reserves in the world, would be the key beneficiary driving investment in local processing and manufacturing, and giving it a competitive advantage over China in accessing the booming battery market for the US electric vehicle sector.

He said it would also help leverage up the government’s ambitions of becoming a clean-energy superpower with US companies such as GM, Ford and Tesla looking to Australia for investment opportunities in critical minerals.

Under the wide-ranging IRA, which includes tax incentives for consumers to buy electric cars, 40 per cent of the value of the critical minerals in the battery must be sourced from a country that has a free-trade agreement with the US, rising to 80 per cent by 2027. It applies to minerals such as lithium, nickel, cobalt and graphite.

With China currently the largest supplier, but lacking an FTA with the US, the new rule opens the door for a massive boost in the sourcing of processed critical minerals from Australia.

“This is an amazing benefit to Australian companies in critical minerals … given we have an FTA with the US,” Senator Farrell told The Australian on returning from the US after meeting with US Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo.

“We have the largest and second largest reserves of critical minerals in the world. At the moment we compete with other countries without FTAs, so given we are a reliable supplier of minerals, and given we have the highest levels of reserves, this puts us in the box seat.”

Senator Farrell said it would also assist in the government’s trade diversification strategy of decreasing Australia’s reliance on China as the primary export market for minerals. “There was a sense we had all the eggs in China basket … This gives us another enormous basket to sell our minerals,” Senator Farrell said.

“It is worth billions of dollars … All major car manufacturers (in the US) are moving to electric vehicles.”

Stephen Grocott, chief executive of Queensland Pacific Metals, said the US move was “manna from heaven”.

“It’s huge. What it does is bring the processing incentive back into Australia. US companies will want to invest. It’s great in that regard,” he told The Australian.

“It’s an immediate head start. Australia has extremely good processing capability, technology and qualified engineers and scientists. We are one of the global leaders but we tend to export the people and technology.

“This is a boost for Australian manufacturing and the jobs that it will create are high-paying jobs in engineering and science.”

Senator Farrell said Australia was the world’s largest producer of lithium, cobalt and nickel, and had the largest reserves of graphite – key minerals required for the electric vehicle batteries.

The IRA, primarily aimed at driving down soaring US inflation through deficit reduction and tax changes, also includes a massive investment in clean energy and climate action. Senator Farrell said the new laws, passed while he was in Washington, would be another plank in the Labor government’s ambitions of being a “renewable energy power house”.