China’s latest major expansion of rare earth export controls has re-ignited the US-China trade war while highlighting the risks arising from concentrated state control over key global supply chains. While Beijing has a near-total monopoly over refined rare earth supply, these are not the only commodities where China is currently seeking to flex state muscle.

Australia’s latest trade kerfuffle with Beijing, sparked by the latter’s attempt to force down Australian iron ore export prices, highlights China’s strategic assertiveness towards international trade relations writ large. Yet unlike the rare earth controls designed to gain leverage over the US in tariff negotiations, this trade spat with Australia comes at an unexpected moment. Both sides have invested significant political capital in resetting bilateral relations, after Beijing’s punishing four-year trade coercion campaign against Australia starting in 2020 over Canberra’s call for an investigation into COVID’s origins. The latest case of Chinese trade weaponization comes as Beijing is presenting itself as the champion of multilateralism in claimed contrast to President Trump’s disregard for international rules, and as China seeks to gain soft power at America’s expense. Why then has Beijing chosen now to initiate a trade import ban against Australia’s largest iron ore exporter BHP Group, contradicting China’s bid for the mantle of multilateral trade leadership as well as its Canberra diplomatic reset. And what are the broader implications of Beijing’s latest market intervention?

A history of argy-bargying

When it comes to iron ore, Australia and China are joined at the hip, locked into mutual dependence. Australia is by far the world’s largest supplier of seaborne iron ore, shipping 866 million metric tons, or 54%, of the 1.6 billion metric tons traded globally in 2024. China, the world largest iron ore importer, consumes over 80% of Australia’s annual output most years. Brazil, the world’s second-largest iron ore exporter, is a distant second, shipping 390 million metric tons in 2024. A shipment of iron ore leaving from Australia’s Port Hedland takes about two weeks to arrive at a southern Chinese port, whereas a Brazilian shipment takes about six weeks.

Little wonder then that Australia’s large iron ore miners, led by BHP and Rio Tinto, dominate the iron ore trade with China. BHP alone shipped almost 300 million metric tons of iron ore from Australia’s famed Pilbara mining region in 2024, most of which went directly to Chinese ports. If Beijing can force BHP’s hand with hardball coercion during price negotiations, it can send a powerful signal to other exporters to accept Bejing’s terms over market terms. In fact, this latest trade salvo is part of a nearly two decade-long effort by China to exert greater control over the international iron ore market.

In 2009 Vale aggressively increased sales to Chinese mills using spot price contracts well below the annual benchmark price that major Australian exporters were using, as a bid to gain market share. Spot pricing is the most transparent and market-driven method of price discovery for highly traded commodities such as iron ore, and offers maximum exposure to upside profit in a bull market. With China having announced a major infrastructure stimulus in late 2008, iron ore was poised for growth. In 2010 BHP and other Australian exporters followed Vale’s move and shifted to spot pricing, despite being resisted, unsuccessfully, by both Chinese and Japanese importers. This shift provided large upside profit when China’s post-financial crisis stimulus programme sent iron ore rocketing from US$70 in early 2009 to double that amount between 2010-12.

BHP last week agreed with Chinese buyers to settle 30% of its iron ore spot trading in renminbi, the Chinese currency, rather than US dollar. The agreement is a pivotal shift in cross-border payments and financing infrastructure in global trade and is worth an estimated US$9 billion annually at 2024 volumes.

The state strikes back

China uneasily acquiesced, but not without continually attempting to wrest back pricing power by virtue of its huge consumer market for the steelmaking ingredient. In 2012 China launched an online iron ore trading platform, with the goal of “unifying” a single China price for iron ore. However, China’s vast market of independent steel mills were reluctant members of what later became consolidated into the iron ore pricing platform of the China Beijing International Mining Exchange (CBMX). Having established long-term relationships and driven by their own production targets, many steel mills avoided both the added bureaucracy and additional fees for using CBMX, derailing membership. So low was CBMX uptake that a year after incorporation the government began threatening to refuse new import licenses unless importers traded at least half a million metric tons on the platform.

The CBMX never established a position of influence over the market and transferred its spot trading to a new platform, the Beijing Iron Ore Trading Centre Corporation (COREX) in 2014 as Beijing continued to explore methods of leveraging buyer pricing power. At the same time Beijing made regular rhetorical attacks on BHP and other large market players whenever prices moved higher, accusing them of price manipulation but without providing evidence.

Furthermore, Australian and EU regulators have historically kept a sharp eye against the possibility of antitrust practices by major commodity exporters. For example, in 2010 BHP and Rio Tinto's proposed joint venture was investigated by both the EU and Australia's competition regulator, the ACCC, for potential anti-competitive effects. The joint venture proposal was ultimately abandoned that same year. When in 2015 Fortescue Metals Group founder Andrew Forrest called for a production cap the Australian regulator immediately publicly castigated the statement as suggestive of illegal cartel practices and investigated the matter. It found that Fortesque had not engaged in any actual anti-market actions.

All told, China’s institutional efforts and baseless political attacks on iron ore pricing have failed to generate the leverage Beijing seeks to gain leverage over pricing format and duration. The Platts Iron Ore Index by S&P Global remains the most widely used benchmark price index, and sellers continue using spot prices for contracting. More recently the formation of the China Mineral Resources Group (CMRG) in 2022 is the latest effort at using state power to suppress market power. Established with the goal of representing China’s steel mills as a single buyer, thereby stopping China’s steel mills from competing against one another, CMRG is now the largest importer of iron ore globally. It represents over half of all steelmakers for contractual negotiations with private firms such as Rio Tinto and BHP.

In addition, CMRG holds substantial stockpiles of iron ore inventory across numerous major domestic ports. This offers a national reserve that can be released for short periods of time to smooth out volatility, or, as a back-up during situations such as the current ban on imports, maintaining supply to steel mills while making exporters such as BHP sweat. Through CMRG’s buyer concentration and reserve formation strategies, Beijing hopes to have the last word in whipping the iron ore market toward its preferred price points. Industry reports suggest BHP has been particularly resistant to CMRG’s pricing demands, with current contract talks stalled for months due to BHP’s insistence on using the Platts Iron Ore index. This is suggestive as to why it has been singled out for punishing. No doubt CMRG also hopes that if it kills the BHP chicken, the monkeys will get in line.

Is China’s strategy working?

In a properly functioning global iron ore market, spot prices drive marginal supply or marginal demand to enter or leave the market depending on costs of production and profitability at a given price point. Spot prices reflect the market’s ability to clear available supply at a given price point. The CMRG may find that the commodity’s price curve continues to be driven by this dynamic rather than its concentrated buyer power. To illustrate the point, iron ore prices fell sharply from their record-high of nearly US$220 after the implosion of China’s real estate bubble in mid-2021, more than halving in five months as demand inevitably fell, but have largely steadied in the US$100 range for most of 2025 due to demand in China’s steel industry steadying at a rate higher than expected. The Australian federal budget for 2025 forecasted iron ore at US$60. China’s own policies are likely to blame here. Despite sluggish domestic demand for steel, China’s state-set output targets remain in place for steel, maintaining excess output, and preventing marginal iron ore demand, i.e. unprofitable steel production, from leaving the market.

As a result, leveraging buyer power and import bans are unlikely to fundamentally shift the market dynamics, even if it offers some marginal negotiation gains. Prices will continue to be determined by economic realities. Furthermore, geology is destiny in the resources sector. The Pilbara iron ore region’s location relative to its main competitors in Brazil all but ensure Chinese dependence on Australian supply for now. Iron ore, particularly for the world’s largest steelmaking nation, remains an essential strategic good. Notably, even when China unleashed a wide-ranging embargo against Australian exports from wool to coal over Canberra’s questioning of China’s role in the pandemic’s origin, Beijing never sanctioned Australian iron ore.

Hence this latest move is likely to be a test of patience and nerve on BHP’s part. Nonetheless, it also offers Beijing information on the effectiveness of CMRG for wielding state power over markets. While it is unlikely BHP will fold on its strong position, it will be noteworthy to see what leverage, if any, CMRG is able to gain during this standoff.

What this case implies for trade relations with China

Taking a step back from the immediate dynamics and this latest case highlights China’s ability to play two games at once. While championing multilateralism abroad, it continues to build state tools at home aimed at maximizing Beijing’s influence over domestic markets and international trade. Through this approach, Beijing hopes to simultaneously expand its soft power influence in global institutions as Washington pulls back, while continuing to ignore rules and norms that constrain its economic statecraft. Furthermore, what is abundantly clear is that having a good bilateral political relationship offers little insulation against hardball tactics, as Australia’s federal government has found out shortly after Australian Prime Minister Anthony Albanese concluded a friendly six-day state visit to China.

While China’s current efforts to set iron ore prices may again prove limited, its desire to continue building state power over markets is unrelenting. And as its rare earth export controls highlight, Beijing has the political will, confidence, and institutional capacity to wield accrued economic power against not only single countries but against the entire global economy. In that context, the latest effort to control iron ore pricing should not be dismissed if it proves to be only marginally effective. China’s leadership learns from each episode of geoeconomic competition, and CMRG is an institutional work in progress, one of many tools being constantly evolved to enhance Chinese state control over the market. The bigger picture is that the world of power-based trade continues to expand.