The Impact of Political and Economic Constraints on the Rare Earth Elements Market

Behnaz Minooei Fard

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: The issue of rare earth elements (REE) and the quest for a secure supply chain go beyond resource nationalism or export controls. They represent a form of time-limited strategic leverage within an evolving global system. China’s dominance in the REE market is significant but not permanent. Its durability depends on how other nations respond. The pace and trajectory of this shift will be shaped by global reactions to export restrictions, investment choices, and technological innovation. This paper develops a three-period model to examine how China’s REE export strategy evolves under global political and economic constraints. These constraints are in response to China’s earlier restrictions and are appropriate to the severity of the restrictions across three phases of shock, adjustment, and convergence. Understanding the structure of China’s leverage and the strategic timing of its use is crucial for anticipating the future of geoeconomic competition and the control of critical technologies. Moreover, this model allows us to assess a market where China is the dominant supplier and the rest of world reacts gradually and in fragmented fashion, with results highlighting why REE trade controls are more persistent and structurally dangerous.

Keywords: Rare earth elements (REE); Trade restrictions; Export leverage; Political constraints; Economic constraints; Intertemporal optimizatio (search for similar items in EconPapers)
JEL-codes: F13 F51 L12 Q34 Q37 (search for similar items in EconPapers)
Pages: 24
Date: 2025-09-01
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