Highlights

• Chinese rare earth exports demonstrate strong correlation with U.S. military development across market cycles.
• Governance and policy strategies play a critical role in managing export volumes during geopolitical tensions.
• Price volatility and diplomatic relations significantly impact strategic REE supply chains between U.S. and China.

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Using monthly data from January 1996 to December 2023 and advanced statistical techniques — the partial cross-quantilogram and wavelet local multiple correlation — a recently published study tested how China’s rare earth element (REE) exports respond to U.S. military industrial trends. The model incorporated China’s governance practices and the evolving state of U.S.–China tensions, applying contagion theory to explore how shocks in one domain propagate to the other.

Key Findings

The study finds that Chinese rare earth exports remain tightly bound to U.S. military development, with a strong positive correlation evident in both bull and bear markets. In bullish cycles, however, price volatility becomes a critical choke point, sharply constraining export volumes despite rising demand. Governance plays a dual role: in bear markets, Chinese policy frameworks act as a drag on REE flows to the U.S., but in bull markets those same levers shift to a supportive stance, enabling higher shipments.

Notably, during bullish periods, the interaction between Beijing’s governance strategies and U.S.–China tensions turns into a net positive for export performance, suggesting that targeted policy moves can be used to blunt political friction and keep strategic supply lines open.

Strategic Implications

For policymakers and defense-sector procurement planners, the findings highlight:

• Resilient Interdependence: Even amid Washington–Beijing tensions, military-linked REE trade remains structurally connected.
• Market Sensitivity: Price stability is as important as diplomacy in maintaining flows.
• Governance Leverage: Beijing’s internal policy tools can be deployed to cushion geopolitical shocks to the REE trade.

REEx Take

This research reinforces a reality the Rare Earth Exchanges  (REEx) community tracks closely: U.S. defense readiness remains tethered to Chinese REE supply chains. For industry and investors, the actionable takeaway is that market-phase dynamics (bull vs. bear) and governance signals from Beijing are as critical as headline geopolitical news in forecasting export behavior.

Author: Md. Monirul Islam

Source: Military Development, Critical Metals Trade, and US-China Tensions (opens in a new tab) (2025)

A new quantitative analysis from Md. Monirul Islam underscores a critical reality for defense supply chains: Chinese rare earth element (REE) exports remain closely linked to U.S. military development, even amid sustained geopolitical strain.