Highlights
- China's targeted export restrictions on seven rare earth elements seek to maintain market dominance through strategic, temporary control mechanisms.
- Temporary export controls can spike prices, pressure global industries, and preserve China's long-term processing ecosystem without forcing permanent exodus.
- To counter China's strategy, the rest of the world must invest in mid-stream capacity, recycling, substitution, and coordinated industrial policy.
Hélène Nguemgaing (West Virginia University), with Sangita Kannan (Colorado School of Mines), Beia Spiller and Michael Toman (Resources for the Future, RFF), publish Issue Brief 25-12, “The Strategic Game of Rare Earths: Why China May Only Be in Favor of Temporary Export Restrictions,” October 2025. The brief dissects China’s 2025 export controls on seven rare earth elements—scandium, yttrium, samarium, gadolinium, terbium, dysprosium, and lutetium—and argues that temporary, targeted restrictions raise leverage without forcing a permanent exodus from China’s processing ecosystem.
Findings
China dominates the mid-stream—refining, separation, and roughly 90% of high-performance magnet output—so even non-blanket, license-based controls can jolt global supply. Using a game-theory lens, the authors show:
- In a one-shot (single-period) game, the status quo is stable: if China keeps exporting and the rest of the world (ROW) doesn’t invest, dependence deepens.
- Temporary restrictions can spike prices and pressure ROW industries—but if Beijing later relents, many ROW investments stall, preserving China’s long-term dominance.
- Sustained, severe restrictions would likely force the ROW to build capacity, eroding China’s market power, giving Beijing reason to avoid prolonged bans. China has sought to avoid it, but it teeters on the edge now with the latest moves that control even further the export of rare earth elements, process technology, and the like.
Implications for policy & markets.
Expect episodic licensing squeezes—especially in price-inelastic markets (defense, EV motors, wind, medical imaging)—to extract concessions and shape negotiations. The ROW can counter only by backstopping the midstream: separation, metal/alloy manufacturing, and magnet manufacturing, plus recycling and substitution. And industrial policy at this point represents a prerequisite. Ad hoc, market-centric reactions will not suffice. Without durable price floors/off-takes, ROW projects risk the classic boom-bust “overshoot” once China loosens controls.
Net: temporary controls are optimal for Beijing—signal power, raise prices, prompt limited ROW moves—yet stop short of catalyzing a full mine-to-magnet migration.
Limitations
- Model framing: A stylized two-player game abstracts differences among allies and sector elasticities.
- Data granularity: Public trade/licensing data are noisy; inferring intent from approvals/denials is constrained.
- Cost realism: ROW competitiveness hinges on real CAPEX/OPEX, permitting, and learning curves—outside this brief’s scope.
- Policy endogeneity: New price floors, EXIM/DoD supports, or EU/Japan measures could shift payoffs faster than a static model suggests.
Bottom line for REEx readers.
Temporary, calibrated export frictions maximize China’s leverage today while minimizing the risk of seeding a robust non-China supply chain tomorrow. If the U.S. and allies want a different endgame, the answer isn’t rhetoric or tariffs alone; it’s bankable mid-stream capacity (price floors/off-takes), accelerated recycling/substitution, and coordinated industrial policy sturdy enough to survive the next price dip.
Citation: Nguemgaing, H., Kannan, S., Spiller, B., & Toman, M. (2025). The Strategic Game of Rare Earths: Why China May Only Be in Favor of Temporary Export Restrictions (opens in a new tab). Resources for the Future, Issue Brief 25-12, Oct 2025.
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