China’s Rare Earth Playbook: New Study Reveals Why Export Controls May Be Only Temporary-and Strategic

Highlights

• New RFF game-theory study reveals China's temporary rare earth export restrictions are strategic pressure tactics designed to raise prices and force negotiations without triggering permanent supply chain diversification that would erode its dominance.
• The research shows sustained export bans would backfire by pushing US, EU, and allies to invest massively in independent processing and magnet manufacturing, permanently diluting China's 80%+ refining and 90% magnet control.
• Investors face recurring volatility as China may repeat temporary shocks, while Western diversification depends on massive subsidies like DoD's $110/kg magnet pricing—50% above spot—to overcome China's cost advantages.

---

A new issue brief from Resources for the Future (opens in a new tab) (RFF)—written by Hélène Nguemgaing (West Virginia University), Sangita Kannan (Colorado School of Mines), Beia Spiller, and senior fellow Michael Toman—offers one of the most rigorous explanations to date for why China imposed rare earth export restrictions in April 2025, and why it reversed them just months later.

The study, titled “The Strategic Game of Rare Earths: Why China May Only Be in Favor of Temporary Export Restrictions,” provides a game-theoretic analysis of the Chinese monopoly over rare earth processing and examines how Beijing balances short-term leverage with long-term risks.

China is in favor of exports

The authors conclude that the most plausible explanation for China’s behavior is strategic pressure—not a desire for permanent disruption. Temporary restrictions amplify uncertainty, raise global prices, and force the U.S. and allies to the negotiating table—but without triggering the irreversible flight of supply chains that China fears most.

Study Methods: A Game Theory Lens on a Fragile Value Chain

To help policymakers and investors understand the dynamics, the authors model the rare earth sector as a two-player repeated game:

• China, which controls processing, metals, and magnet manufacturing (60% mining, 80%+ refining, ~90% magnets).
• Rest of the World (ROW), heavily dependent on Chinese value-added steps.

The study examines multiple decision pathways in a matrix: China restricts or continues exports; the ROW invests in independent supply or maintains the status quo. This structure shows why, in a one-shot game, the status quo is the only stable equilibrium—but why temporary disruptions in a repeated game can reshape global incentives.

Key Findings: Why China Blinks Before It Breaks the Market

#	Dynamic	Summary
1	Long-term bans would backfire on China	Sustained export controls would push the U.S., EU, Japan, and South Korea to massively invest in extraction, separation, and magnet chains. Once built, these alternative pathways would permanently dilute China’s dominance—rendering long-term bans strategically irrational. China is in favor of exports.
2	Short-term, temporary restrictions generate maximum leverage	Temporary restrictions raise prices, increase uncertainty, and prompt allies to seek negotiations—without forcing the ROW to fully commit capital to diversification. This “pressure without collapse” approach matches China’s past behavior, including the 2010 Japan incident and the 2023–2024 gallium/germanium restrictions.
3	China’s tactic resembles a “one-shot bazooka”	The authors use Mining Journal’s analogy: powerful on impact, but dangerous if overused. Every new restriction increases the chance the ROW will permanently diversify.
4	The ROW faces monumental cost barriers	To break Chinese dominance, Western nations must subsidize new supply chains—sometimes dramatically. The authors cite the DoD–MP Materials deal guaranteeing $110/kg magnet pricing, roughly 50% above spot, for a decade to ensure project financing.

Implications for Investors

• China’s dominance remains real—but increasingly fragile. Temporary restrictions create volatility but not structural change unless the ROW chooses to invest heavily.
• Investors should expect recurring mini-shocks. The study notes that temporary restrictions may repeat, gradually pushing allies to diversify despite short-term reversals.
• The magnet bottleneck remains the weakest link. Even if the ROW mines more REEs, processing and magnet manufacturing remain China-controlled for the foreseeable future.
• Subsidies will define the next decade of rare earth investing. Without political support, most non-Chinese projects cannot beat China’s cost structure.

Limitations of the Study

• Game theory simplifies real-world politics; domestic pressures, elections, and trade retaliation cycles are more chaotic than models anticipate.
• Cost assumptions may underestimate Chinese adaptability—Beijing can rapidly expand capacity, cut prices, or redirect internal demand.
• Environmental and permitting bottlenecks in the U.S. and EU are more severe than modeled, potentially delaying diversification beyond what the study suggests.

A Playbook Investors Cannot Ignore

The RFF study reinforces a critical truth: China uses temporary rare earth restrictions as a strategic tool—not a permanent supply shutdown. These shockwaves are designed to remind the world who controls the midstream and to extract concessions without triggering a full-scale exodus from the Chinese ecosystem.

For investors and policymakers, the message is clear:

China’s advantage persists only if the ROW fails to commit.

The race is not about geology—but about processing, technology, and political will.

Citation: Nguemgaing, Kannan, Spiller, & Toman. The Strategic Game of Rare Earths: Why China May Only Be in Favor of Temporary Export Restrictions. Resources for the Future, Oct 2025.

China in favor of export

© 2025 Rare Earth Exchanges™ – Accelerating Transparency, Accuracy, and Insight Across the Rare Earth & Critical Minerals Supply Chain.