Rare Earth Elements: Strategic Resource in China’s Geopolitical Playbook

Highlights

• Isabella Xueqian Huang’s thesis reveals how China uses rare earth elements as a strategic tool to reshape international relations and power dynamics.
• China’s REE market dominance enables partnership building while simultaneously escalating tensions with major powers like the United States.
• The study demonstrates how critical mineral resources can be leveraged for economic statecraft and geopolitical influence in the modern global landscape.

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Isabella Xueqian Huang’s (opens in a new tab) University of California, Irvine (opens in a new tab) undergraduate thesis, “Geopolitical Power Through Critical Mineral Resources: The Strategic Role of Rare Earth Elements in China’s Post-2010 Foreign Policy and Its Implications for Energy Security and Global Alliances, (opens in a new tab)” offers a meticulous exploration of how China wields its dominance in rare earth elements (REEs) as a strategic tool for influencing international relations. Isabella Xueqian Huang argues that REEs have become a pivotal resource shaping China’s foreign policy, particularly since 2010, enabling the country to strengthen partnerships while simultaneously fueling tensions with major powers such as the United States.

Core Hypothesis

Isabella Xueqian Huang’s thesis hypothesizes that China’s strategic leveraging of its REE market dominance post-2010 has created a dual dynamic: on the one hand, fostering stronger international partnerships while, on the other, exacerbating geopolitical tensions.  Enter the “Thucydides Trap,” a concept in international relations that describes the tendency toward conflict when a rising power threatens to displace an established dominant power. The term was popularized by political scientist Graham Allison in his book Destined for War: Can America and China Escape Thucydides’s Trap (opens in a new tab)

The study is framed by theories of resource realism and economic statecraft, which explore how nations use critical resources to achieve political objectives. Isabella Xueqian Huang employs a blend of qualitative and quantitative methods, including policy analysis, case studies, and data visualization, to investigate the implications of China’s REE strategies.

Key Findings

Observing first the shift in China’s REE Policy Post-2010, she points to the Diaoyu Dao incident, which marked a turning point in China’s approach to REEs. By imposing a temporary embargo on REE exports to Japan during a territorial dispute, China highlighted the geopolitical leverage afforded by its dominance in the REE sector. This incident catalyzed global efforts to diversify REE supply chains.

What about the dual geopolitical dynamics? On the one hand, China has used its leverage over critical minerals and REEs to strengthen alliances.  China leveraged REEs to build alliances through initiatives like the Belt and Road Initiative (BRI) and BRICS expansion. For example, BRICS now encompasses resource-rich countries like Argentina, Egypt, and Ethiopia, further consolidating China’s dominance in the REE market.

However, this has led to heightened tension with the United States. Consequently, the U.S.-China rivalry has intensified, with the U.S. responding by fostering international collaborations, such as the Five Eyes alliance (opens in a new tab) for critical minerals, and pursuing domestic REE production capabilities.

With decarbonization movements, REEs emerged as mission-critical for transitions of technology, from electric vehicles and renewable energy to necessary for all sorts of other advanced technology products.

China’s dominance in the REE market has a significant influence on what the author terms global green energy developments, particularly in Europe, which relies heavily on REE imports for its Green Deal initiatives.  Rare Earth Exchanges has contemplated that incoming POTUS Donald Trump will part ways with the Paris Agreement and electric vehicle targets, but in the bigger scheme of world markets, it’s not clear how this will impact REE demand.

China has employed domestic policies, such as export restrictions and industry consolidation, to control its REE market. These measures not only bolster its economic resilience but also enhance its ability to influence global trade and alliances.

Isabella Xueqian Huang’s thesis acknowledges several limitations, from data gaps and a focus on major powers to speculative projections. So, obviously, this hypothesis must be further vetted and investigated.

Rare Earth Exchanges Food for Thought

For those interested in a well-researched perspective on China’s rare earth strategy, this thesis underscores the critical role of REEs in shaping modern geopolitics. By analyzing China’s strategic use of REEs, the paper reveals a complex interplay of cooperation and competition in international relations. As nations strive to secure their energy futures, China’s dominance in the REE market continues to be a double-edged sword—offering pathways for partnership while escalating global tensions, with an incoming POTUS chatting up aggressive tariffs that double-edged sword could cause considerable damage to the United States.

Rare Earth Exchanges suggests U.S. leverage based on sheer economic power, while still substantial, has waned over the past handful of years with China, meaning the incoming POTUS may have a bigger, more difficult job than assumed. Why? China has been diversifying its trading partners in recent years, reducing its reliance on the United States and increasing trade with other regions, particularly Asia and Europe. This shift is evident in the changing composition of China’s export destinations.

For example, China’s exports to the U.S., as a proportion of its total exports, have decreased by over three percentage points from 2018 to 2022, equating to about USD 102 billion, or 0.57% of China’s GDP in 2022, as reported by AMRO (opens in a new tab).

Increased trade with Europe and Asia means potentially less leverage the U.S. can wield in various economic negotiations.  The Association of Southeast Asian Nations (opens in a new tab) (ASEAN), for example, has become increasingly significant as China’s trading partner, with its share rising from 10% in 2010 to 15% in 2023.  This diversification movement is made clear by Jeongmin Seong (opens in a new tab), who is writing for McKinsey Global Institute. See “The global economy is resetting: China is repositioning itself to export innovative technologies, and its trading partners are more diverse (opens in a new tab).”  Plus, Europe made up 21.1% of China’s exports by 2022.

China has been diversifying its export portfolio to reduce dependence on U.S.-centered developed markets and moving up the value chain by focusing on higher value-added products. Rare Earth Exchanges has explained how REEs and Two Rare Earth’s Base fit into this strategy, one leading to a more diversified, value-added export portfolio, the market concentration index falling to 0.006 in Q1 2023 from 0.011 in 2018. China intensified its trading with Russia in 2021, a 65% increase, perhaps further pointing toward a growing BRICS dynamic for America.

Other top destinations for Chinese goods in 2023 include Hong Kong, Japan, South Korea, Vietnam, India, Germany, Netherlands, and Malaysia.

This changing export-dynamic is important in the context of Isabella Xueqian Huang’s thesis, and U.S. political and financial leadership needs to take notice. 

Isabella Xueqian Huang’s an impressive, up-and-coming political and economic researcher, with her undergraduate work a valuable contribution to understanding resource-driven power dynamics and highlights the need for coordinated global strategies to ensure a stable and resilient REE supply chain.

Ms. Isabella Xueqian Huang now works on her master’s in political science at Columbia University (opens in a new tab) in New York City.

Isabella Xueqian Huang