Highlights

• China increases rare earth permanent magnet (REPM) exports during geopolitical tensions to potentially reinforce market dominance.
• Researchers found a 3.8-ton increase in REPM exports for every 1% rise in global geopolitical risk.
• The study highlights China's strategic control of 92% of global REPM manufacturing, particularly in heavy rare earth elements.

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A landmark study led by PhD student Lisa Depraiter (opens in a new tab) and co-authored by Stéphane Goutte and Thomas Porcher, published in Energy Economics (May 2025), presents compelling evidence that geopolitical risk drives rare earth permanent magnet (REPM) exports from China—contrary to the widely held assumption that such risks would constrain supply.

The researchers analyzed Chinese export data from 2017–2024, combining it with Caldara and Iacoviello’s Geopolitical Risk Index (GPR). Using multiple linear regressions, they found that a 1% rise in global geopolitical risk leads to a 3.8-ton increase in REPM exports from China, with a notable four-month lag. Country-specific risk spikes in the United States and Australia, China’s top rare earth competitors, also correlated positively with higher Chinese export volumes.

Study Highlights

• REPMs are central to wind turbines and EVs, using Nd, Pr, Dy, and Tb to achieve high performance.
• China controls 92% of global REPM manufacturing and remains the only commercial-scale source of heavy REEs (Dy, Tb).
• When geopolitical tensions rise, particularly involving the U.S. or Australia, China appears to increase REPM exports—possibly to reinforce its market dominance amid perceived supply threats.
• These dynamics mirror behaviors observed in other resource-dominated sectors, such as Saudi Arabia’s oil export strategies.

Limitations and Interpretation

While the study offers a robust statistical model, several caveats apply:

• Correlation does not prove causation—the increase in REPM exports during times of tension may reflect rising demand from countries hedging against future supply shocks, not just strategic supply increases by China.
• The analysis assumes China behaves as a unitary actor in the global market. Internal pricing, quotas, and opaque OTC markets complicate this.
• ·The model does not find significant effects from end-use demand variables like EV and wind turbine exports, suggesting geopolitical behavior—not market pull—is the key driver.

Implications for Investors

For investors tracking rare earth markets, this study underscores a powerful truth: China is not just a supplier—it is a strategic actor in the REPM market. In periods of elevated global tension, China may flood the market—not to stabilize prices but to safeguard long-term control. This has critical implications for U.S., EU, and allied nations trying to decouple or diversify supply chains. Supply surges may lull markets—but structural vulnerability remains.

This research also supports the need for transparent, regulated REPM pricing mechanisms, as the current opaque OTC markets are ill-equipped to manage risk or incentivize new production outside China.

Citation: Depraiter, L., Goutte, S., & Porcher, T. (2025). Geopolitical risk and the global supply of rare earth permanent magnets: Insights from China’s export trends. Energy Economics, 146, 108496. https://doi.org/10.1016/j.eneco.2025.108496 (opens in a new tab)

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