Competition for rare earth elements—central to next-generation advances in industries such as clean energy and health care—is reshaping geopolitics.
China, whose mines produce more than 90% of the naturally occurring metals, imposed tough restrictions on rare earth exports in 2010, starting a tug-of-war that continues to inflame tensions with the United States.
Yet China’s grip on rare earth supply may not be as ironclad as it looks, suggests the May working paper “Trade and Industrial Policy in Supply Chains: Directed Technological Change in Rare Earths.” China’s export restrictions caused prices for the materials to surge up to 4,500%. But despite pain for industries that depend on rare earths, many firms adapted to supply disruptions and increased investments in innovation to develop substitute materials and processes.
Trade and industrial policies, while primarily intended to support domestic industries, may unintentionally stimulate technological progress abroad.
“Trade and industrial policies, while primarily intended to support domestic industries, may unintentionally stimulate technological progress abroad,” says the report, written by Laura Alfaro, the Warren Alpert Professor of Business Administration at Harvard Business School; Harald Fadinger, professor of economics at the University of Vienna; Jan Schymik, professor of economics at the University of Mannheim; and Gede Virananda, a doctoral researcher at New York University.
Rare earths possess magnetic and phosphorescent properties important to innovations from electric cars to artificial intelligence, making the minerals an increasingly contentious issue in international relations. For example, the United States has long sought an agreement with Ukraine to obtain access to its deposits, discussions that took on greater urgency following Russia’s 2022 invasion.
Using patent records, the team found a positive downstream effect from this thorny issue in international trade. The study provides a potent reminder that markets are always changing, sometimes in surprising ways.
What exactly are rare earths
Rare earth elements are a group of 17 metals with unique magnetic, catalytic, and luminescent properties, such as scandium, yttrium, and gadolinium. Their unpaired electrons enable them to store magnetic energy, and they can act as catalysts for phosphors in lights and computer screens.
Unlocking their potential has created new capabilities in electronics, aerospace, clean energy, medical equipment, and a range of other industries. They’re critical to electric vehicle batteries, wind turbines, medical imaging machinery, and semiconductors.
China has been the dominant player in rare earth materials for almost 50 years, producing 73,000 metric tons between 1990 and 2000. China’s market share in global mine production of rare earths reached 98% in 2009, according to the study.
By the numbers
China’s rare earth mines boomed between 1990 and 2000, exploiting closures in other countries including the once-dominant Mountain Pass in California, found Alfaro and other researchers.
- 450%Increase in China’s production of REEs
- -60%Decrease in other countries’ production of REEs
- 150%Increase in total global production of REEs
