Introduction

This paper analyzes China's rare-earth element policy during a 2010 territorial dispute with Japan. China controls nearly 90% of global rare-earth supply, making these resources strategically significant for military technology and consumer industries.

Methodology & Findings

Using vector error correction modeling:

• Quantified the economic impact of export restrictions on Japanese industries

• Estimated that sanctions cost China approximately $1.2 billion in lost revenue during 2010

• Revealed minimal international supply diversification efforts prior to Chinese actions

Contrary to expectations, these measures ultimately strengthened diplomatic ties between Japan and China's regional neighbors rather than weakening them.

Implications

The study demonstrates how economic statecraft can produce counterproductive outcomes:

• Rare-earth leverage increases geopolitical tensions in the Asia-Pacific region

• Supply chain dependence creates complex unintended consequences for resource exporting countries