Geopolitics and rare earth metals

Abstract

Rare earth elements are critical in the production of consumer products, renewables, and green, industrial, and defense products. Using more than thirty years of Japanese import data, we document statistically significant relationships between geopolitics and rare earth metals. We find that the import price per unit of rare earth metals is positively related to geopolitics, while gross import values are negatively related. The negative relationship in the import value appears strongest for rare earth metals sourced from China. Given the strategic and economic significance of rare earth metals, our findings shed light on the economic implications of geopolitical tensions in the decades to come. For users of rare earth elements, an effective risk management program could add value in times of high geopolitical tension. We also highlight rare earth elements’ value as a diplomatic tool for global policymakers.